Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 20172022 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference intoin to Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the Registrant’sregistrant’s fiscal year ended September 30, 2017.2021.
PHENIXFIN CORPORATION
TABLE OF CONTENTS
i
In this annual report on Form 10-K, except as otherwise indicated, the terms: “we”, “us”, “our”, “Medley Capital” and the “Company” refer to Medley Capital Corporation, a Delaware corporation, and its subsidiaries for the periods after our consummation of the formation transaction and to Medley Capital BDC LLC, a Delaware limited liability company, for the periods prior to our consummation of the formation transaction described elsewhere in this Form 10-K;“MCC Advisors” and the “Adviser” refer to MCC Advisors LLC, our investment adviser; MCC Advisors is a majority owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC; and“Medley” refers, collectively, to the activities and operations of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates.
GENERAL
PhenixFIN Corporation (“PhenixFIN”, the “Company,” “we” and “us”) is aan internally-managed non-diversified closed endclosed-end management investment company incorporated in Delaware that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and qualifiedintends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under subchapterSubchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our first taxable year as a corporation, and. On November 18, 2020, the board of directors of the Company (the “Board”) approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we intend to continue to operate in a manner so as to maintain our RIC tax treatment. We arewere externally managed and advised by our investment adviser, MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement.
On March 26, 2013, our wholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership that we own directly and through our wholly owned subsidiary, Medley SBIC GP, LLC, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended. Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund, LP. In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC. Medley Small Business Fund, LP and Medley Small Business Fund GP, LLC have since changed their names to PhenixFIN Small Business Fund, LP and PhenixFIN Small Business Fund GP, LLC, respectively.
The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
The Company’s investment objective is to generate current income and capital appreciation by lending directlyappreciation. The management team seeks to privately held middle market companies,achieve this objective primarily through directly originated transactionsmaking loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or real estate investment trusts (“REITs”).) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to help these companies expand their business, refinanceachieve our investment objective, such as operating and make acquisitions. Our investmentmanaging an asset-based lending business. The portfolio generally consists of senior secured first lien term loans, and senior secured second lien term loans. In connection with some of our investments,loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase the total investment returns.
We believe the middle-market private debt market is undergoing structural shifts that are creating significant opportunities for non-bank lenders and investors. The underlying drivers of these structural changes include:include reduced participation by banks in the private debt markets particularly within the middle-market, and demand for private debt created by committed and uninvested private equity capital. We focus on taking advantage of this structural shift by lending directly to companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed investment opportunities. We source investment opportunities primarily through direct relationships with financial sponsors, industry specialists, as well as financial intermediaries such as investment banks and commercial banks. As a leading provider of private debt, Medley is often sought out as a preferred financing partner.
Our Investment Team which is provided for by MCC Advisors, is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and monitoring our portfolio companies on an ongoing basis. MCC Advisors’ teamOur Investment Team draws on its expertise in lending to predominantly privately held borrowers in a range of sectors, including industrials, and transportation, energy and natural resources, financials, gemstones/jewelry and real estate. In addition, MCC Advisorsour Investment Team seeks to diversify our portfolio of loans by company type, asset type, transaction size, industry and geography.
As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to continue to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after such borrowing. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing.
As of investment opportunities that may be appropriate forSeptember 30, 2021, the CompanyCompany’s asset coverage was 285.6% after giving effect to leverage and other clients or affiliated funds. The Company obtained an exemptive order fromtherefore the SEC on November 25, 2013 (the “Prior Exemptive Order”). On March 29, 2017,Company’s asset coverage was greater than 200%, the Company, MCC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the “Exemptive Order”) that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “New Exemptive Order”) and allows, in additionminimum asset coverage requirement applicable presently to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly- or majority-owned subsidiary of
Our principal executive office is located at 280445 Park Avenue, 6th10th Floor, East, New York, NY 10017 and our telephone number is (212) 759-0777.859-0390.
FormationTransactions
Sourcing and Origination MCC Advisors sources. We typically source investment opportunities through access to aour management team’s network of contacts developedlong-standing relationships. Our sourcing efforts are led by our senior investment professionals, who leverage their experience in the financial services and related industries by Medley. It is the Adviser’s responsibility to identify specific opportunities, to refine opportunities through rigorous due diligence of the underlying facts and circumstances while remaining flexible and responsive to client’s needs. With a total of over 44 investment professionals in the New York and San Francisco offices involved in sourcing and origination for MCC Advisors, each investment professional is able to maintain long-standing relationships and responsibility for a specified market. Each quarter, these origination efforts attract hundreds of inquiries from potential middle market borrowers.investments.
Initial Evaluation. The purpose of the investment pipeline, which is comprised of all prospective investment opportunities at various stages of due diligence and approval, is to evaluate, monitor and approve all of our investments, subject to the oversight of our Investment Committee.
Due Diligence & Underwriting. We typically undertake continued diligence, which expands on the investment thesis, risks and mitigants, and competition factors of our potential investment opportunities. We may conduct third party reviews, on-site visits and/or background checks in connection with our potential investments in portfolio companies.
Portfolio Management. We undertake a proactive monitoring process of our portfolio companies, whereby we conduct monthly financial review process, including analysisand monitoring of market and operational dynamics as well as both historical and projected financial information. Areas of additional focus include management or sponsor experience, industry and competitive dynamics, and tangible asset values. Background checks and tax compliance checks are typically required on allcovenants, maintain ongoing dialogue with portfolio company management teams.
Rating Criteria In addition to external risk management research and internal monitoring tools, weWe use an investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio. We use a five-level numeric rating scale. The following is a description of the conditions associated with each investment rating:
Credit | |||
| Rating | Definition | ||
| 1 | Investments that are performing above expectations. | ||
| 2 | Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination. | ||
| All new loans are rated ‘2’. | |||
| 3 | Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. | ||
| Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due. | |||
| 4 | Investments that are performing below expectations and for which risk has increased materially since origination. | ||
| Some loss of interest or dividend is expected but no loss of principal. | |||
| In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due). | |||
| 5 | Investments that are performing substantially below expectations and whose risks have increased substantially since origination. | ||
| Most or all of the debt covenants are out of compliance and payments are substantially delinquent. | |||
| Some loss of principal is expected. | |||
Investment Structure
Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment. We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio company’s capital structure.
We typically structure our investments which typically have maturities of three to seven years, as follows:
Senior Secured First Lien Term LoansWe structure these investments as senior secured loans. We obtain security interests in the assets of the portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of first-priority liens on the assets of the portfolio company borrower. Our senior secured loans may provide for amortization of principal with the majority of the amortization due at maturity.
Senior Secured Second Lien Term LoansWe structure these investments as junior, secured loans. We obtain security interests in the assets of these portfolio companies that serves as collateral in support of the repayment of such loans. This collateral generally takes the form of second-priority liens on the assets of a portfolio company. These loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.
Senior Secured First Lien NotesWe structure these investments as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of priority liens on the assets of a portfolio company. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or ("PIK"(“PIK”)
Warrants and Minority Equity SecuritiesIn some cases, we may also receive nominally priced warrants or options to buy a minority equity interest in the portfolio company in connection with a debt investment. As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights.
Unitranche LoansWe structure our unitranche loans, which combine the characteristics of traditional senior secured first lien term loans and subordinated notes as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral generally takes the form of first-priority liens on the assets of a portfolio company. Unitranche loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.
Unsecured DebtWe structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current interest income. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or PIK interest), with amortization of principal due at maturity. Subordinated notes generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. Subordinated notes are generally more volatile than secured loans and may involve a greater risk of loss of principal. Subordinated notes often include a PIK feature, which effectively operates as negative amortization of loan principal.
We expect to hold most of our investments to maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity event occurs, such as a sale or recapitalization transaction, or the worsening of the credit quality of the portfolio company.
The Company has invested in its affiliate, FlexFIN, LLC (“FlexFIN”), which operates an asset-based lending business under which it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry. FlexFIN will generally structure these loans as sale/repurchase transactions under which the collateral (that is, the gemstones/jewelry) remains under FlexFIN’s ownership during the entire term of the loan.
Managerial Assistance
As a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. MCC Advisors provides such managerial assistance on our behalf to portfolio companies that request this assistance. We may receive fees for these services and will reimburse MCC Advisors, as our administrator, for its allocated costs in providing such assistance, subjectservices.
Leverage
As a BDC, we are generally only allowed to employ leverage to the review and approval byextent that our board of directors, including our independent directors.
We may, from time to time, seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material.
Competition
Our primary competitors to provide financing to private middle-market companies are public and private funds, commercial and investment banks, commercial finance companies, other BDCs, SBICs and private equity and hedge funds. Some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider
We maintain a website at Human Capital Resourceshttp://www.medleycapitalcorp.com. We make available, free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or SEC. Information contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC.
| Fair Value | Percentage | |||||
| Services: Business | $ | 142,912 | 17.1 | % | ||
| Construction & Building | 130,633 | 15.6 | ||||
| Healthcare & Pharmaceuticals | 67,301 | 8.0 | ||||
| Banking, Finance, Insurance & Real Estate | 63,491 | 7.6 | ||||
| Hotel, Gaming & Leisure | 63,012 | 7.5 | ||||
| Multisector Holdings | 56,138 | 6.7 | ||||
| Energy: Oil & Gas | 54,800 | 6.5 | ||||
| Aerospace & Defense | 53,650 | 6.4 | ||||
| Automotive | 38,434 | 4.6 | ||||
| Containers, Packaging & Glass | 38,086 | 4.6 | ||||
| High Tech Industries | 25,809 | 3.1 | ||||
| Metals & Mining | 21,127 | 2.5 | ||||
| Chemicals, Plastics & Rubber | 20,012 | 2.4 | ||||
| Beverage & Food | 16,118 | 1.9 | ||||
| Capital Equipment | 13,180 | 1.6 | ||||
| Media: Broadcasting & Subscription | 8,384 | 1.0 | ||||
| Services: Consumer | 7,967 | 1.0 | ||||
| Wholesale | 7,067 | 0.8 | ||||
| Retail | 3,584 | 0.4 | ||||
| Media: Advertising, Printing & Publishing | 2,955 | 0.4 | ||||
| Environmental Industries | 1,330 | 0.2 | ||||
| Consumer goods: Durable | 850 | 0.1 | ||||
| Consumer goods: Non-durable | 151 | 0.0 | ||||
| Total | $ | 836,991 | 100.0 | % | ||
| Fair Value | Percentage | |||||
| Services: Business | $ | 123,703 | 13.5 | % | ||
| Banking, Finance, Insurance & Real Estate | 96,207 | 10.5 | ||||
| Construction & Building | 91,087 | 10.0 | ||||
| Hotel, Gaming & Leisure | 68,605 | 7.5 | ||||
| Automotive | 60,303 | 6.6 | ||||
| Healthcare & Pharmaceuticals | 57,041 | 6.2 | ||||
| Energy: Oil & Gas | 52,646 | 5.8 | ||||
| Aerospace & Defense | 51,656 | 5.6 | ||||
| Telecommunications | 44,015 | 4.8 | ||||
| Containers, Packaging & Glass | 42,197 | 4.6 | ||||
| Chemicals, Plastics & Rubber | 32,640 | 3.6 | ||||
| Multisector Holdings | 31,252 | 3.4 | ||||
| Beverage & Food | 30,225 | 3.3 | ||||
| Capital Equipment | 29,756 | 3.3 | ||||
| Consumer goods: Durable | 24,696 | 2.7 | ||||
| Metals & Mining | 20,246 | 2.2 | ||||
| High Tech Industries | 14,489 | 1.6 | ||||
| Retail | 12,565 | 1.4 | ||||
| Services: Consumer | 9,440 | 1.0 | ||||
| Media: Broadcasting & Subscription | 7,832 | 0.9 | ||||
| Consumer goods: Non-durable | 7,208 | 0.8 | ||||
| Wholesale | 6,375 | 0.7 | ||||
| Total | $ | 914,184 | 100.0 | % | ||
| Name of Portfolio Company | Sector | Security Owned by Us | Maturity | Interest Rate(1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||
| 3SI Security Systems, Inc. | Services: Business | Senior Secured First Lien Term Loan | 6/16/2023 | 7.56 | % | $ | 17,500,000 | $ | 17,500,000 | 3.8 | % | |||||||||
| AAR Intermediate Holdings, LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan A | 9/30/2021 | 6.30 | % | 8,984,232 | 8,984,232 | 2.0 | % | |||||||||||
| AAR Intermediate Holdings, LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan B | 9/30/2021 | 9.30 | % | 19,746,290 | 19,746,290 | 4.3 | % | |||||||||||
| AAR Intermediate Holdings, LLC | Energy: Oil & Gas | Revolving Credit Facility | 9/30/2021 | 6.30 | % | — | — | 0.0 | % | |||||||||||
| AAR Intermediate Holdings, LLC | Energy: Oil & Gas | Equity | — | — | 0.0 | % | ||||||||||||||
| Access Media Holdings, LLC | Media: Broadcasting & Subscription | Senior Secured First Lien Term Loan | 7/22/2020 | 10.00 | % | 8,340,525 | 8,340,525 | 1.8 | % | |||||||||||
| Access Media Holdings, LLC | Media: Broadcasting & Subscription | Preferred Equity Series A | 1,600,000 | — | 0.0 | % | ||||||||||||||
| Access Media Holdings, LLC | Media: Broadcasting & Subscription | Preferred Equity Series AA | 800,000 | — | 0.0 | % | ||||||||||||||
| Access Media Holdings, LLC | Media: Broadcasting & Subscription | Preferred Equity Series AAA | 363,200 | 43,200 | 0.0 | % | ||||||||||||||
| Access Media Holdings, LLC | Media: Broadcasting & Subscription | Equity | — | — | 0.0 | % | ||||||||||||||
| Name of Portfolio Company | Sector | Security Owned by Us | Maturity | Interest Rate(1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||
| Accupac, Inc. | Containers, Packaging & Glass | Senior Secured First Lien Term Loan | 9/14/2023 | 5.74 | % | 9,887,670 | 9,887,670 | 2.2 | % | |||||||||||
| Advanced Diagnostic Holdings, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan | 12/11/2020 | 9.82 | % | 14,776,537 | 14,776,537 | 3.2 | % | |||||||||||
| American Dental Partners, Inc. | Healthcare & Pharmaceuticals | Senior Secured Second Lien Term Loan | 9/25/2023 | 9.83 | % | 6,500,000 | 6,578,000 | 1.4 | % | |||||||||||
| Autosplice, Inc. | High Tech Industries | Senior Secured First Lien Term Loan | 6/30/2019 | 9.30 | % | 14,262,133 | 14,342,001 | 3.1 | % | |||||||||||
| Avantor Performance Materials Holdings, LLC | Chemicals, Plastics & Rubber | Senior Secured Second Lien Term Loan | 3/10/2025 | 9.49 | % | 1,000,000 | 1,020,000 | 0.2 | % | |||||||||||
| Barry's Bootcamp Holdings, LLC | Services: Consumer | Senior Secured First Lien Term Loan | 7/14/2022 | 7.83 | % | 7,628,570 | 7,628,570 | 1.7 | % | |||||||||||
| Barry's Bootcamp Holdings, LLC | Services: Consumer | Senior Secured First Lien Delayed Draw Term Loan | 7/14/2022 | 7.83 | % | — | — | 0.0 | % | |||||||||||
| Barry's Bootcamp Holdings, LLC | Services: Consumer | Revolving Credit Facility | 7/14/2022 | 7.83 | % | — | — | 0.0 | % | |||||||||||
| Be Green Packaging, LLC | Containers, Packaging & Glass | Equity | — | — | 0.0 | % | ||||||||||||||
| Black Angus Steakhouses, LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan | 4/24/2020 | 10.31 | % | 7,700,893 | 7,375,190 | 1.6 | % | |||||||||||
| Black Angus Steakhouses, LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Delayed Draw Term Loan | 4/24/2020 | 10.31 | % | — | — | 0.0 | % | |||||||||||
| Black Angus Steakhouses, LLC | Hotel, Gaming & Leisure | Revolving Credit Facility | 4/24/2020 | 10.31 | % | 376,360 | 343,324 | 0.1 | % | |||||||||||
| Brantley Transportation LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan | 8/2/2017 | 12.00 | % | 11,355,575 | 7,719,520 | 1.7 | % | |||||||||||
| Brantley Transportation LLC | Energy: Oil & Gas | Senior Secured First Lien Delayed Draw | 8/2/2017 | 6.24 | % | 668,105 | 668,105 | 0.1 | % | |||||||||||
| Brantley Transportation LLC | Energy: Oil & Gas | Equity | — | — | 0.0 | % | ||||||||||||||
| Capstone Nutrition | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan | 9/25/2020 | 13.81 | % | 26,124,967 | 18,002,715 | 3.9 | % | |||||||||||
| Capstone Nutrition | Healthcare & Pharmaceuticals | Senior Secured First Lien Delayed Draw | 9/25/2020 | 13.81 | % | 11,304,251 | 7,789,760 | 1.7 | % | |||||||||||
| Capstone Nutrition | Healthcare & Pharmaceuticals | Equity | — | — | 0.0 | % | ||||||||||||||
| Capstone Nutrition | Healthcare & Pharmaceuticals | Equity | — | — | 0.0 | % | ||||||||||||||
| Central States Dermatology Services, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan | 4/20/2022 | 7.83 | % | 1,087,248 | 1,087,248 | 0.2 | % | |||||||||||
| Central States Dermatology Services, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Delayed Draw Term Loan | 4/20/2022 | 7.83 | % | 155,930 | 155,930 | 0.0 | % | |||||||||||
| Comfort Holding, LLC | Consumer goods: Durable | Senior Secured Second Lien Term Loan | 2/3/2025 | 11.23 | % | 1,000,000 | 850,200 | 0.2 | % | |||||||||||
| CP OPCO, LLC | Services: Consumer | Senior Secured First Lien Term Loan B | 3/31/2019 | 9.75 | % | 1,244,335 | 338,459 | 0.1 | % | |||||||||||
| CP OPCO, LLC | Services: Consumer | Senior Secured First Lien Term Loan C | 3/31/2019 | 12.75 | % | 9,088,659 | — | 0.0 | % | |||||||||||
| CP OPCO, LLC | Services: Consumer | Senior Secured First Lien Term Loan D | 3/31/2019 | 10.75 | % | 5,297,476 | — | 0.0 | % | |||||||||||
| CP OPCO, LLC | Services: Consumer | Preferred Equity | 3/31/2019 | 7.75 | % | — | — | 0.0 | % | |||||||||||
| CP OPCO, LLC | Services: Consumer | Equity | — | — | 0.0 | % | ||||||||||||||
| CPI International, Inc. | Aerospace & Defense | Senior Secured Second Lien Term Loan | 7/26/2025 | 8.49 | % | 5,000,000 | 4,975,000 | 1.1 | % | |||||||||||
| Name of Portfolio Company | Sector | Security Owned by Us | Maturity | Interest Rate(1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||
| Crow Precision Components, LLC | Aerospace & Defense | Senior Secured First Lien Term Loan | 9/30/2019 | 9.80 | % | 13,277,500 | 13,246,962 | 2.9 | % | |||||||||||
| Crow Precision Components, LLC | Aerospace & Defense | Equity | — | 273,808 | 0.1 | % | ||||||||||||||
| CT Technologies Intermediate Holdings, Inc. | Healthcare & Pharmaceuticals | Senior Secured Second Lien Term Loan | 12/1/2022 | 10.24 | % | 7,500,000 | 7,500,000 | 1.6 | % | |||||||||||
| DHISCO Electronic Distribution, Inc. | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan A | 11/10/2019 | 10.00 | % | 4,005,143 | 4,005,143 | 0.9 | % | |||||||||||
| DHISCO Electronic Distribution, Inc. | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan B | 11/10/2019 | 12.50 | % | 14,732,716 | 14,732,716 | 3.2 | % | |||||||||||
| DHISCO Electronic Distribution, Inc. | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan C | 11/10/2019 | 13.75 | % | 12,751,998 | 6,375,999 | 1.4 | % | |||||||||||
| DHISCO Electronic Distribution, Inc. | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan D | 11/10/2019 | 14.75 | % | 11,956,119 | — | 0.0 | % | |||||||||||
| DHISCO Electronic Distribution, Inc. | Hotel, Gaming & Leisure | Equity | — | — | 0.0 | % | ||||||||||||||
| Dream Finders Homes, LLC | Construction & Building | Senior Secured First Lien Term Loan B | 10/1/2018 | 15.80 | % | 3,460,972 | 3,495,581 | 0.8 | % | |||||||||||
| Dream Finders Homes, LLC | Construction & Building | Preferred Equity | 8.00 | % | 3,571,500 | 3,571,500 | 0.8 | % | ||||||||||||
| Dynamic Energy Services International LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan | 6/6/2018 | 14.68 | % | 18,201,153 | 15,492,821 | 3.4 | % | |||||||||||
| Engineered Machinery Holdings, Inc. | Capital Equipment | Senior Secured Second Lien Term Loan | 7/18/2025 | 8.56 | % | 1,519,149 | 1,503,957 | 0.3 | % | |||||||||||
| Engineered Machinery Holdings, Inc. | Capital Equipment | Senior Secured Second Lien Delayed Draw Term Loan | 7/18/2025 | 8.58 | % | 21,702 | 19,894 | 0.0 | % | |||||||||||
| FKI Security Group, LLC | Capital Equipment | Senior Secured First Lien Term Loan | 3/30/2020 | 9.80 | % | 11,656,250 | 11,656,250 | 2.5 | % | |||||||||||
| Footprint Acquisition, LLC | Services: Business | Senior Secured First Lien Term Loan | 2/27/2020 | 9.24 | % | 5,117,626 | 5,117,626 | 1.1 | % | |||||||||||
| Footprint Acquisition, LLC | Services: Business | Preferred Equity | 8.75 | % | 6,124,188 | 5,427,255 | 1.2 | % | ||||||||||||
| Footprint Acquisition, LLC | Services: Business | Equity | — | — | 0.0 | % | ||||||||||||||
| Freedom Powersports, LLC | Automotive | Senior Secured First Lien Term Loan | 9/26/2019 | 11.50 | % | 12,410,000 | 12,517,967 | 2.7 | % | |||||||||||
| Friedrich Holdings, Inc. | Construction & Building | Senior Secured First Lien Term Loan | 2/7/2023 | 8.25 | % | 10,000,000 | 10,094,000 | 2.2 | % | |||||||||||
| Global Accessories Group, LLC | Consumer goods: Non-durable | Equity | — | 151,339 | 0.0 | % | ||||||||||||||
| Harrison Gypsum, LLC | Construction & Building | Senior Secured First Lien Term Loan | 12/21/2018 | 11.00 | % | 52,137,471 | 50,667,194 | 11.0 | % | |||||||||||
| Heligear Acquisition Co. | Aerospace & Defense | Senior Secured First Lien Note | 10/15/2019 | 10.25 | % | 20,000,000 | 20,478,000 | 4.4 | % | |||||||||||
| Imagine! Print Solutions LLC | Media: Advertising, Printing & Publishing | Senior Secured Second Lien Term Loan | 6/21/2023 | 10.09 | % | 3,000,000 | 2,955,000 | 0.6 | % | |||||||||||
| Impact Sales, LLC | Services: Business | Senior Secured First Lien Term Loan | 12/30/2021 | 8.30 | % | 2,605,312 | 2,621,986 | 0.6 | % | |||||||||||
| Impact Sales, LLC | Services: Business | Senior Secured First Lien Delayed Draw Term Loan | 12/30/2021 | 8.30 | % | 119,711 | 125,307 | 0.0 | % | |||||||||||
| InterFlex Acquisition Company, LLC | Containers, Packaging & Glass | Senior Secured First Lien Term Loan | 8/18/2022 | 9.24 | % | 14,812,500 | 14,812,500 | 3.2 | % | |||||||||||
| JD Norman Industries, Inc. | Automotive | Senior Secured First Lien Term Loan | 3/6/2019 | 13.49 | % | 20,100,000 | 20,071,860 | 4.4 | % | |||||||||||
| JFL-NGS Partners, LLC | Construction & Building | Preferred Equity - A-2 Preferred | 3.00 | % | 30,552,190 | 30,552,190 | 6.6 | % | ||||||||||||
| Name of Portfolio Company | Sector | Security Owned by Us | Maturity | Interest Rate(1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||
| JFL-NGS Partners, LLC | Construction & Building | Preferred Equity - A-1 Preferred | 3.00 | % | 3,953,700 | 3,953,700 | 0.9 | % | ||||||||||||
| JFL-NGS Partners, LLC | Construction & Building | Equity | — | 63,603 | 0.0 | % | ||||||||||||||
| L & S Plumbing Partnership, Ltd. | Construction & Building | Senior Secured First Lien Term Loan | 2/15/2022 | 9.82 | % | 21,234,375 | 21,412,744 | 4.7 | % | |||||||||||
| Lighting Science Group Corporation | Containers, Packaging & Glass | Senior Secured Second Lien Term | 2/19/2019 | 13.32 | % | 13,865,893 | 13,386,133 | 2.9 | % | |||||||||||
| Lighting Science Group Corporation | Containers, Packaging & Glass | Warrants | 2/19/2024 | — | — | 0.0 | % | |||||||||||||
| MCC Senior Loan Strategy JV I LLC | Multisector Holdings | Equity | — | 56,137,946 | 12.2 | % | ||||||||||||||
| Merchant Cash and Capital, LLC | Banking, Finance, Insurance & Real Estate | Senior Secured First Lien Delayed Draw Term Loan | 5/31/2017 | 16.00 | % | 4,915,635 | 4,915,635 | 1.1 | % | |||||||||||
| Merchant Cash and Capital, LLC | Banking, Finance, Insurance & Real Estate | Senior Secured Second Lien Term Loan | 5/4/2017 | 17.00 | % | 15,519,966 | 7,759,983 | 1.7 | % | |||||||||||
| Nation Safe Drivers Holdings, Inc. | Banking, Finance, Insurance & Real Estate | Senior Secured Second Lien Term Loan | 9/29/2020 | 10.00 | % | 35,278,846 | 35,278,846 | 7.7 | % | |||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan | 11/9/2020 | 5.24 | % | 3,505,990 | 3,505,990 | 0.8 | % | |||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan B | 11/9/2020 | 10.49 | % | 10,604,502 | 10,604,502 | 2.3 | % | |||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan C | 11/9/2020 | 13.24 | % | 6,518,046 | 6,518,046 | 1.4 | % | |||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Equity | — | 9,550,922 | 2.1 | % | ||||||||||||||
| OmniVere, LLC | Services: Business | Senior Secured First Lien Term Loan | 5/5/2019 | 14.32 | % | 25,470,636 | 24,500,205 | 5.3 | % | |||||||||||
| OmniVere, LLC | Services: Business | Senior Secured First Lien Term Loan | 5/5/2019 | 8.00 | % | 1,409,669 | 1,409,669 | 0.3 | % | |||||||||||
| OmniVere, LLC | Services: Business | Unsecured Debt | 7/24/2025 | 8.00 | % | 26,666,961 | — | 0.0 | % | |||||||||||
| OmniVere, LLC | Services: Business | Equity | — | — | 0.0 | % | ||||||||||||||
| Oxford Mining Company, LLC | Metals & Mining | Senior Secured First Lien Term Loan | 12/31/2018 | 12.83 | % | 21,127,331 | 21,127,331 | 4.6 | % | |||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan | 10/11/2021 | 10.80 | % | 8,459,113 | 8,503,947 | 1.8 | % | |||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan A | 10/11/2021 | 10.80 | % | 2,808,500 | 2,823,385 | 0.6 | % | |||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Warrants | 1/9/2027 | — | 83,018 | 0.0 | % | |||||||||||||
| Point.360 | Services: Business | Senior Secured First Lien Term Loan | 7/8/2020 | 7.32 | % | 2,085,870 | 1,844,534 | 0.4 | % | |||||||||||
| Point.360 | Services: Business | Equity | — | 38,343 | 0.0 | % | ||||||||||||||
| Point.360 | Services: Business | Warrants | 7/8/2020 | — | 21,103 | 0.0 | % | |||||||||||||
| Prince Mineral Holding Corp. | Wholesale | Senior Secured First Lien Note | 12/15/2019 | 11.50 | % | 6,800,000 | 7,066,560 | 1.5 | % | |||||||||||
| Reddy Ice Corporation | Beverage & Food | Senior Secured Second Lien Term Loan | 11/1/2019 | 10.81 | % | 17,000,000 | 16,117,700 | 3.5 | % | |||||||||||
| SavATree, LLC | Environmental Industries | Senior Secured First Lien Term Loan | 6/2/2022 | 6.58 | % | 1,330,000 | 1,330,000 | 0.3 | % | |||||||||||
| Name of Portfolio Company | Sector | Security Owned by Us | Maturity | Interest Rate(1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||
| Sendero Drilling Company, LLC | Energy: Oil & Gas | Warrants | 3/18/2019 | — | 2,188,676 | 0.5 | % | |||||||||||||
| Seotowncenter, Inc. | Services: Business | Senior Secured First Lien Term Loan | 9/11/2019 | 10.30 | % | 23,697,976 | 23,697,976 | 5.1 | % | |||||||||||
| Seotowncenter, Inc. | Services: Business | Equity | — | 419,731 | 0.1 | % | ||||||||||||||
| SFP Holding, Inc. | Construction & Building | Senior Secured First Lien Term Loan | 9/1/2022 | 7.57 | % | 6,222,222 | 6,222,222 | 1.4 | % | |||||||||||
| SFP Holding, Inc. | Construction & Building | Equity | — | 600,000 | 0.1 | % | ||||||||||||||
| Ship Supply Acquisition Corporation | Services: Business | Senior Secured First Lien Term Loan | 7/31/2020 | 9.31 | % | 7,648,798 | 7,337,492 | 1.6 | % | |||||||||||
| SMART Financial Operations, LLC | Retail | Senior Secured First Lien Term Loan | 11/22/2021 | 11.32 | % | 2,775,000 | 2,848,500 | 0.6 | % | |||||||||||
| SMART Financial Operations, LLC | Retail | Equity | — | 735,000 | 0.2 | % | ||||||||||||||
| SRS Software, LLC | High Tech Industries | Senior Secured First Lien Term Loan | 2/17/2022 | 8.33 | % | 7,462,500 | 7,527,424 | 1.6 | % | |||||||||||
| Stancor, Inc. | Services: Business | Senior Secured First Lien Term Loan | 8/19/2019 | 9.74 | % | 4,346,364 | 4,346,364 | 0.9 | % | |||||||||||
| Stancor, Inc. | Services: Business | Equity | — | 205,775 | 0.0 | % | ||||||||||||||
| Starfish Holdco, LLC | High Tech Industries | Senior Secured Second Lien Term Loan | 8/18/2025 | 10.31 | % | 4,000,000 | 3,940,000 | 0.9 | % | |||||||||||
| Taylored Freight Services, LLC | Services: Business | Senior Secured Second Lien Term Loan | 11/1/2017 | 13.00 | % | 14,895,052 | 14,895,052 | 3.2 | % | |||||||||||
| The Plastics Group, Inc. | Chemicals, Plastics & Rubber | Senior Secured First Lien Term Loan | 2/28/2019 | 13.00 | % | 21,755,233 | 18,992,318 | 4.1 | % | |||||||||||
| Trans-Fast Remittance LLC | Banking, Finance, Insurance & Real Estate | Senior Secured First Lien Term Loan | 12/2/2021 | 9.24 | % | 3,567,857 | 3,661,282 | 0.8 | % | |||||||||||
| Trans-Fast Remittance LLC | Banking, Finance, Insurance & Real Estate | Revolving Credit Facility | 12/2/2021 | 9.24 | % | 1,875,000 | 1,875,000 | 0.4 | % | |||||||||||
| URT Acquisition Holdings Corporation | Services: Business | Senior Secured Second Lien Term Loan | 5/2/2022 | 10.00 | % | 14,966,563 | 14,966,563 | 3.3 | % | |||||||||||
| URT Acquisition Holdings Corporation | Services: Business | Preferred Equity | 12.00 | % | 5,500,000 | 5,500,000 | 1.2 | % | ||||||||||||
| URT Acquisition Holdings Corporation | Services: Business | Equity | — | 12,937,518 | 2.8 | % | ||||||||||||||
| US Multifamily, LLC | Banking, Finance, Insurance & Real Estate | Senior Secured First Lien Term Loan | 9/10/2019 | 10.00 | % | 6,670,000 | 6,670,000 | 1.5 | % | |||||||||||
| US Multifamily, LLC | Banking, Finance, Insurance & Real Estate | Equity | — | 3,330,000 | 0.7 | % | ||||||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Senior Secured First Lien Term Loan | 5/14/2021 | 5.50 | % | 1,958,668 | 1,091,958 | 0.2 | % | |||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Senior Secured Second Lien Term Loan | 5/13/2022 | 8.67 | % | 24,000,000 | 4,080,000 | 0.9 | % | |||||||||||
| Watermill-QMC Midco, Inc. | Automotive | Equity | — | 672,213 | 0.1 | % | ||||||||||||||
| Wheels Up Partners LLC | Aerospace & Defense | Senior Secured First Lien Delayed Draw | 10/15/2021 | 9.85 | % | 14,676,659 | 14,676,659 | 3.2 | % | |||||||||||
As of September 30, 2017,2021, the internalized management team consists of 4 investment professionals and 7 employees/consultants overall. This team includes our income-bearingexecutive officers, investment portfolio,and finance professionals, and administrative staff. Our senior management team consists of David Lorber, our chief executive officer, and Ellida McMillan, our chief financial officer.
In response to the COVID-19 pandemic, we have instituted a temporary work-from-home policy, pursuant to which represented nearly 80.9%our professional team has and continues to primarily work remotely without disruption to our operations. This policy will remain in effect until it is deemed safe to return to our office.
As an internally managed BDC, the success of our total portfolio, had a weighted average yield basedbusiness and investment strategy, including achieving our investment objective, depends in material part on our professional team. We depend upon costthe members of our portfolio investments of approximately 10.8%,management team and 83.5%our investment professionals for the identification, final selection, structuring, closing and monitoring of our income-bearing investment portfolio bore interest basedinvestments. Our professional team has critical experience and relationships on floating rates, such as LIBOR, and 16.5% bore interest at fixed rates. As of September 30, 2017,which we rely to implement our business plan. We expect that the weighted average yield based upon costmembers of our total portfolio was approximately 8.7%. The weighted average yield on income producing investments is computed based upon a combination of the cash flows to datemanagement team and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect to closing fees received, base management fees, incentive fees or general fund related expenses. Each floating rate loan uses LIBOR as its floating rate index. For each floating rate loan, the projected fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified in the relevant loan document to the fixed-rate equivalent LIBOR rate, duration-matched to the specific loan, adjusted by the LIBOR floor and/or cap in place on that loan.
Administration
We previously entered into (on January 11, 2011) and, prior to the overall supervision of our board of directors, MCC Advisors manages the day-to-day operations of, and provides investment advisory and management services to usJanuary 1, 2021, operated pursuant to an investment management agreement with MCC Advisors (the “Investment Management Agreement”) in accordance with the 1940 Act. The Investment Management Agreement became effective upon the pricing of our initial public offering. Under the Investment Management Agreement, MCC Advisors agreed to provide us with investment advisory and management services. For these services, we agreed to pay a base management fee equal to a percentage of our gross assets and an incentive fee based on our performance. The Investment Management Agreement expired December 31, 2020 and effective January 1, 2021, we operate pursuant to an internalized management structure.
We also entered into an administration agreement with MCC Advisors as our administrator on January 19, 2011. The administration agreement became effective upon the pricing of our initial public offering. Under the administration agreement, MCC Advisors agreed to furnish us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide us with other administrative services necessary to conduct our day-to-day operations. MCC Advisors also provided on our behalf significant managerial assistance to those portfolio companies to which we are required to provide such assistance. The administration agreement expired at the close of business on December 31, 2020, in connection with the Company’s adoption of an internalized management structure. In connection with the adoption by and betweenthe board of directors of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp Fund Services, LLC d/b/a U.S. Bank Global Fund Services (“U.S. Bancorp”). Effective January 1, 2021, U.S. Bancorp acts as our administrator. Under the Fund Accounting Servicing Agreement and Administration Servicing Agreement, U.S. Bancorp serves as custodian and provides us with fund accounting and financial reporting services.
Termination of Agreements
We entered into an investment management agreement with MCC Advisors.
Under the terms of our investment management agreement,the Investment Management Agreement, MCC Advisors:
| ● | determined the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; |
| ● | identified, evaluated and negotiated the structure of the investments we made (including performing due diligence on our prospective portfolio companies); and |
| ● | executed, closed, monitored and administered the investments we made, including the exercise of any voting or consent rights. |
MCC Advisors’ services under the investment management agreement areInvestment Management Agreement were not exclusive, and it iswas free to furnish similar services to other entities so long as its services to us arewere not impaired.
Pursuant to our investment management agreement,the Investment Management Agreement, we paypaid MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.
On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the investment management agreement.Investment Management Agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances willwould the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.
The following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement arewere effective as of January 1, 2016, and arewere a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it providesprovided under the investment management agreement.Investment Management Agreement. The Fee Waiver Agreement doesdid not change the second component of the incentive fee, which iswas the incentive fee on capital gains.
On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger Agreement”) was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement is terminated by Sierra, then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of termination to the Company. On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020. On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the then-current quarter, June 30, 2020. On June 12, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through September 30, 2020. On September 29, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through December 31, 2020. Mr. Brook Taube, Chairman and Chief Executive Officer through December 31, 2020 and director through January 21, 2021 and Mr. Seth Taube, director through January 21, 2021 are affiliated with MCC Advisors and Medley.
On November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021. The new management structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31, 2020. To lead the internalized management team, the Board approved the appointment of David Lorber, who has served as an independent director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021. In connection with his appointment, Mr. Lorber stepped down from the Compensation Committee of the Board, the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.
Information Available
We maintain a website at http://www.phenixfc.com. We make available, free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or the SEC. Information contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC.
Summary of Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the information in “Item 1A. Risk Factors”, including, but not limited to, the following risks:
Risks Related to our Business
| ● | We have determined to internalize our operating structure, including our management and investment functions, with the expectation that we will be able to operate more efficiently with lower costs, but this may not be the case. |
| ● | As an internally managed BDC, we are dependent upon our management team and other professionals and if we are not able to hire and retain qualified personnel, we will not realize the anticipated benefits of the internalization. |
| ● | We may suffer credit and capital losses. |
| ● | Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us. |
| ● | The lack of liquidity in our investments may adversely affect our business. |
| ● | A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments. |
| ● | We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer. |
| ● | Our ability to enter into transactions with our affiliates will be restricted, which may limit the scope of investments available to us. |
| ● | We will be exposed to risks associated with changes in interest rates. |
| ● | Changes relating to the London Interbank Offering Rate (“LIBOR”) calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio. |
| ● | Because we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income. |
| ● | If our investments are not managed effectively, we may be unable to achieve our investment objective. |
| ● | We may experience fluctuations in our periodic operating results. |
| ● | Any failure on our part to maintain our status as a BDC would reduce our operating flexibility. |
| ● | We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income. |
| ● | We may not be able to pay you distributions and our distributions may not grow over time. |
| ● | The highly competitive market in which we operate may limit our investment opportunities. |
| ● | Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all. |
| ● | Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval. |
| ● | There are significant potential conflicts of interest that could affect our investment returns. |
| ● | Our management team may, from time to time, possess material non-public information, limiting our investment discretion. |
| ● | Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us. |
| ● | We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions. |
| ● | A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively. |
| ● | Our business and operations could be negatively affected if we become subject to any securities class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price. |
Risks Related to our Investments
| ● | We may not realize gains from our equity investments. |
| ● | Our investments are very risky and highly speculative. |
| ● | Our investments in private portfolio companies may be risky, and you could lose all or part of your investment. |
| ● | Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields. |
| ● | We may acquire indirect interests in loans rather than direct interests, which would subject us to additional risk. |
| ● | Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted. |
| ● | Our ability to invest in public companies may be limited in certain circumstances. |
| ● | Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. |
| ● | Our affiliate’s asset-based lending activities are influenced by volatility in prices of gemstones/jewelry. |
| ● | Hedging transactions may expose us to additional risks. |
| ● | We may invest in “unitranche” debt instruments that combine both senior and subordinated debt into one debt instrument. Unitranche debt instruments typically pay a higher rate of interest than traditional senior debt instruments, but may also pose greater risk associated with a lesser amount of asset coverage. |
| ● | We may invest in, or obtain exposure to, obligations that may be “covenant-lite,” which means such obligations lack certain financial maintenance covenants. |
| ● | The disposition of our investments may result in contingent liabilities. |
| ● | If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments. |
Risks Related to our Operations as a BDC and a RIC
| ● | Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations. |
| ● | Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition. |
| ● | We cannot predict how tax reform legislation will affect the Company, our investments, or our stockholders, and any such legislation could adversely affect our business. |
| ● | If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations. |
| ● | We will become subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code or satisfy regulated investment company distribution requirements. |
Risks Relating to an Investment in our Securities
| ● | Investing in our securities may involve an above average degree of risk. |
| ● | Shares of closed-end investment companies, including business development companies, may, as is currently the case with the Company, at times, trade at a discount to their net asset value (“NAV”). |
| ● | The market price of our common stock may fluctuate significantly. |
| ● | Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock. |
| ● | Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock. |
| ● | The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock. |
| ● | Our 6.125% Notes due 2023 (the “Notes”) are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future. |
| ● | The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries. |
| ● | The indenture under which the Notes were issued contains limited protection for holders of the Notes. |
| ● | An active trading market for the Notes may not develop or be sustained, which could limit the market price of the Notes or your ability to sell them. |
| ● | If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes. |
| ● | If we issue preferred stock, the NAV and market value of our common stock may become more volatile. |
| ● | Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters. |
General Risk Factors
| ● | We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations. |
| ● | Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations. |
| ● | Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks. |
| ● | Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings. |
| ● | Economic recessions or downturns could impair our portfolio companies and harm our operating results. |
INVESTMENTS
We have built a diverse portfolio that includes senior secured first lien term loans, senior secured second lien term loans, unitranche loans, senior secured first lien notes, subordinated notes, warrants and minority equity securities by investing approximately $10 million to $50 million of capital, on average, in the securities of companies.
The following table shows the portfolio composition by industry grouping at fair value as of September 30, 2021 (dollars in thousands):
| Fair Value | Percentage | |||||||
| Construction & Building | $ | 31,619 | 20.8 | % | ||||
| Banking, Finance, Insurance & Real Estate | 27,916 | 18.4 | ||||||
| High Tech Industries | 21,210 | 14.0 | ||||||
| Services: Business | 12,415 | 8.2 | ||||||
| Automotive | 11,967 | 7.9 | ||||||
| Hotel, Gaming & Leisure | 11,931 | 7.9 | ||||||
| Manufacturing | 9,270 | 6.1 | ||||||
| Environmental Industries | 8,100 | 5.3 | ||||||
| Energy: Oil & Gas | 3,579 | 2.4 | ||||||
| Forest Products & Paper | 3,455 | 2.3 | ||||||
| Metals & Mining | 3,077 | 2.0 | ||||||
| Aerospace & Defense | 2,490 | 1.6 | ||||||
| Consumer goods: Durable | 2,361 | 1.6 | ||||||
| Healthcare & Pharmaceuticals | 2,250 | 1.5 | ||||||
| Total | $ | 151,640 | 100.0 | % | ||||
The following table shows the portfolio composition by industry grouping at fair value as of September 30, 2020 (dollars in thousands):
| Fair Value | Percentage | |||||||
| Construction & Building | $ | 51,964 | 21.1 | % | ||||
| Multisector Holdings | 41,019 | 16.6 | ||||||
| High Tech Industries | 26,165 | 10.6 | ||||||
| Healthcare & Pharmaceuticals | 23,481 | 9.5 | ||||||
| Services: Business | 21,841 | 8.9 | ||||||
| Hotel, Gaming & Leisure | 12,337 | 5.0 | ||||||
| Wholesale | 12,278 | 5.0 | ||||||
| Containers, Packaging & Glass | 11,987 | 4.8 | ||||||
| Consumer goods: Durable | 9,520 | 3.8 | ||||||
| Banking, Finance, Insurance & Real Estate | 6,557 | 2.7 | ||||||
| Consumer goods: Non-durable | 6,164 | 2.5 | ||||||
| Environmental Industries | 5,846 | 2.4 | ||||||
| Energy: Oil & Gas | 5,626 | 2.3 | ||||||
| Metals & Mining | 3,530 | 1.4 | ||||||
| Forest Products & Paper | 2,991 | 1.2 | ||||||
| Aerospace & Defense | 2,942 | 1.2 | ||||||
| Media: Broadcasting & Subscription | 1,110 | 0.5 | ||||||
| Automotive | 1,043 | 0.4 | ||||||
| Retail | 343 | 0.1 | ||||||
| Total | $ | 246,744 | 100.0 | % | ||||
The following table sets forth certain information as of September 30, 2021 for each portfolio company in which we had an investment. Other than these investments, our only formal relationship with our portfolio companies is the managerial assistance that we provide upon request and the board observer or participation rights we may receive in connection with our investment.
| Name of Portfolio Company | Sector | Security Owned | Maturity | Interest Rate (1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||||
| 1888 Industrial Services, LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan A | 9/30/2021(2) | 6.00 | % | $ | 9,946,741 | $ | — | 0.0 | % | |||||||||||
| 1888 Industrial Services, LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan B | 9/30/2021(2) | 9.00 | % | 25,937,520 | — | 0.0 | % | |||||||||||||
| 1888 Industrial Services, LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan C | 9/30/2021(2) | 6.00 | % | 1,231,932 | 24,637 | 0.0 | % | |||||||||||||
| 1888 Industrial Services, LLC | Energy: Oil & Gas | Revolving Credit Facility | 9/30/2021(2) | 6.00 | % | 3,554,069 | 3,554,069 | 2.5 | % | |||||||||||||
| 1888 Industrial Services, LLC | Energy: Oil & Gas | Equity | 21,562 | — | 0.0 | % | ||||||||||||||||
| Alpine SG, LLC | High Tech Industries | Senior Secured First Lien Term Loan | 11/16/2022 | 6.75 | % | 4,715,808 | 4,715,809 | 3.3 | % | |||||||||||||
| Alpine SG, LLC | High Tech Industries | Senior Secured Incremental First Lien Term Loan | 11/16/2022 | 9.50 | % | 472,087 | 472,087 | 0.3 | % | |||||||||||||
| Alpine SG, LLC | High Tech Industries | Senior Secured Incremental First Lien Term Loan | 11/16/2022 | 7.50 | % | 4,174,037 | 4,174,037 | 2.9 | % | |||||||||||||
| Alpine SG, LLC | High Tech Industries | Senior Secured Incremental First Lien Term Loan | 11/16/2022 | 7.50 | % | 1,000,000 | 1,000,000 | 0.7 | % | |||||||||||||
| Alpine SG, LLC | High Tech Industries | Senior Secured Incremental First Lien Term Loan | 11/16/2022 | 7.50 | % | 2,999,802 | 2,999,802 | 2.1 | % | |||||||||||||
| Alpine SG, LLC | High Tech Industries | Senior Secured First Lien Delayed Draw Term Loan | 11/16/2022 | 6.75 | % | 2,277,293 | 2,277,293 | 1.6 | % | |||||||||||||
| Alpine SG, LLC | High Tech Industries | Revolving Credit Facility | 11/16/2022 | 6.75 | % | — | — | 0.0 | % | |||||||||||||
| Autosplice, Inc. | Automotive | Senior Secured First Lien Term Loan | 4/30/2022 | 11.00 | % | 11,826,036 | 11,826,036 | 8.2 | % | |||||||||||||
| Be Green Packaging, LLC | Containers, Packaging & Glass | Equity | 1 | — | 0.0 | % | ||||||||||||||||
| Black Angus Steakhouses, LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan | 6/30/2022 | 10.00 | % | 8,412,596 | 2,279,814 | 1.6 | % | |||||||||||||
| Black Angus Steakhouses, LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Super Priority DDTL | 6/30/2022 | 10.00 | % | 1,500,000 | 1,500,000 | 1.0 | % | |||||||||||||
| Black Angus Steakhouses, LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Delayed Draw Term Loan | 6/30/2022 | 10.00 | % | 758,929 | 758,929 | 0.5 | % | |||||||||||||
| Caddo Investors Holdings 1 LLC | Forest Products & Paper | Equity | 2,528,826 | 3,454,786 | 2.4 | % | ||||||||||||||||
| Chimera Investment Corp. | Banking, Finance, Insurance & Real Estate | Preferred Equity | 117,310 | 3,019,559 | 2.1 | % | ||||||||||||||||
| Cleaver-Brooks, Inc. | Manufacturing | Senior Secured Notes | 3/1/2023 | 7.88 | % | 9,364,000 | 9,270,360 | 6.5 | % | |||||||||||||
| CM Finance SPV, LLC | Energy: Oil & Gas | Unsecured Debt | 101,463 | — | 0.0 | % | ||||||||||||||||
| CPI International, Inc. | Aerospace & Defense | Senior Secured Second Lien Term Loan | 7/28/2025 | 8.25 | % | 2,607,062 | 2,489,744 | 1.7 | % | |||||||||||||
| DataOnline Corp. | High Tech Industries | Senior Secured First Lien Term Loan | 11/13/2025 | 7.25 | % | 4,912,500 | 4,863,375 | 3.4 | % | |||||||||||||
| DataOnline Corp. | High Tech Industries | Revolving Credit Facility | 11/13/2025 | 7.25 | % | 714,286 | 707,143 | 0.5 | % | |||||||||||||
| Dividend and Income Fund | Banking, Finance, Insurance & Real Estate | Equity | 87,483 | 1,275,502 | 0.9 | % | ||||||||||||||||
| Name of Portfolio Company | Sector | Security Owned | Maturity | Interest Rate (1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||||
| Dream Finders Homes, LLC | Construction & Building | Preferred Equity | 8.00 | % | 4,905,011 | 4,757,860 | 3.3 | % | ||||||||||||||
| Dynamic Energy Services International LLC | Energy: Oil & Gas | Senior Secured First Lien Term Loan | 12/31/2021 | 13.50 | % | 12,109,957 | — | 0.0 | % | |||||||||||||
| Dynamic Energy Services International LLC | Energy: Oil & Gas | Equity | 12,350,000 | — | 0.0 | % | ||||||||||||||||
| FlexFIN LLC | Services: Business | Equity Interest | 2,500,000 | 2,500,000 | 1.7 | % | ||||||||||||||||
| Footprint Acquisition, LLC | Services: Business | Equity | 150 | — | 0.0 | % | ||||||||||||||||
| Footprint Acquisition, LLC | Services: Business | Preferred Equity | 8.75 | % | 4,049,398 | 2,956,061 | 2.1 | % | ||||||||||||||
| Global Accessories Group, LLC | Consumer goods: Non-durable | Equity | �� | 380 | — | 0.0 | % | |||||||||||||||
| Great AJAX Corp. | Banking, Finance, Insurance & Real Estate | Equity | 253,651 | 3,421,752 | 2.4 | % | ||||||||||||||||
| Impact Group, LLC | Services: Business | Senior Secured First Lien Term Loan | 6/27/2023 | 8.37 | % | — | — | 0.0 | % | |||||||||||||
| Impact Group, LLC | Services: Business | Senior Secured First Lien Delayed Draw Term Loan | 6/27/2023 | 8.37 | % | — | — | 0.0 | % | |||||||||||||
| InterFlex Acquisition Company, LLC | Containers, Packaging & Glass | Senior Secured First Lien Term Loan | 8/18/2022 | 10.00 | % | — | — | 0.0 | % | |||||||||||||
| Invesco Mortgage Capital, Inc. | Banking, Finance, Insurance & Real Estate | Preferred Equity | 205,000 | 5,217,250 | 3.6 | % | ||||||||||||||||
| JFL-NGS Partners, LLC | Construction & Building | Equity | 57,300 | 26,862,813 | 18.7 | % | ||||||||||||||||
| JFL-WCS Partners, LLC | Environmental Industries | Equity | 129,588 | 8,099,949 | 5.6 | % | ||||||||||||||||
| Kemmerer Operations, LLC | Metals & Mining | Senior Secured First Lien Term Loan | 6/21/2023 | 15.00 | % | 2,381,985 | 2,360,547 | 1.6 | % | |||||||||||||
| Kemmerer Operations, LLC | Metals & Mining | Senior Secured First Lien Delayed Draw Term Loan | 6/21/2023 | 15.00 | % | 163,915 | 162,441 | 0.1 | % | |||||||||||||
| Kemmerer Operations, LLC | Metals & Mining | Equity | 7 | 553,746 | 0.4 | % | ||||||||||||||||
| Lighting Science Group Corporation | Containers, Packaging & Glass | Warrants | 5,000,000 | — | 0.0 | % | ||||||||||||||||
| MFA Financial, Inc. | Banking, Finance, Insurance & Real Estate | Preferred Equity | 31,692 | 778,989 | 0.5 | % | ||||||||||||||||
| New Residential Investment Corp. | Banking, Finance, Insurance & Real Estate | Preferred Equity | 206,684 | 5,206,370 | 3.6 | % | ||||||||||||||||
| New York Mortgage Trust, Inc. | Banking, Finance, Insurance & Real Estate | Preferred Equity | 165,000 | 4,182,750 | 2.9 | % | ||||||||||||||||
| Name of Portfolio Company | Sector | Security Owned | Maturity | Interest Rate (1) | Principal Due at Maturity | Fair Value | % of Net Assets | |||||||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan B | 12/31/2024 | 10.25 | % | 14,963,195 | — | 0.0 | % | |||||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Term Loan C | 12/31/2024 | 13.00 | % | 10,014,223 | — | 0.0 | % | |||||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Super Priority DDTL | 12/31/2024 | 5.00 | % | 1,000,000 | 977,000 | 0.7 | % | |||||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Senior Secured First Lien Delayed Draw Term Loan | 12/31/2024 | 5.00 | % | 6,565,875 | 6,414,860 | 4.5 | % | |||||||||||||
| NVTN LLC | Hotel, Gaming & Leisure | Equity | 9,550,922 | — | 0.0 | % | ||||||||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan A | 10/11/2021 | 10.50 | % | 5,805,894 | 2,249,835 | 1.6 | % | |||||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan B | 10/11/2021 | 14.00 | % | 7,646,823 | — | 0.0 | % | |||||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Warrants | 123,867 | — | 0.0 | % | ||||||||||||||||
| Point.360 | Services: Business | Senior Secured First Lien Term Loan | 7/8/2020 | 6.00 | % | 2,777,366 | — | 0.0 | % | |||||||||||||
| RateGain Technologies, Inc. | Hotel, Gaming & Leisure | Unsecured Debt | 4/1/2024 | 704,762 | — | 0.0 | % | |||||||||||||||
| RateGain Technologies, Inc. | Hotel, Gaming & Leisure | Unsecured Debt | 10/2/2023 | 532,671 | — | 0.0 | % | |||||||||||||||
| Redwood Services Group, LLC | Services: Business | Revolving Credit Facility | 6/6/2023 | 7.00 | % | 175,000 | 175,000 | 0.1 | % | |||||||||||||
| Sendero Drilling Company, LLC | Energy: Oil & Gas | Unsecured Debt | 8/1/2022 | 9.00 | % | 233,750 | — | 0.0 | % | |||||||||||||
| Seotowncenter, Inc. | Services: Business | Equity | 3,434,170 | — | 0.0 | % | ||||||||||||||||
| SFP Holding, Inc. | Services: Business | Senior Secured First Lien Term Loan | 9/1/2022 | 7.25 | % | — | — | 0.0 | % | |||||||||||||
| SFP Holding, Inc. | Services: Business | Senior Secured First Lien Delayed Draw Term Loan | 9/1/2022 | 7.25 | % | — | — | 0.0 | % | |||||||||||||
| SFP Holding, Inc. | Services: Business | Equity | — | — | 0.0 | % | ||||||||||||||||
| SMART Financial Operations, LLC | Retail | Preferred Equity | 700,000 | — | 0.0 | % | ||||||||||||||||
| Stancor, Inc. | Services: Business | Equity | 263,814 | — | 0.0 | % | ||||||||||||||||
| Thryv Holdings, Inc. | Services: Business | Senior Secured First Lien Term Loan B | 3/1/2026 | 9.50 | % | 5,770,000 | 5,863,763 | 4.1 | % | |||||||||||||
| URT Acquisition Holdings Corporation | Services: Business | Unsecured Debt | 12/4/2024 | 10.00 | % | — | — | 0.0 | % | |||||||||||||
| URT Acquisition Holdings Corporation | Services: Business | Warrants | 28,912 | 920,000 | 0.6 | % | ||||||||||||||||
| US Multifamily, LLC | Banking, Finance, Insurance & Real Estate | Preferred Equity | 33,300 | 2,236,261 | 1.6 | % | ||||||||||||||||
| US Multifamily, LLC | Banking, Finance, Insurance & Real Estate | Senior Secured First Lien Term Loan | 12/31/2022 | 10.00 | % | 2,577,418 | 2,577,418 | 1.8 | % | |||||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Equity | 5,441 | 64,167 | 0.0 | % | ||||||||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Senior Secured First Lien Term Loan | 4/28/2023 | 12.00 | % | — | — | 0.0 | % | |||||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Warrants | 3/30/2028 | 6,506 | 76,727 | 0.1 | % | |||||||||||||||
| Walker Edison Furniture Company LLC | Consumer goods: Durable | Equity | 10,244 | 2,361,242 | 1.6 | % | ||||||||||||||||
| Watermill-QMC Midco, Inc. | Automotive | Equity | 518,283 | — | 0.0 | % | ||||||||||||||||
| Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) | Aerospace & Defense | Equity | 350 | — | 0.0 | % | ||||||||||||||||
| (1) | All interest is payable in cash and/or PIK, and all London Interbank Offering Rate (“LIBOR”) represents 1 Month LIBOR and 3 Month LIBOR unless otherwise indicated. For each debt investment, we have provided the current interest rate as of September 30, 2021. |
| (2) | The maturity date was extended to May 1, 2023 subsequent to September 30, 2021. |
As of September 30, 2021, our income-bearing investment portfolio, which represented 86.6% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 6.75%, and 74.6% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while 25.4% of our income-bearing investment portfolio bore interest at fixed rates. As of September 30, 2020, our income-bearing investment portfolio, which represented 61.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 8.5%, and 87.4% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while 12.6% of our income-bearing investment portfolio bore interest at fixed rates. The weighted average yield of our total portfolio does not represent the total return to our stockholders. The weighted average yield on income producing investments is computed based upon a combination of the cash flows to date and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect to closing fees received, base management fees, incentive fees or general fund related expenses. For each floating rate loan, the projected fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified in the relevant loan document to the fixed-rate equivalent floating rate, duration-matched to the specific loan, adjusted by the floating rate floor and/or cap in place on that loan.
Overview of Portfolio Companies
Set forth below is a brief description of the business of our portfolio companies as of September 30, 2021:
| Portfolio Company | Brief Description of Portfolio Company | |
| 1888 Industrial Services, LLC | 1888 Industrial Services, LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies in the Denver-Julesburg Basin and Permian Basin. 1888 builds, repairs, modifies and maintains oil and gas production equipment, sites, wells and pipelines. | |
| Alpine SG, LLC | Alpine SG, LLC (“Alpine SG”) is an aggregator of niche, vertically oriented software businesses. Each acquired business operates independently with oversight from the Alpine SG management team. | |
| Autosplice, Inc. | Autosplice, Inc. (“Autosplice”), founded in 1954 and headquartered in San Diego, CA, is a global supplier of highly engineered, mission-critical electrical interconnectors to OEMs and Tier 1 suppliers. Autosplice serves a wide variety of end-markets, providing the automotive, industrial, telecommunications, medical, transportation, consumer, and other applications. | |
| Be Green Packaging, LLC | Be Green Packaging, LLC, founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures sustainable, tree-free, molded fiber products and packaging for the food service and consumer packaged goods end markets. | |
| Black Angus Steakhouses, LLC | Black Angus Steakhouses, LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska, New Mexico, Washington, and Hawaii. | |
Caddo Investors Holdings 1 LLC | Caddo Investors Holdings 1 LLC (d/b/a TexMark Timber Treasury, L.P.), consists of approximately 1.1 million acres of high quality and relatively young timber lands located in East Texas. | |
Chimera Investment Corp. | Chimera Investment Corp. is an internally managed REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency residential mortgage-backed securities (“RMBS”), Non-Agency RMBS, Agency commercial mortgage-backed securities (“CMBS”), and other real estate-related assets. | |
| Cleaver-Brooks, Inc. | Cleaver-Brooks, Inc. is a fully integrated boiler room solutions provider, based in Thomasville, Georgia. | |
| CM Finance SPV LLC | CM Finance SPV LLC is a wholly-owned subsidiary of Investcorp Credit Management BDC, Inc., a specialty finance company that invests primarily in the debt of U.S. middle-market companies. | |
| CPI International, Inc. | CPI International, Inc., headquartered in Palo Alto, CA. develops and manufactures microwave, radio frequency, power, and control products for critical communications, defense and medical applications. |
| Portfolio Company | Brief Description of Portfolio Company | |
| DataOnline Corp. | DataOnline Corp. (“DataOnline”) is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote industrial assets. DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications & web-based applications. | |
| Dividend and Income Fund | Dividend and Income Fund is a diversified closed end management investment company that seeks to achieve primarily high current income and secondarily capital appreciation by investing at least 50% of its total assets in income generating equity securities. | |
| Dream Finders Homes, LLC | Dream Finders Homes, LLC (“DFH”), founded in 2009 and headquartered in Jacksonville, FL, is a residential home builder currently operating in the greater Jacksonville, Orlando, Colorado, Savannah, Austin, and Washington DC markets. DFH builds both single-family homes and townhomes. | |
| Dynamic Energy Services International LLC | Dynamic Energy Services International LLC, headquartered in New Orleans, LA, is a provider of full-service fabrication, construction and maintenance services to a broad range of worldwide markets including oil and gas, industrial and petrochemical markets. | |
| FlexFIN LLC | FlexFIN operates an asset-based lending business under which it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry. | |
| Footprint Acquisition, LLC | Footprint Acquisition, LLC is a provider of in store merchandising and logistics solutions to major retailers and consumer packaged goods manufacturers. | |
| Global Accessories Group, LLC | Global Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections. These collections are tailored to leading retailers in the specialty, department store, off-price and juniors markets. | |
| Great AJAX Corp. | Great Ajax Corp. is a REIT that acquires, invests in, and manages a portfolio of residential mortgage and small balance commercial mortgage loans. | |
| Invesco Mortgage Capital, Inc. | Invesco Mortgage Capital Inc. is an externally managed REIT primarily focused on investing in, financing, and managing mortgage-backed securities (“MBS”) and other mortgage-related assets. | |
| JFL-NGS Partners, LLC | JFL-NGS Partners, LLC (d/b/a NorthStar Group Services, Inc.), is a one-stop provider of demolition and environmental remediation services including demolition, asset & scrap recovery, abatement of asbestos, lead, and mold, and disaster response. | |
| JFL-WCS Partners, LLC | JFL-WCS Partners, LLC (d/b/a Waste Control Specialists LLC) operates a state-of-the-art facility for the processing, treatment, storage and disposal of LLRW, hazardous waste, and mixed hazardous and radioactive wastes. | |
| Kemmerer Operations, LLC | Kemmerer Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal. | |
| Lighting Science Group Corporation | Lighting Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company. LSG designs, develops and markets general illumination products that exclusively use LEDs as their light source. LSG’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires (light fixtures). | |
| MFA Financial, Inc. | MFA Financial, Inc. is an internally-managed REIT primarily engaged in investing in residential mortgage assets, with a focus on residential whole loans, residential mortgage securities, and mortgage servicing rights-related assets. | |
| New Residential Investment Corp. | New Residential Investment Corp. (“New Residential”) is a vertically integrated investment management and mortgage platform externally managed by Fortress Investment Group. New Residential’s investments focus on servicing and origination, residential securities and loans, and consumer loans. | |
| New York Mortgage Trust, Inc. | NY Mortgage Trust is a REIT that acquires, invests in, finances and manages mortgage-related single-family and multi-family residential assets in the US. | |
| NVTN LLC | NVTN LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment” restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations. NVTN LLC has developed an identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high foot traffic locations. |
| Portfolio Company | Brief Description of Portfolio Company | |
| Path Medical, LLC | Path Medical, LLC, founded in 1993, is a provider of fully-integrated acute trauma treatment and diagnostic imaging solutions to patients injured in automobile and non-work related accidents throughout Florida. | |
| Point.360 | Point.360, headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout Los Angeles supporting all aspects of postproduction. | |
| RateGain Technologies, Inc. | RateGain Technologies, Inc. provides hospitality and travel technology solutions for revenue management decision support, rate intelligence, electronic distribution and brand engagement helping customers across the world in streamlining their operations and sales. | |
| Redwood Services Group, LLC | Redwood Services Group, LLC is a group of regional IT managed service providers that provide fully outsourced IT services to small and medium sized businesses. | |
| Sendero Drilling Company, LLC | Sendero Drilling Company, LLC is a land drilling contractor headquartered in San Angelo, TX. |
| Seotowncenter, Inc. | Seotowncenter, Inc. is a tech-enabled business services company that delivers white label search engine optimization and local search and digital campaign fulfillment to the small and midsize business market. | |
| SMART Financial Operations, LLC | SMART Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail pawn store chains and a pawn industry consulting firm. | |
| Stancor, Inc. | Stancor, Inc., founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories, and parts. | |
Thryv Holdings, Inc. | Thryv Holdings, Inc. is a provider of print and digital marketing solutions to small and medium sized businesses and SaaS end-to-end customer experience tools. | |
| URT Acquisition Holdings Corporation | URT Acquisition Holdings Corporation (d/b/a United Road Towing or “URT”) headquartered in Mokena, IL is an integrated towing company in the United States. URT provides a complete range of towing, vehicle storage and vehicle auction services. | |
| US Multifamily, LLC | US Multifamily, LLC (“US Multifamily”) is a real estate platform focused on distressed multifamily assets primarily located in the Southeastern United States. | |
| Velocity Pooling Vehicle, LLC | Velocity Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for the powersports industry. The Company’s brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others. | |
| Walker Edison Furniture Company LLC | Walker Edison Furniture Company LLC (“Walker Edison”) is an e-commerce furniture platform exclusively selling through the websites of top online retailers. Walker Edison operates a data-driven business model to sell a variety of home furnishings in the discount category including TV stands, bedroom furniture, chairs & tables, desks and other. | |
| Watermill-QMC Midco, Inc. | Watermill-QMC Midco, Inc. (d/b/a Quality Metalcraft, Inc.), founded in 1964 and headquartered in Livonia, MI, is a provider of complex assemblies for specialty automotive production, prototype and factory assist applications. | |
Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) | Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) is a Fort Worth, TX based forger of aluminum and steel used for mission critical aircraft components, among other end markets. |
PREVIOUS RELATIONSHIP WITH MCC ADVISORS
Prior to the effectiveness of our internalized management structure on January 1, 2021, MCC Advisors, an SEC-registered investment adviser under the Advisers Act, served as our investment adviser pursuant to an investment management agreement. Effective January 1, 2021, subject to the overall supervision of our board of directors, our internal management team manages the day-to-day operations of PhenixFIN, and provides investment advisory and management services. See “- Internalized Management Structure” below for further information.
Investment Management Agreement
We had entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”), which expired on December 31, 2020.
Under the terms of the Investment Management Agreement, MCC Advisors:
| ● | determined the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; |
| ● | identified, evaluated and negotiated the structure of the investments we made (including performing due diligence on our prospective portfolio companies); and |
| ● | executed, closed, monitored and administered the investments we made, including the exercise of any voting or consent rights. |
MCC Advisors’ services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to other entities so long as its services to us were not impaired.
Pursuant to the Investment Management Agreement, we paid MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.
The following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement were effective as of January 1, 2016 and were a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provided under the Investment Management Agreement. The Fee Waiver Agreement did not change the second component of the incentive fee, which was the incentive fee on capital gains.
On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger Agreement”) was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement was terminated by Sierra, then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of termination to the Company. On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020. On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the then-current quarter, June 30, 2020. On June 12, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through September 30, 2020. On September 29, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through December 31, 2020. Mr. Brook Taube, our Chairman and Chief Executive Officer through December 31, 2020 and one of our directors through January 21, 2021 and Mr. Seth Taube, one of our directors through January 21, 2021 are both affiliated with MCC Advisors and Medley.
On November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021. The new management structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31, 2020. To lead the internalized management team, the Board approved the appointment of David Lorber, who had served as an independent director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021. In connection with his appointment, Mr. Lorber stepped down from the Compensation Committee of the Board, the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.
Base Management Fee
Through December 31, 2020, for providing investment advisory and management services to us, MCC Advisors receivesreceived a base management fee. The base management fee iswas calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets and iswas payable quarterly in arrears. The base management fee will bewas calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter.
Incentive Fee The
Through December 31, 2020, the incentive fee hashad two components, as follows:
Incentive Fee Based on Income
The first component of the incentive fee iswas payable quarterly in arrears and iswas based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee iswas being calculated. MCC Advisors iswas entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceedsexceeded a quarterly “hurdle rate” of 1.5%. The hurdle amount iswas calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.
The second component of the incentive fee iswas determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreementInvestment Management Agreement as of the termination date) and equalsequaled 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.
For the year ended September 30, 2017,2021, the Company incurred net base management fees payable to MCC Advisors of $17.7$1.1 million and $0.9 million ofdid not incur any incentive fees related to pre-incentive fee net investment income.
Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)
Since January 1, 2021, we are internally managed and do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing professionals and staff of MCC Advisors, when, and to the extent, engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of such personnel allocable to such services, is provided and paid for by MCC Advisors.staff. We bear all other costs and expenses of our operations and transactions, including, those relating to:
| ● | our organization and continued corporate existence; |
| ● | calculating our net asset value (“NAV”) (including the cost and expenses of any independent valuation firms); |
| ● | expenses, including travel expense, incurred by our professionals or payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights; |
| ● | interest payable on debt incurred to finance our investments; |
| ● | the costs of all offerings of common shares and other securities; |
| ● | operating costs associated with employing investment professionals and other staff; |
| ● | distributions on our shares; |
| ● | administration fees payable under our administration agreement; |
| ● | amounts payable to third parties relating to, or associated with, making investments; |
| ● | transfer agent and custodial fees; |
| ● | all registration and listing fees; |
| ● | U.S. federal, state and local taxes; |
| ● | independent directors’ fees and expenses; |
| ● | costs of preparing and filing reports or other documents with the SEC or other regulators; |
| ● | the costs of any reports, proxy statements or other notices to our stockholders, including printing costs; |
| ● | our fidelity bond; |
| ● | the operating lease of our office space; |
| ● | directors and officers/errors and omissions liability insurance, and any other insurance premiums; |
| ● | indemnification payments; and |
| ● | direct costs and expenses of administration, including audit and legal costs. |
Investment Management Agreement Board Approval and custodial fees;
On January 15, 2020, the SEC or other regulators;
Expense Support Agreement
On June 12, 2020, the nature, quality and extent of the advisory and other services to be provided to us by our investment adviser, MCC Advisors; (b) the investment performance of MCC Advisors; (c) comparative dataCompany entered into an expense support agreement (the “Expense Support Agreement”) with respect to advisory fees or similar expenses paid by other business development companies with similar investment objectives; (d) our projected operating expenses and expense ratio compared to business development companies with similar investment objectives; (e) any existing and potential sources of indirect income to MCC Advisors, in its capacity as our investment adviser or in its capacity as our administrator, from its relationships with us and the profitability of those relationships; (f) information about the services to be performed and the personnel performing such services under the investment management agreement; (g) the organizational capability and financial condition of MCC Advisors and its affiliates;Medley LLC, pursuant to which MCC Advisors and (h) variousMedley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other factors.
19 2018.
Administration Agreement
On January 19, 2011, the Company entered into an administration agreement with MCC Advisors. Pursuant to thisthe administration agreement, MCC Advisors furnishesfurnished us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company. We reimbursereimbursed MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration agreement, including rent and our allocable portion of the cost of certain of our officersChief Financial Officer and Chief Compliance Officer and their respective staff.staffs. From time to time, our administrator maywas able to pay amounts owed by us to third-party service providers and we willwould subsequently reimburse our administrator for such amounts paid on our behalf. In connection with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp U.S. Bancorp. The administration agreement with MCC Advisors terminated by its terms on December 31, 2020. Effective January 1, 2021, U.S. Bancorp serves as our administrator under the Fund Accounting Servicing Agreement and Administration Agreement. Pursuant to these agreements, U.S. Bancorp serves as custodian and provides us with fund accounting and financial reporting services. For the years ended September 30, 2017, 2016,2021, 2020, and 2015,2019, we incurred $3.8$0.6 million, $3.9$2.2 million, and $4.1$3.3 million in administrator expenses, respectively.
Internalized Management Structure
On November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021. The new management structure replaced the continuation of ourinvestment management and administration agreementagreements with MCC Advisors, which expired on December 5, 2017, which extended31, 2020. The board approved the termestablishment of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard Amster, to oversee the transition to the internalized management structure.
To lead the internalized management team, the board appointed David Lorber, who has served as an independent director of the agreement for an additional periodCompany since April 2019, as interim Chief Executive Officer and Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating Officer of one year beginning on January 19, 2018. Based on the information relating to the termsAlcentra Capital Corporation, a NASDAQ-traded BDC, from April 2017 until it merged into Crescent Capital BDC, Inc. in February 2020, as Chief Financial Officer of the Administration AgreementCompany, each effective January 1, 2021. Mr. Lorber is paid an annual base salary of $425,000, and Ms. McMillan is paid an annual base salary of $300,000, and each is eligible for one or more discretionary cash bonuses.
The internalized management team is responsible for the discussions held, our board of directors, including a majorityday-to-day management and operations of the non-interested directors, approvedCompany, under the Administration Agreementoversight of the board. The internalized management team presently consists of 4 investment professionals and 7 employees/consultants overall. The Company retained Alaric Compliance Services, LLC, whose officer serves as being in the best interests of our stockholders. The administration agreement may be terminated by either party without penalty upon 60 days' written notice toCompany’s Chief Compliance Officer. As discussed above, the other party.
REGULATION
General
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities.”
As a BDC, we are required to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% ofmeet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred stock we may issue in the securitiesfuture, of one investment company or invest more than 10%at least 200%. However, in March 2018, the Small Business Credit Availability Act (the “SBCA”) modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements are met. Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the valuevotes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Act allows the majority of our total assetsindependent directors to approve an increase in our leverage capacity, and such approval would become effective on the securitiesone-year anniversary of more than one investment company. With regardsuch approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. The Company has not sought stockholder or independent director approval to reduce its coverage ratio to 150%.
On March 23, 2018, the SBCA was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing BDCs to use the same registration, offering and communication processes that portionare available to operating companies. The rules and amendments specified by the SBCA became self-implementing on March 24, 2019. On April 8, 2020, the SEC adopted rules and amendments to implement certain provisions of the SBCA (the “Final Rules”) that, among other things, modify the registration, offering, and communication processes available to BDCs relating to: (i) the shelf offering process to permit the use of short-form registration statements on Form N-2 and incorporation by reference; (ii) the ability to qualify for well-known seasoned issuer status; (iii) the immediate or automatic effectiveness of certain filings made in connection with continuous public offerings; and (iv) communication processes and prospectus delivery. In addition, the SEC adopted rules that will require BDCs to comply with certain structured data and inline XBRL requirements. The Final Rules generally became effective on August 1, 2020, except that a BDC eligible to file short-form registration statements on Form N-2, like the Company, must comply with the Inline XBRL structured data requirements for its financial statements, registration statement cover page, and certain prospectus information by August 1, 2022.
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our portfolio investeddirectors who are not interested persons and, in securities issuedsome cases, prior approval by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of our investment policies are fundamental and any may be changed without stockholder approval.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following:
| (1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: |
| ● | is organized under the laws of, and has its principal place of business in, the United States; |
| ● | is not an investment company (other than a small business investment company wholly owned by the Company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and |
| ● | satisfies either of the following: |
| ● | has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; or |
| is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company. |
| (2) | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. |
| (3) | Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities. |
| (4) | Securities of any eligible portfolio company which we control. |
| (5) | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
| (6) | Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment. |
The regulations defining and interpreting qualifying assets may change over time. We may adjust our investment focus needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.
Managerial Assistance to Portfolio Companies
A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “Regulation — Qualifying Assets” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test,requirement, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance. Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in other types of “qualifying assets”, as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, certain diversification tests that must be met in order to qualify as a RIC for U.S. federal income tax purposes will typically require us to limit the amount we invest with any one counterparty. Our investment adviserWe will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after each such issuance. In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our stockholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors—Risks Related to our Business—If we use borrowed funds to make investments or fund our business operations, we will be exposed to risks typically associated with leverage which will increase the risk of investing in us.”
Code of Ethics
We and MCC Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. You may read and copy the code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, theThe code of ethics is available at our website, www.medleycapitalcorp.comwww.phenixfc.com, and is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov.
. You may also obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).
We restrict access to nonpublic personal information about our stockholders to our investment adviser’s employees with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.
Proxy Voting Policies and Procedures
Our Proxy Voting Policies and Procedures of MCC Advisors are set forth below. The guidelines are reviewed periodically by MCC Advisorsmanagement and our independent directors, and, accordingly, are subject to change.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
Proxy Policies
Our proxy matters, such as proxy proposals, amendments or resolutionsvoting decisions are made by our investment professionals, who review on a case-by-case basis. Routine matters are typically proposedcase- by-case basis each proposal submitted to a shareholder vote to determine its impact on the portfolio securities held by management and MCC Advisors will normally supportthe Company. Although the Company generally votes against proposals that may have a negative impact on our portfolio securities, we may vote for such matters so long as theya proposal if there exists compelling long-term reasons to do so. We generally do not measurably changebelieve it is necessary to engage the structure, management control, or operationservices of the corporationan independent third party to assist in issue analysis and are consistent with industry standards as well as the corporate laws of the state of incorporation.
To ensure that our vote is not the product of a vote may involve a material conflict of interest, priorwe require that: (i) anyone involved in the decision making process disclose to approving such vote, MCC Advisors must consult with its chief compliance officer to determine whether theour Chief Compliance Officer any potential conflict that he or she is materialaware of and if so,any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the appropriate methoddecision making process or vote administration are prohibited from revealing how we intend to resolvevote on a proposal in order to reduce any attempted influence from interested parties, unless such conflict. If the conflict is determined not to be material, MCC Advisors’ employees shall vote the proxy in accordance with MCC Advisors’ proxy voting policy.employee has received pre-approval from our Chief Compliance Officer.
Proxy Voting Records
You may obtain information about how we voted proxies by making a written request for proxy voting information to:
Chief Compliance Officer
PhenixFIN Corporation
445 Park Avenue, 6th10th Floor East
New York, NY 10017
Other
Under the 1940 Act, we are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, issue and sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the current NAV of the common stock if our board of directors determines that such sale is in our best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities. However, we currently do not have the requisite stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue shares of our common stock at a price below NAV per share.
In addition, at our 2012 Annual Meeting of Stockholders we received approval from our stockholders to authorize us, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement. Such authorization has no expiration.
We expect to be periodically examined by the SEC for compliance with the 1940 Act.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
We and MCC Advisors adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We and MCC Advisors have designated a chief compliance officerChief Compliance Officer to be responsible for administering the policies and procedures.
The SBA prohibits an SBIC from providing funds to small businesses for certain purposes, such as relending or investing outside the United States, to businesses engaged in a few prohibited industries and to certain “passive” ( i.e. , non-operating) companies. In addition, without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30% of the SBIC’s regulatory capital in any one company and its affiliates.
We have elected and qualifiedintend to qualify annually to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Distribution Requirement”). Our SBIC subsidiary may be limited by the Small Business Investment Act of 1958, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to enable us to maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiary to make certain distributions to maintain our RIC status. We cannot assure you that the SBA will grant such a waiver.
Taxation as a RIC
As a RIC, if we satisfy the Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we timely distribute to stockholders. We will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital gain not distributed to our stockholders.
We will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it doeswe do not distribute at least the sum of 98% of itsour ordinary income in any calendar year, and 98.2% of itsour capital gain net income for each one-year period ending on October 31.31, and any income and capital gain net income that we recognized in preceding years, but were not distributed during such years, and on which we did not pay U.S. federal income tax. Depending on the level of investment company taxable income (“ICTI”) earned in a tax year and the Companyamount of net capital gains recognized in such tax year, we may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. AnyIn order to eliminate our liability for income tax, and to the extent necessary to maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to15th day of the 9th month after the close of the taxable year in which generated such ICTI.ICTI was generated. To the extent that the Company determineswe determine that itsour estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S. federal excise tax purposes, the Company accrueswe accrue U.S. federal excise tax, if any, on estimated excess taxable income as taxable income is earned.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
| ● | qualify to be treated as a BDC under the 1940 Act at all times during each taxable year; |
| ● | derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in “qualified publicly traded partnerships” (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the “90% Income Test”); and |
| ● | diversify our holdings so that at the end of each quarter of the taxable year: |
| ● | at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and |
| no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships (the “Diversification Tests”). |
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income and franchise or withholding liabilities.
Any underwriting fees paid by us are not deductible. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Distribution Requirement, even though we will not have received any corresponding cash amount.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements.the Distribution Requirement. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Business — Regulation — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirementssatisfy the Distribution Requirement may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Distribution Requirement or avoid the imposition of excise tax, requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
Some of the income and fees that we may recognize will not satisfycount towards satisfaction of the 90% Income Test. In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay corporate level U.S. corporatefederal income tax on their earnings, which ultimately will reduce our return on such income and fees.
Failure to Qualify as a RIC
If we were unable to continue to qualify for treatment as a RIC, we would be subject to U.S. federal income tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions, including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC for a period greater than two taxable years, to qualify as a RIC in a subsequent year we may be subject to regular corporate level U.S. federal income tax on any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next tenfive years.
Company Investments
Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not qualify as good income for purposes of the 90% Income Test described above. We will monitor our transactions and may make certain tax elections and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a RIC.
Investments we make in securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount and to distribute such income each year to avoid U.S. federal income and excise taxes. Since in certain circumstances we may recognize income before or without receiving cash representing such income, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining RIC tax treatment and for avoiding U.S. federal income and excise taxes. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for tax treatment as a RIC and thereby be subject to corporate-level U.S. federal income tax.
Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long term or short term, depending on March 18, 2010how long we held a particular warrant.
In the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities. In that imposescase, our yield on those securities would be decreased. We do not expect to satisfy the requirements necessary to pass through to our stockholders their share of the foreign taxes paid by us.
If we purchase shares in a 30%“passive foreign investment company’’ (a “PFIC’’), we may be subject to U.S. withholdingfederal income tax on dividends paid by U.S. issuers to a foreign financial institution after December 31, 2013 and on the gross proceedsportion of any “excess distribution’’ or gain from the disposition of stock paidsuch shares even if such income is distributed as a taxable dividend by us to our stockholders. Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such distributions or gains. If we invest in a foreign financial institution after December 31, 2016, unlessPFIC and elect to treat the PFIC as a “qualified electing fund’’ under the Code (a “QEF’’), in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such institution enters into an agreement withincome is not distributed to us. Alternatively, we may be able to elect to mark-to-market at the U.S. Treasury Department (“Treasury”)end of each taxable year our shares in certain PFICs; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to collect and provide to Treasury substantial information regarding U.S. account holders, including certain account holders that are foreign entities with U.S. owners, with such institution. The legislation also generally imposes a withholding tax of 30% on dividends paid by U.S. issuers and on the gross proceeds from the disposition of stock paid to a non-financial foreign entity unless such entity provides the withholding agent with a certification thatextent it does not have any substantial U.S. owners orexceed prior increases included in income. Under either election, we may be required to recognize in a certification identifyingyear income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the directDistribution Requirement and indirect substantial U.S. ownerswill be taken into account for purposes of the entity. Under certain circumstances,4% U.S. federal excise tax.
Income inclusions from a holder mayQEF will be eligible“good income’’ for refundspurposes of the 90% Income Test provided that they are derived in connection with our business of investing in stocks and securities or credits ofthe QEF distributes such taxes. Investors are urgedincome to consult with their own tax advisors regardingus in the possible implications of this legislation on their investmentsame taxable year in shares ofwhich the income is included in our common stock.
Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. The risks described below, as well as additional risks and uncertainties presently unknown by us or currently not deemed significant could negatively affect our business, financial condition and results of operations. In such case, our NAV and the trading price of our common stock or other securities could decline, and you may lose all or part of your investment.
RISK RELATING TO OUR BUSINESS AND STRUCTURE
Certain Risks in the Current Environment
We are currently operating in a period of capital markets may experience periods of disruptiondisruptions and instability and we cannot predict when these conditions will occur.economic uncertainty. Such market conditions couldmay materially and adversely affect debt and equity capital markets, in the United States and abroad, which couldmay have a negative impact on our business, financial condition and operations.
From time to time, capital markets may experience periods of disruption and instability. The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of coronavirus (“COVID-19”) that began in December 2019. Some economists and major investment banks have expressed concern that the continued spread of the COVID-19 globally could lead to a world-wide economic downturn. Even after the COVID-19 pandemic subsides, the U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the United States and other major markets. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. The COVID-19 outbreak continues to have, and any future outbreaks could have, an adverse impact on the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers to make payments and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by the Company and returns to the Company, among other things. With respect to the U.S. credit markets, the COVID-19 outbreak has resulted in, and until fully resolved is likely to continue to result in, the following among other things: (i) increased draws by borrowers on revolving lines of credit and other financing instruments; (ii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iii) greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility; and rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and businesses. These and future market disruptions and/or illiquidity could have an adverse effect on our business, financial condition, results of operations.
For example, between 2008 and 2009, the U.S. and global capital markets experienced extreme volatility and disruption that began in mid-2007, and the U.S. economy was in recession for several consecutive calendar quarters during the same period,were unstable as evidenced by a lack ofperiodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of certain major financial institutions. WhileDespite actions of the U.S. federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.
Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our stockholders and our independent directors. Volatility and dislocation in the capital markets have improved, thesecan also create a challenging environment in which to raise or access debt capital. The current market and future market conditions could deteriorate again in the future. During such market disruptions, we may have difficulty raising debt or equity capital, especially as a resultsimilar to those experienced from 2008 through 2009 for any substantial length of regulatory constraints.
In addition, significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell suchour investments to access capital if required. Asrequired, and as a result, we maycould realize significantly less than the value at which we have recorded our investments.investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect on our business, financial condition or results of operations.
Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the market dislocations or avert severe and prolonged reductions in economic activity.
We also face an increased risk of investor, creditor or portfolio company disputes, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19 on economic and market conditions.
Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.
Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These types of events have adversely affected and could continue to adversely affect operating results for us and for our portfolio companies. In addition,December 2019, COVID-19 surfaced in China and has since spread and continues to spread to other countries, including the United States. COVID-19 spread quickly and has been identified as a global pandemic by the World Health Organization. The COVID-19 pandemic continues to adversely impact global commercial activity and has contributed to significant changesvolatility in financial markets. In response, beginning in March 2020, in affected jurisdictions including the United States, unprecedented actions were and continue to be taken by governmental authorities and businesses, including quarantines, “stay at home” orders, travel and hospitality restrictions and bans, and the temporary closures and limited operations of many businesses (including corporate offices, retail stores, restaurants, fitness clubs, manufacturing facilities and factories, and other businesses). The actions to contain the COVID-19 pandemic vary by country and by state in the capital markets, includingUnited States. COVID-19 has caused the disruptioneffective cessation of all business activity deemed non-essential by such governmental authorities. While certain state and volatility,local governments across the United States have taken steps to re-open their economies by lifting “stay at home” orders and re-opening businesses, a number of states and local governments have needed to pause or slow the re-opening or impose new shut-down orders as the number of cases of COVID-19 has continued to rise. COVID-19 and the resulting economic dislocations have had and continue to have adverse consequences for the business operations and financial performance of some of our portfolio companies, which may in turn impact the future have, a negative effect on the valuationsvaluation of our investments and have adversely affected, and threaten to continue to adversely affect, our operations. Local, state and federal and numerous non-U.S. governmental authorities have imposed travel and hospitality restrictions and bans, business closures or limited business operations and other quarantine measures on businesses and individuals that remain in effect on the potentialdate of this Annual Report on Form 10-K. We cannot predict the full impact of COVID-19, including the duration and the impact of the closures and restrictions described above. As a result, we are unable to predict the duration of these business and supply-chain disruptions, the extent to which COVID-19 will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. With respect to loans to portfolio companies, the Company will be impacted if, among other things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing for liquidityPIK interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business, or (iii) the value of loans held by the Company decreases as a result of such events involvingand the uncertainty they cause. Portfolio companies may also be more likely to seek to draw on unfunded commitments we have made, and the risk of being unable to fund such commitments is heightened during such periods. Depending on the duration and extent of the disruption to the business operations of our investments. An inabilityportfolio companies, we expect some portfolio companies, particularly those in vulnerable industries, such as travel and hospitality, to raiseexperience financial distress and possibly to default on their financial obligations to us and/or their other capital providers. In addition, if such portfolio companies are subjected to prolonged and any required salesevere financial distress, we expect some of them to substantially curtail their operations, defer capital expenditures and lay off workers. These developments would be likely to permanently impair their businesses and result in a reduction in the value of our investments in them.
The Company will also be negatively affected if the operations and effectiveness of our portfolio companies (or any of the key personnel or service providers of the foregoing) are compromised or if necessary or beneficial systems and processes are disrupted as a result of stay-at-home orders or other related interruptions to business operations.
Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.
Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which companies and their investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the U.S. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity purposes, couldand the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
For example, the COVID-19 pandemic outbreak has led and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. The COVID-19 pandemic has impacted the U.S. credit markets. See “We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a material adversenegative impact on our business, financial condition and results of operations.
Although it is impossible to predict the levelprecise nature and volatilityconsequences of asset pricesthese events, or of any political or policy decisions and the liquidityregulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and value ofour investments, and we may not be able to or may choose not to manage our exposure to these conditions. While market conditions have largely recovered from the unprecedented turmoil in the global capital markets and the financial services industry in late 2008 and early 2009, there have been continuing periods of volatility, some lasting longer than others. There can be no assuranceit is clear that these market conditionstypes of events are impacting and will, not repeat themselvesfor at least some time, continue to impact us and our portfolio companies and, in many instances, the impact will be adverse and profound. The effects of the COVID-19 pandemic may materially and adversely impact (i) the value and performance of us and our portfolio companies, (ii) the ability of our borrowers to continue to meet loan covenants or worsen inrepay loans provided by us on a timely basis or at all, which may require us to restructure our investments or write down the future. These and other conditions in the global financial markets and the global economy may result in adverse consequences for our funds and their respective investee companies, which could restrict such funds’ investment activities and impede such funds’ ability to effectively achieve their investment objectives. In addition, because the fees we earn under our investment management agreements are based in part on the market value of our assets under managementinvestments, (iii) our ability to repay debt obligations, on a timely basis or at all, or (iv) our ability to source, manage and in part ondivest investments and achieve our investment performance, if anyobjectives, all of these factors cause a decline in our assets under management orwhich could result in non-performance of loans by investee companies, it would result in lower fees earned, which could in turn materially and adversely affect our business and results of operations.
Further downgrades of the U.S. credit rating, and the economic crisis in Europeautomatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings.
U.S. debt ceiling and budget deficit concerns together with signs of deteriorating sovereign debt conditions in Europe continue to presenthave increased the possibility of aadditional credit-rating downgrade,downgrades and economic slowdowns, or a recession forin the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or downgraded sovereign credit ratings of European countries or the Russian Federation, or theirits perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. TheseAbsent further quantitative easing by the Federal Reserve, these developments along with any further European sovereign debt issues, could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. The Federal Reserve raised the federal funds rate in December 2015, in December 2016, in March 2017, and again in June 2017, which was increased to a range between 0.75% to 1.00%,global outbreak of COVID-19 has disrupted economic markets, and the Federal Reserve has announced its intentionprolonged economic impact remains uncertain. Many manufacturers of goods have seen a downturn in production due to continuethe suspension of business and temporary closure of factories in an attempt to raisecurb the federal funds rate over time. However, if key economic indicators, suchspread of the illness.. In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, in past periods of instability, the financial services sector was negatively impacted by significant write-offs as the unemployment ratevalue of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. In addition, continued uncertainty between the United States and other countries, including China, with respect to trade policies, treaties, and tariffs, among other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen in the future.
In an economic downturn, we may have non-performing assets or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds ratenon-performing assets may increase, and causethe value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our loans. A severe recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.
The occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, and borrowingmay also increase our funding costs, limit our access to rise, which maycapital markets or negatively impact our ability to accessobtain financing, particularly from the debt markets on favorable terms. Any continued adverse economic conditionsmarkets. In addition, any future financial market uncertainty could have a material adverse effect onlead to financial market disruptions and could further impact our business,ability to obtain financing. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results and financial condition and results of operations.
Risks Related to Our Business
We have internalized our operating structure, including our management and investment functions, with the perceived riskexpectation that we will be able to operate more efficiently with lower costs, but this may not be the case.
On November 18, 2020, the board of a failuredirectors approved adoption of an internalized management structure, which we have operated under effective January 1, 2021. There can be no assurances that internalizing our management structure will be and remain beneficial to raiseus and our stockholders, as we may incur the statutory debt limit ofcosts and experience the United States could have a material adverse effect on our business, financial conditionrisks discussed below, and results of operations.
While we no longer bear the debt ceiling is not enacted, as needed, and the debt ceiling is reached (which is expected to occur in December 2017), the federal government may stop or delay making payments on its obligations. A failure by Congress to raise the debt limit to the extent necessary would increase the risk of default by the United States on its obligations, as well as the risk of other economic dislocations. If the U.S. government fails to complete its budget process or to provide for a continuing resolution before the expirationcosts of the current continuing resolution, another federal government shutdownvarious fees and expenses we previously paid under the investment management and administration agreements with our previous adviser and administrator, we have other significant direct expenses. These include general and administrative costs, legal, accounting and other governance expenses and costs and expenses related to managing our portfolio. Certain of these costs may result. Such a failure orbe greater during the perceived riskearly stages of such a failure, consequently, could have a material adverse effect on the financial marketstransition process. We also incur the compensation and economic conditions in the United States and throughout the world. It could also limit our ability and the abilitybenefits costs of our portfolio companiesofficers and other employees and consultants. In addition, we may be subject to obtain financing,potential liabilities commonly faced by employers, such as workers disability and itcompensation claims, potential labor disputes and other employee-related liabilities and grievances.
We may also experience operational disruptions resulting from the transition from external to internal management, and we could have a material adverse effect onfail to effectively manage our internalization over the valuationlonger term, all of our portfolio companies. Consequently, the continued uncertainty in the general economic environment and potential debt ceiling implications, as well in specific
If the expenses we incur as an internally-managed company are higher than the expenses we would have paid and/or reimbursed under the externally-managed structure, our earnings per share may be lower, potentially decreasing the funds available for distribution, and our share value could suffer.
As an internally managed BDC, we are dependent upon our management team and other professionals, and if we are not able to hire and retain qualified personnel, we will not realize the anticipated benefits of the internalization.
Our ability to achieve our investment objectives and to make distributions to our stockholders depends upon the performance of our management team and professionals. We may experience difficulty identifying, engaging and retaining management, investment and general and administrative personnel with the necessary expertise and credit-related investment experience. As an internally managed BDC, our ability to offer more competitive and flexible compensation structures, such as offering both a profit-sharing plan and an equity incentive plan, is subject to the limitations imposed by the 1940 Act, which could limit our ability to attract and retain talented investment management professionals.
If we are unable to attract and retain highly talented professionals for the internal management our Company, we will not realize the anticipated benefits of the internalization, and the results of operations.
We may suffer credit and capital losses.
Private debt in the form of secured loans to corporate and asset-based borrowers is highly speculative and involves a high degree of risk of credit loss, and therefore an investment in our securities may not be suitable for someone with a low tolerance for risk. These risks are likely to increase during an economic recession, such as the economic recession or downturn that the United States and many other countries have recently experienced or are experiencing.
Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us.
We have borrowed funds, including through the issuance of $102.9 million and $74.0$77.8 million in aggregate principal amount of 6.125% unsecured notes due March 30, 2023 and 6.50% unsecured notes due January 30, 2021 (collectively the(the “Notes”), through draws from our Revolving Credit Facility, Term Loan Facility and SBA-guaranteed debentures to leverage our capital structure, which is generally considered a speculative investment technique. As of September 30, 2017, before netting out debt issuance costs,In addition, although we voluntarily satisfied and terminated our Term Loan Facility and Revolving Credit Facility had outstanding balances of $102.0 million and $68.0 million, respectively, andin September 2018, we had $150.0 million SBA-guaranteed debentures outstanding.may replace the facility with another revolving or other credit facility. As a result:
| ● | our common stock may be exposed to an increased risk of loss because a decrease in the value of our investments may have a greater negative impact on the value of our common stock than if we did not use leverage; |
| ● | if we do not appropriately match the assets and liabilities of our business, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage; |
| ● | our ability to pay distributions on our common stock may be restricted if our asset coverage ratio with respect to each of our outstanding senior securities representing indebtedness and our outstanding preferred shares, as defined by the 1940 Act, is not at least 200% and any amounts used to service indebtedness or preferred stock would not be available for such distributions; |
| ● | any credit facility to which we became a party may be subject to periodic renewal by our lenders, whose continued participation cannot be guaranteed; |
| ● | any credit facility to which we became a party may contain covenants restricting our operating flexibility; |
| ● | we, and indirectly our stockholders, bear the cost of issuing and paying interest or dividends on such securities; and |
| ● | any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common shares. |
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue debt securities or preferred stock and/or borrow money from banks and other financial institutions, which we collectively refer to as “senior securities”, only in amounts such that our asset coverage ratio equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after each issuance of senior securities.
For a discussion of the terms of the Facilities and the Notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources.”
As a BDC, generally, we are not permitted to incur indebtedness unless immediately after such borrowing we have anof September 30, 2021, the Company’s asset coverage for total borrowings of at leastwas 285.6% after giving effect to leverage and therefore the Company’s asset coverage is above 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). The Financial CHOICE Act of 2017, which was passed by the U.S. House of Representatives in June 2017, would modify this section ofminimum asset coverage requirement under the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future, and our shareholders may face increased investment risk. In addition, since our management fee is calculated as a percentage of the value of our gross assets, which includes any borrowings for investment purposes, the management fee expenses will increase if we incur additional indebtedness.
The lack of liquidity in our investments may adversely affect our business.
We anticipate that our investments generally will be made in private companies. Substantially all of these securities will be subject to legal and other restrictions on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or MCC Advisors hashave material non-public information regarding such portfolio company.
A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments.
The debt and equity securities in which we invest for which market quotations are not readily available will be valued at fair value as determined in good faith by or under the direction of our board of directors. Most, if not all, of our investments (other than cash and cash equivalents) will be classified as Level 3 under Accounting Standards Codification Topic 820 - Fair Value Measurements and Disclosures. This means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. We expect that inputs into the determination of fair value of our portfolio investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We have retained the services of independent valuation firms to review the valuation of thesevarious loans and securities. The types of factors that our board of directors may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our NAV could be adversely affected if our determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such loans and securities.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. We also arehave not adoptingadopted any policy restricting the percentage of our assets that may be invested in a single portfolio company. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our income tax diversification requirements under Subchapter M of the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
Our ability to enter into transactions with our affiliates will be restricted, which may limit the scope of investments available to us.
We are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company, without prior approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that person’s affiliates, or entering into prohibited joint
We will be exposed to risks associated with changes in interest rates.
Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock.
Changes relating to the method for determining LIBOR calculation process may adversely affect the value of the financial obligationsLIBOR-indexed, floating-rate debt securities in our portfolio
In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be heldguaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or issued by us that are linkedwhether any additional reforms to LIBOR may be enacted in the United Kingdom or how such changes could affect our results of operations or financial condition.
At this time, it is not possibleno consensus exists as to predictwhat rate or rates will become accepted alternatives to LIBOR, although on July 29, 2021, the effectAlternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the U.S. Federal Reserve Board and the Federal Reserve Bank of any such changes, any establishment of alternative reference ratesNew York, formally recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred replacement rate for LIBOR. Given the inherent differences between LIBOR and SOFR, or any other reforms to LIBORalternative benchmark rate that may be enacted inestablished, there are many uncertainties regarding a transition from LIBOR, including but not limited to the United Kingdomneed to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments, or elsewhere.whether the COVID-19 pandemic will have further effect on LIBOR transition plans. In addition, SOFR or other replacement rates may fail to gain market acceptance. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for value of and/or valuetransferability of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.
Because we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income.
Because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we use our existing debt to finance our investments. In periods of rising interest rates, our cost of funds will increase to the extent we access the Facilities, since theany credit facility with a floating interest rate, on the Facilities is floating, which could reduce our net investment income to the extent any debt investments have fixed interest rates. We expect that our long-term fixed-rate investments will be financed primarily with issuances of equity and long-term debt securities. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.
You should also be aware that a rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates may result in an increase of the amount of incentive fees payable to MCC Advisors.
If MCC Advisors is unable to manage our investments are not managed effectively, we may be unable to achieve our investment objective.
Our ability to achieve our investment objective will depend on our ability to manage our business, which will depend in turn, on the ability of MCC Advisors to identify, invest in and monitor companies that meet our investment criteria.internalized management team. Accomplishing this result is largely will be a function of MCC Advisors’ investment process and, in conjunction with its role as our administrator, itsthe internalized management team’s ability to provide competent, attentivequality and efficient services to us.
We may experience fluctuations in our periodic operating results.
We could experience fluctuations in our periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire, the default rate on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend rates payable on preferred stock we issue, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.
If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more onerous regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For U.S. federal income tax purposes, we may include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the making of a loan or possibly in other circumstances, such as payment-in-kind (“PIK”)PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances as a result of PIK arrangements are included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we do not receive in cash.
Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the tax requirement to distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to maintain our statustax treatment as a RIC. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to raise cash from other sources, we may fail to qualify and maintain our statustax treatment as a RIC and thus become subject to corporate-level U.S. federal income tax. See “Tax Matters - Taxation of the Company”.
We may not be able to pay you distributions and our distributions may not grow over time.
When possible, we may pay quarterly distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay distributions. As of September 30, 2021, the Company’s asset coverage was 285.6% after giving effect to leverage and therefore the Company’s asset coverage is above 200%, the minimum asset coverage requirement under the 1940 Act. All distributions will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations, restrictions on the payment of distributions under the Facilities, our SBIC subsidiary’s compliance with SBIC regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future.
The highly competitive market in which we operate may limit our investment opportunities.
A number of entities compete with us to make the types of investments that we make. We compete with other BDCs and investment funds (including public and private funds, commercial and investment banks, commercial financing companies, other SBICs and, to the extent they provide an alternative form of financing, private equity funds). Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to invest in areas in which they have not traditionally invested. As a result of these new entrants, competition for investment opportunities has intensified in recent years and may intensify further in the future. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions and valuation requirements that the 1940 Act imposes on us as a BDC and the tax consequences of qualifying as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this existing and potentially increasing competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable to or lower than the rates we offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. A significant
Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all.
We have elected and qualifiedintend to qualify annually to be taxed for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we must meet certain requirements, including source-of-income, asset diversification and distribution requirements in order to not have to pay corporate-level U.S. federal income taxes on income we distribute to our stockholders as distributions, which allows us to substantially reduce or eliminate our corporate-level U.S. federal income tax liability. As a BDC, we are generally required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) at the time we issue any debt or preferred stock. This requirement limits the amount of our leverage. Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt or issuing preferred stock and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are generally not permitted to issue common stock priced below NAV without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our NAV could decline.
Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.
Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results or value of our stock. Nevertheless, the effects could adversely affect our business and impact our ability to make distributions and cause you to lose all or part of your investment.
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Our management and Investment Team, and members of its Investment Committee have interests that differ from those of our stockholders, giving rise to a conflict of interest. In particular, certain private investment funds managed by the senior members of MCC Advisors hold controlling or minority equity interests, or have the right to acquire such equity interests, in some of our portfolio companies. As a result, the senior members of MCC Advisors may face conflicts of interest in connection with making business decisions for these portfolio companies to the extent that such decisions affect the debt and equity holders in these portfolio companies differently. In addition, the senior members of MCC Advisors may face conflicts of interests in connection with making investment or other decisions, including granting loan waivers or concessions on our behalf with respect to these portfolio companies given that they also manage private investment funds that hold the equity interests in these portfolio companies.
Members of its seniorour management and the Investment Team and the Investment Committee may serve as directors of, or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf. In the event that material nonpublic information is obtained with respect to such companies, we could be prohibited for a period of time from purchasing or selling the securities of such companies by law or otherwise, and this prohibition may have an adverse effect on us.
Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us.
Borrowings, also known as leverage, magnify the potential for loss on invested equity capital. If we continue to use leverage to partially finance our investments, which we have increasingly done over the years,historically, you will experience increased risks of investing in our securities. We borrow under the Facilities, issued the Notes issued the SBA-guaranteed debentures and may issue other debt securities or enter into other types of borrowing arrangements in the future. If the value of our assets decreases, leveraging would cause our NAV to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distributions or scheduled debt payments. Leverage is generally considered a speculative investment technique and we only intend to use leverage if expected returns will exceed the cost of borrowing.
As of September 30, 2017, before netting out debt issuance costs, our Term Loan Facility and Revolving Credit Facility had outstanding balances of $102.0 million and $68.0 million, respectively, we had $150.0 million SBA-guaranteed debentures outstanding and $176.92021, there was $77.8 million of outstanding Notes. The Facilities and the Notes require periodic payments of interest. The weighted average interest rate charged on our borrowings as of September 30, 20172021 was 4.7%7.03% (exclusive of debt issuance costs). We will need to generate sufficient cash flow to make these required interest payments. In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on total assets of at least 2.81% as of September 30, 2017. If we are unable to meet the financial obligations under the Facilities, the lenders under the Facilities will have a superior to claim to our assets over our stockholders. If we are unable to meet the financial obligations under the Notes, the holders thereof will have the right to declare the principal amount and accrued and unpaid interest on the outstanding Notes to be due and payable immediately.
Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below.
| (10)% | (5)% | 0% | 5% | 10% | ||||||||||
| Corresponding net return to common stockholder | (25.8 | )% | (15.4 | )% | (5.0 | )% | 5.4 | % | 15.8 | % | ||||
Our business is highly dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:
| ● | sudden electrical or telecommunications outages; |
| ● | natural disasters such as earthquakes, tornadoes and hurricanes; |
| ● | disease pandemics (including the COVID-19 outbreak); |
| ● | events arising from local or larger scale political or social matters, including terrorist acts; and |
| ● | cyber-attacks. |
These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders.
A failure inof cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.
The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or impact the combinationavailability, integrity, or confidentiality of technologies, processes, and procedures establishedour data.
We depend heavily upon computer systems to protect information technologyperform necessary business functions. Despite our implementation of a variety of security measures, our computer systems, networks, and data, fromlike those of other companies, could be subject to cyber-attacks and unauthorized access, attack,use, alteration, or damage. We are subject to cybersecurity risks. Information cyber security risks have significantly increased in recent yearsdestruction, such as from physical and while we have not experienced any material losses relating to cyber-attackselectronic break-ins or other information security breaches, we could suffer such losses in the future. Ourunauthorized tampering, malware and computer systems, both internalvirus attacks, or system failures and those provided by third-party service providers, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact.disruptions. If one or more of suchthese events occur, thisoccurs, it could potentially could jeopardize the confidential, proprietary, and other information including nonpublic personal information and sensitive business data, processed, and stored in, and transmitted through our computer systems and networks, or otherwisenetworks. Such an attack could cause interruptions or malfunctions in our operations, or the operations of our customers or counterparties, which could result in significantfinancial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage. This coulddamage, and increased costs associated with mitigation of damages and remediation.
Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. Cybersecurity failures or breaches our service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in significant losses, reputational damage, litigation, regulatory finesunauthorized access, loss, exposure or penalties,destruction of data, or otherwise adversely affect our business, financial condition or results of operations. other cybersecurity incidents, with increased costs and other consequences, including those described above. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.
Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We currently do not maintain insurance coverage relating to cybersecurity risks, and we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully insured.
We and our investment adviser and other service providers are currently impacted by quarantines and similar measures being enacted by governments in response to COVID-19, which are obstructing the regular functioning of business work forces (including but not limitedrequiring employees to accountants, custodians, transfer agentswork from external locations and administrators), andtheir homes). Accordingly, the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.
Our business and operations could be negatively affected if we become subject to any securities litigation or stockholder activism,class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.
In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been brought against that company. Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While we are currently not subject to any securities litigation or stockholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or stockholder activism. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant
Risks Related to Our Investments
We may not realize gains from our equity investments.
When we make a debt investment, we may acquire warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
Our investments are very risky and highly speculative.
We investhave invested primarily in senior secured first lien term loans and senior secured second lien term loans issued by private middle-market companies.
Senior Secured LoansThere is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.
Equity InvestmentsWhen we invest in senior secured first lien term loans or senior secured second lien term loans, we may receive warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. The warrants or equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our warrants or equity interests, and any gains that we do realize on the disposition of any warrants or equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in private middle-market companies involves a number of significant risks. See “Our investments in private middle-market portfolio companies may be risky, and you could lose all or part of your investment” below.
Our investments in private middle-market portfolio companies may be risky, and you could lose all or part of your investment.
Investments in private middle-market companies involve a number of significant risks. Generally, little public information exists about these companies, and we are required to rely on the ability of the Investment Teamour investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Private middle-market companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment. In addition, they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, private middle-market companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. Private middle-market companies also generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers directors and MCC Advisorsdirectors may, in the ordinary course of business, be named as defendants in litigation arising from our investments in these types of companies.
We intend to investhave invested primarily in secured debt issued by our portfolio companies. In the case of our senior secured first lien term loans, the portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with the debt securities in which we invest. With respect to our senior secured second lien term loans, the portfolio companies usually have, or may be permitted to incur, other debt that ranks above or equally with the debt securities in which we invest. In the case of debt ranking above the senior secured second lien term loans in which we invest, we would be subordinate to such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company and therefore the holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. In the case of debt ranking equally with debt securities in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: (1) the ability to cause the commencement of enforcement proceedings against the collateral; (2) the ability to control the conduct of such proceedings; (3) the approval of amendments to collateral documents; (4) releases of liens on the collateral; and (5) waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.
Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields.
Our loans to portfolio companies are callableprepayable at any time, and most of them at no premium to par. It is uncertain as to when each loan may be called.prepaid. Whether a loan is calledprepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such company the ability to replace existing financing with less expensive capital. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan calledprepaid early may reduce the achievable yield for us below the stated yield to maturity contained herein if the capital returned cannot be invested in transactions with equal or greater expected yields.
We may acquire indirect interests in loans rather than direct interests, which would subject us to additional risk.
We may make or acquire loans or investments through participation agreements. A participation agreement typically results in a contractual relationship only with the counterparty to the participation agreement and not with the borrower. MCC Advisors has adopted best execution procedures and guidelines to mitigate credit and counterparty risk when we acquire a loan through a participation agreement. In investing through participations, we will generally not have a right to enforce compliance by the borrower with the terms of the loan agreement against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, we will be exposed to the credit risk of both the borrower and the counterparty selling the participation. In the event of insolvency of the counterparty, we, by virtue of holding participation interests in the loan, may be treated as its general unsecured creditor. In addition, although we may have certain contractual rights under the loan participation that require the counterparty to obtain our consent prior to taking various actions relating to the loan, we cannot guarantee that the counterparty will seek such consent prior to taking various actions. Further, in investing through participation agreements, we may not be able to conduct the due diligence on the borrower or the quality of the loan with respect to which it is buying a participation that we would otherwise conduct if we were investing directly in the loan, which may result in us being exposed to greater credit or fraud risk with respect to the borrower or the loan than we expected when initially purchasing the participation. See “Risks Related to Our Business - There are significant potential conflicts of interest that could affect our investment returns” above.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted.
Following an initial investment in a portfolio company, provided that there are no restrictions imposed by the 1940 Act, we may make additional investments in that portfolio company as “follow-on” investments in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our initial investment.
We have the discretion to make any follow-on investments, subject to the availability of capital resources. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. Our failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make such follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, because we are inhibited by compliance with BDC requirements or because we desire to maintain our RIC tax status.treatment. We also may be restricted from making follow-on investments in certain portfolio companies to the extent that affiliates of ours hold interests in such companies.
Client borrowers, particularly with respect to asset-based lending activities, may lack the operating history, cash flows or balance sheet necessary to support other financing options and may expose us to additional risk.
A portion of our loan portfolio consists, through FlexFIN, of asset-based lending involving gemstones. Some of these products arise out of relationships with clients who lack the operating history, cash flows or balance sheet necessary to qualify for other financing options. This could increase our risk of loss.
Our affiliate’s asset-based lending activities are influenced by volatility in prices of gemstones and jewelry.
Our affiliate’s asset-based lending business is impacted by volatility in gemstone and jewelry prices. Among the factors that can impact the price of gemstones and jewelry are supply and demand of gemstones; political, economic, and global financial events; movement of the U.S. dollar versus other currencies; and the activity of large speculators and other participants. A significant decline in market prices of gemstones could result in reduced collateral value and losses, i.e., a lower balance of asset-based loans outstanding for the Company’s affiliate.
The gemstones and jewelry business is subject to the risk of fraud and counterfeiting.
The gemstones business is exposed to the risk of loss as a result of fraud in its various forms. We seek to minimize our exposure to fraud through a number of means, including third-party authentication and verification and the establishment of procedures designed to detect fraud. However, there can be no assurance that we will be successful in preventing or identifying fraud, or in obtaining redress in the event such fraud is detected.
We may be subject to risks associated with our investments in unitranche loans
Unitranche loans provide leverage levels comparable to a combination of first lien and second lien or subordinated loans, and may rank junior to other debt instruments issued by the portfolio company. Unitranche loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a heightened risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. From the perspective of a lender, in addition to making a single loan, a unitranche loan may allow the lender to choose to participate in the “first out” tranche, which will generally receive priority with respect to payments of principal, interest and any other amounts due, or to choose to participate only in the “last out” tranche, which is generally paid only after the first out tranche is paid. We may participate in “first out” and “last out” tranches of unitranche loans and make single unitranche loans, and we may suffer losses on such loans if the borrower is unable to make required payments when due.
Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.
A significant number of high yield loans in the market, may consist of covenant-lite loans, or “Covenant-Lite Loans.” A significant portion of the loans in which we may invest or get exposure to through our investments may be deemed to be Covenant-Lite Loans. Such loans do not require the borrower to maintain debt service or other financial ratios and do not include terms which allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached. Ownership of Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.
Our ability to invest in public companies may be limited in certain circumstances.
To maintain our statustax treatment as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as qualifying assets only if such issuer has a market capitalization that is less than $250 million at the time of such investment. In addition, we may invest up to 30% of our portfolio in opportunistic investments which will be intended to diversify or complement the remainder of our portfolio and to enhance our returns to stockholders. These investments may include private equity investments, securities of public companies that are broadly traded and securities of non-U.S. companies. We expect that these public companies generally will have debt securities that are non-investment grade.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.
Although it is anticipated that most of our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective. As a result, a change in currency exchange rates may adversely affect our profitability.
Hedging transactions may expose us to additional risks.
We may engage in currency or interest rate hedging transactions. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transaction may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.
While we may enter into transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek or be able to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.
The disposition of our investments may result in contingent liabilities.
We currently expect that a significant portion of our investments will involve lending directly to private companies. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us.
If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments.
We may invest in the securities and obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments generally are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer of those obligations might not make any interest or other payments. We may not realize gains from our equity investments.
We may be subject to risks associated with significant investments in one or more economic sectors, including the construction and building sector.
At times, the Company may have a significant portion of its assets invested in securities of companies conducting business within one or more economic sectors, including the construction and building sector. Companies in the same sector may be similarly affected by economic, regulatory, political or market events or conditions, which may make the Company more vulnerable to unfavorable developments in that sector than companies that invest more broadly. Generally, the more broadly the Company invests, the more it spreads risk and potentially reduces the risks of loss and volatility.
The Company presently has significant exposure to the construction and building sector (its investments in such sector comprise 20.8% of gross assets as of September 30, 2021), which subjects the Company to the particular risks of such sector to a greater degree than others not similarly concentrated. These risks include that the construction and building sector is cyclical and is affected by a number of factors, including the general condition of the economy, market demand and changes in interest rates. Construction activity is affected by the ability to finance projects, which may be reduced due to a widespread outbreak of contagious disease, including an epidemic or pandemic such as the current COVID-19 pandemic. Residential, commercial and industrial construction could decline if companies and consumers are unable to finance construction projects or if the economy precipitously declines or stalls, which could result in delays or cancellations of capital projects. A downturn in the residential, commercial or industrial construction industries and general economic conditions may have an adverse effect on the portfolio companies in which the Company invests.
Risks Related to Our Operations as a BDC and a RIC
Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations.
Our business requires a substantial amount of capital to operate and grow. We may acquire additional capital from the issuance of senior securities (including debt and preferred stock), the issuance of additional shares of our common stock or from securitization transactions. We also may issue, through our SBIC subsidiary, additional SBA-guaranteed debentures, subject to certain restrictions. For a discussion of the requirements for issuing SBA-guaranteed debentures, see “Regulation - Small Business Investment Company Regulations.” However, we may not be able to raise additional capital in the future on favorable terms or at all. Additionally, we may only issue senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after such issuance or incurrence. If our assets decline in value and we fail to satisfy this test, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales or repayment may be disadvantageous, which could have a material adverse impact on our liquidity, financial condition and results of operations.
Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition.
Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and may be subject to civil fines and criminal penalties. In addition, any change
As an internally managed BDC, we are subject to certain restrictions that may adversely affect our ability to offer certain compensation structures.
As an internally managed BDC, our ability to offer more competitive and flexible compensation structures, such as offering both a profit-sharing plan and an equity incentive plan, is subject to the SBA’s current debenture SBIC programlimitations imposed by the 1940 Act, which limits our ability to attract and retain talented investment management professionals. As such, these limitations could inhibit our ability to grow, pursue our business plan and attract and retain professional talent, any or all of which may have a significantnegative impact on our business, financial condition and results of operations.
As an internally managed BDC, we are dependent upon our management team and investment professionals for their time availability and for our future success, and if we are not able to hire and retain qualified personnel, or if we lose key members of our senior management team, our ability to implement our business strategy could be significantly harmed.
As an internally managed BDC, our ability to achieve our investment objectives and to make distributions to our stockholders depends upon the performance of our management team and investment professionals. We depend upon the members of our management and our investment professionals for the identification, final selection, structuring, closing and monitoring of our investments. These employees have critical industry experience and relationships on which we rely to implement our business plan. If we lose the services of key members of our senior management team, we may not be able to operate the business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. We believe our future success will depend, in part, on our ability to obtain lower-cost leverage, throughidentify, attract and retain sufficient numbers of highly skilled employees. If we do not succeed in identifying, attracting and retaining such personnel, we may not be able to operate our SBIC subsidiary,business as we expect. As an internally managed BDC, our compensation structure is determined and therefore,set by our Board of Directors and its Compensation Committee. This structure currently includes salary, bonus and incentive compensation. We are not generally permitted by the 1940 Act to employ an incentive compensation structure that directly ties performance of our investment portfolio and results of operations to incentive compensation. Members of our senior management team may receive offers of more flexible and attractive compensation arrangements from other companies, particularly from investment advisers to externally managed BDCs that are not subject to the same limitations on incentive-based compensation that we are subject to as an internally managed BDC. A departure by one or more members of our senior management team could have a negative impact on our business, financial condition and results of operations.
We have internalized our operating structure, including our management and investment functions; as a result, we may incur significant costs and face significant risks associated with being self-managed, including adverse effects on our business and financial condition.
Effective January 1, 2021, we operate under an internalized operating structure, including our management and investment functions. There can be no assurances that internalizing our operating structure will be beneficial to us and our stockholders, as we may incur the costs and risks discussed below and may not be able to effectively replicate or improve upon the services previously provided to us by our former investment adviser and administrator, MCC Advisors.
While we will no longer bear the costs of the various fees and expenses we previously paid to MCC Advisors under the Investment Advisory Agreement, our direct expenses will generally include general and administrative costs, including legal, accounting, and other expenses related to corporate governance, SEC reporting and compliance, as well as costs and expenses related to making and managing our investments. We will also now incur the compensation and benefits costs of our officers and other employees and consultants, and, subject to adherence to applicable law, we may issue equity or other incentive-based awards to our officers, employees and consultants, which awards may decrease net income and funds from our operations and may dilute our stockholders. We may also be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances.
In addition, if the expenses we assume as a result of our internalization are higher than the expenses we would have paid and/or reimbursed to MCC Advisors, our earnings per share may be lower as a result of our internalization than they otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.
Further, in connection with internalizing our operating structure, we may experience difficulty integrating these functions as a stand-alone entity, and we could have difficulty retaining our personnel, including those performing management, investment and general and administrative functions. These personnel have a great deal of know-how and experience. We may also fail to properly identify the appropriate mix of personnel and capital needs to operate successfully as a stand-alone entity. An inability to effectively manage our internalization could result in our incurring excess costs and operating inefficiencies, and may divert our management’s attention from managing our investments.
Internalization transactions have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of time and money defending claims, which would reduce the amount of funds available for us to make investments and to pay distributions, and may divert our management’s attention from managing our investments.
All of these factors could have a material adverse effect on our results of operations, financial condition, and ability to compete with other finance companies.
The impact of recent financial reform legislation on us is uncertain.
The Dodd-Frank Reform Act became effective on July 21, 2010. Many provisions of the Dodd-Frank Reform Act have delayed effective dates or have required extensive rulemaking by regulatory authorities. However,The recent presidential and congressional elections may cause uncertainty regarding the new presidential administration has announced its intention to repeal, amend, or replace certain portionsimplementation of the Dodd-Frank Reform Act and the regulations implemented thereunder.other financial reform rulemaking. Given the uncertainty associated with the manner in which and whether the provisions of the Dodd-Frank Act will be implemented, repealed, amended, or replaced, the full impact such requirements will have on our business, results of operations or financial condition is unclear. The changes resulting from the Dodd-Frank Act or any changes to the regulations already implemented thereunder may require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations or principles, or changes thereto, may negatively impact our business, results of operations or financial condition. While we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation, these changes could be materially adverse to us and our stockholders.
We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business.
Legislative or other actions relating to taxes could have a negative effect on us, our investments or our stockholders. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Stockholders are urged to consult with their tax advisors regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.
Legislation that became effective in 2018 may allow the Company to incur additional leverage, which could increase the risk of investing in the Company.
The 1940 Act generally prohibits the Company from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However, in March 2018, the SBCA was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150%, if certain requirements are met. Under the 1940 Act, the Company is allowed to increase its leverage capacity if our stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Acts allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such proposal. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.
Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, our stockholders will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the NAV attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect the Company’s ability to pay common stock dividends, scheduled debt payments or other payments related to our securities.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Regulation”. Our intent is that a substantial portion of the investments that we acquire will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act provisions applicable to BDCs and possibly lose our statustax treatment as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.
We will become subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code.
We have elected, and qualifiedintend to qualify annually, to be treated as a RIC under Subchapter M of the Code and intend to maintain such qualification for succeeding tax years.Code. No assurance can be given that we will be able to qualify for and maintain our RIC tax treatment.qualification as a RIC. To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.
| ● | The annual distribution requirement for a RIC is satisfied if we timely distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized short-term capital gains in excess of realized net long-term capital losses. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income. |
| ● | The source of income requirement is satisfied if we obtain at least 90% of our gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code). |
| ● | The asset diversification requirement is satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”). In addition, no more than 25% of the value of our assets can be invested in the securities, other than U.S Government securities or securities of other RICs, (1) of one issuer (2) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (3) of one or more “qualified publicly traded partnerships”. |
If we fail to qualify for RIC tax treatment for any reason and remain or becomeare subject to corporate-level U.S. federal income tax, the resulting corporatecorporate-level taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. SuchIn addition, to the extent we had unrealized gains, we would have to establish deferred tax liabilities for taxes, which would reduce our NAV accordingly. In addition, our stockholders would lose the tax credit realized if we, as a failure wouldRIC, decide to retain the net realized capital gain and make deemed distributions of net realized capital gains, and pay taxes on behalf of our stockholders at the end of the tax year. The loss of this pass-through tax treatment could have a material adverse effect on the total return of an investment in our results of operations and financial conditions, and thus, our stockholders.
Risks Relating to an Investment in Our Securities
Investing in our securities may involve an above average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk and, therefore, an investment in our securities may not be suitable for someone with lower risk tolerance.
Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount to their NAV.
Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount from NAV. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our NAV per share may decline. WeOur common stock has recently traded and currently trades at a discount to NAV, and we cannot predict whether our common stock will trade at, above or below NAV.
The market price of our common stock may fluctuate significantly.
The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance.
These factors include:
| ● | significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of the companies; |
| ● | changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to BDCs or RICs; |
| ● | loss of our qualification as a RIC or BDC; |
| ● | changes in earnings or variations in operating results; |
| ● | changes in the value of our portfolio of investments; |
| ● | changes in accounting guidelines governing valuation of our investments; |
| ● | any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; |
| ● | departure of our key personnel; |
| ● | operating performance of companies comparable to us; |
| ● | general economic trends and other external factors; |
| ● | loss of a major funding source; and |
| ● | the length and duration of the COVID-19 outbreak in the U.S. as well as worldwide and the magnitude of the economic impact of that outbreak. |
Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.
Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
The Delaware General Corporation Law, our certificate of incorporation and our bylaws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price of our common stock.
The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock.
While we currently do not have the requisite stockholder approval to sell shares of our common stock at a price or prices below our then current NAV per share, we may seek such approval in the future. In addition, at our 2012 Annual Meeting of Stockholders, we received approval from our stockholders to authorize the Company, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement. Such authorization has no expiration.
Any decision to sell shares of our common stock below its then current NAV per share or issue securities to subscribe for or convertible into shares of our common stock would be subject to the determination by our board of directors that such issuance is in our and our stockholders’ best interests.
If we were to sell shares of our common stock below its then current NAV per share, such sales would result in an immediate dilution to the NAV per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.
If we issue warrants or securities to subscribe for or convertible into shares of our common stock, subject to certain limitations, the exercise or conversion price per share could be less than NAV per share at the time of exercise or conversion (including through the operation of anti-dilution protections). Because we would incur expenses in connection with any issuance of such securities, such issuance could result in a dilution of the NAV per share at the time of exercise or conversion. This dilution would include reduction in NAV per share as a result of the proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest than the increase in our assets resulting from such issuance.
Further, if our current stockholders do not purchase any shares to maintain their percentage interest, regardless of whether such offering is above or below the then current NAV per share, their voting power will be diluted. For example, if we sell an additional 10% of our shares of common stock at a 5% discount from NAV, a stockholder who does not participate in that offering for its proportionate interest will suffer NAV dilution of up to 0.5% or $5 per $1,000 of NAV.
The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
The Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of September 30, 2017, before netting out debt issuance costs, there was $102.0 million outstanding under our Term Loan Facility, $68.0 million outstanding under our Revolving Credit Facility, and $150.0 million SBA-guaranteed debentures outstanding. The indebtedness under the Facilities and the SBA-guaranteed debentures are effectively senior to the Notes to the extent of the value of the assets securing such indebtedness.
The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of the Company and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiary we may acquire or create in the future. Any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Although our subsidiaries currently do not have any indebtedness outstanding, they may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.
The indenture under which the Notes were issued contains limited protection for holders of the Notes.
The indenture under which the Notes were issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes place no restrictions on our or our subsidiaries’ ability to:
| ● | issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a)(1) of the 1940 Act, or any successor provisions. These provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings. As of September 30, 2021 the Company’s asset coverage was 285.6% after giving effect to leverage; |
| ● | pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(1) of the 1940 Act, or any successor provisions. These provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase. As of September 30, 2021, the Company’s asset coverage was 285.6% after giving effect to leverage; |
| ● | sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
| ● | enter into transactions with affiliates; |
| ● | create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
| ● | make investments; or |
| ● | create restrictions on the payment of dividends or other amounts to us from our subsidiaries. |
In addition, the indenture does not require us to offer to purchase the Notes in connection with a change of control or any other event.
Furthermore, the terms of the indenture and the Notes generally do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity other than as described under the indenture. Any changes, while unlikely, to the financial tests in the 1940 Act could affect the terms of the Notes.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes. Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. For example, the indenture under which the Notes will be issued does not contain cross-default provisions that are contained in the Facilities. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.
An active trading market for the Notes may not develop or be sustained, which could limit the market price of the Notes or your ability to sell them.
Although the Notes are listed on the NYSENASDAQ Global Market (“NASDAQ”) under the symbols “MCV,“PFXNL,” in the case of the 2023 Notes, and “MCX,” in the case of the 2021 Notes,, we cannot provide any assurances that an active trading market will develop or be sustained for the Notes or that you will be able to sell your Notes. At various times, the Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. To the extent an active trading market is not sustained, the liquidity and trading price for the Notes may be harmed.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
Any default under the agreements governing our indebtedness including a default under the Facilities or other indebtedness to whichthat we may be a partyincur in the future that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, (including the Facilities), we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Facilities or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under the Facilities or other debt that we may incur in the future to avoid being in default. If we breach our covenants under the Facilities or otherour debt and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under the Facilities or othersuch debt, the lenders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt. Because the Facilities have, and any future credit facilitiesfacility will likely have customary cross-default provisions, if the indebtedness under the Notes the Facilities or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.
We may choose to redeem the Notes when prevailing interest rates are relatively low.
We may choose to redeem the Notes from time to time, especially if prevailing interest rates are lower than the rate borne by the Notes. If prevailing rates are lower at the time of redemption, and we redeem the Notes, you likely would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes being redeemed. Our redemption right also may adversely impact your ability to sell the Notes as the optional redemption date or period approaches.
If we issue preferred stock, the NAV and market value of our common stock may become more volatile.
If we issue preferred stock, we cannot assure you that such issuance would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock would likely cause the NAV and market value of our common stock to become more volatile. If the dividend rate on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of our common stock than if we had not issued preferred stock. Any decline in the NAV of our investments would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in NAV to the holders of our common stock than if we were not leveraged through the issuance of preferred stock. This greater NAV decrease would also tend to cause a greater decline in the market price for our common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher advisory fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of our common stock and may at times have disproportionate influence over our affairs.
Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.
Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of the board of directors at all times and in the event dividends become two full years in arrears, would have the right to elect a majority of our directors until such arrearage is completely eliminated. In addition, preferred stockholders would have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly would be able to veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of our Facilities,any credit facility to which MCC is a party, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.
None.
We do not own any real estate or other physical properties materially important to our operation. OurWe have entered into a 5-year operating lease for our headquarters are currently located at 280445 Park Avenue, 6th10th Floor, East, New York, NY 10017. Our administrator furnishes us office space and we reimburse it for such costs on an allocated basis.
From time to time, we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. Except as described below, we are not currently party to any material legal proceedings.
Medley LLC, the Company, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and the Company were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and the Company were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit on May 29, 2015, by Moshe Barkatcaptioned Christina Williams and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Scott Avila (“Avila”), Charles Sweet,Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pendingJohn Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the California SuperiorUnited States District Court Los Angeles County, Centralfor the Eastern District of Pennsylvania, as Case No. BC 583437.2:18-cv-2747 (the “Pennsylvania Class Action”). The Company and Medley Opportunity Fund II, LP were also named as defendants, along with various other parties, in a putative class action lawsuit captioned Charles McDaniel v. American Web Loan, Inc., AWL, Inc., Mark Curry, Medley Capital Corporation, Medley Opportunity Fund II, LP, and Red Stone, Inc., filed on August 7, 2020 and amended on October 22, 2020 in the First Judicial Circuit of Ohio County, West Virginia, Case No. 20-C-169, which case was filed after MCC, as agentthen removed to the United States District Court for the lender group, exercised remedies following a seriesNorthern District of defaults by MVFWest Virginia on December 15, 2020 (the “West Virginia Class Action” and MVF Holdings on a secured loantogether with an outstanding balance at the timeVirginia Class Actions and the Pennsylvania Class Action, the “Class Action Complaints”). The plaintiffs in excessthe Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of $65 million.the alleged payday lending activities of American Web Loan. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against themMedley Opportunity Fund II LP, Medley LLC, the Company, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); Medley Opportunity Fund II LP (in the Pennsylvania Class Action); and Medley Opportunity Fund II LP and the Company (in the West Virginia Class Action), allege that those defendants in exchangeeach respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The loan was made by Medley Opportunity Fund II LP in 2011.
By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for paymentall purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of $1.5 million. Followingvoluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a separate lawsuit by Mr. Barkat against MVF's D&O insurance carrier,notice of voluntary dismissal of all claims. On October 30, 2020, Plaintiffs in the carrier, Charles Sweet and MVF have settled thePennsylvania Class Action filed a Stipulation of Dismissal of all claims against them.all defendants with prejudice, and on November 2, 2020, the Court presiding over the Pennsylvania Class Action ordered Plaintiffs’ claims dismissed with prejudice. On June 6, 2016, the court granted the defendants' demurrers on several counts and dismissed Mr. Barkat's claims except with respect to his claim for intentional interference with contract. MCC and the other defendants continue to dispute the remaining allegations and are vigorously defending the lawsuit while pursuing affirmative counterclaims against Mr. Barkat and MVF Holdings. On AugustJanuary 29, 2016, MVF Holdings filed another lawsuit2021, Plaintiff in the California SuperiorWest Virginia Class Action filed a motion to stay proceedings to permit revision and final approval of a revised settlement agreement in Class Action 1, and also on January 29, 2021, the Court Los Angeles County, Central District,presiding over the West Virginia Class Action granted that motion and stayed the West Virginia Class Action.
On April 16, 2020, the parties to Class Action 1 reached a settlement reflected in a Settlement Agreement (the “Settlement Agreement”) that has been publicly filed in Class Action 1 (ECF No. 414-1). Among other things, upon satisfaction of the conditions specified in the Settlement Agreement and upon the Effective Date, the Settlement Agreement (capitalized terms not otherwise defined have the meaning set forth in the Settlement Agreement): (1) requires Plaintiffs to seek certification of a nationwide settlement class of all persons in the United States to whom American Web Loan lent money from February 10, 2010 through a future date on which the Court may enter a Preliminary Approval Order as Case No. BC 631888 (the “Derivative Action”)to the Settlement Agreement (which certification Defendants have agreed not to oppose); (2) requires American Web Loan, and only American Web Loan, to pay Monetary Consideration of $65,000,000 (none of Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., naming Medley asGroup, LLC, Brook Taube, or Seth Taube are paying any Monetary Consideration pursuant to the Settlement Agreement); (3) requires American Web Loan, and only American Web Loan, to cancel (as a defendant, among others. In the Derivative Action, MVF Holdings reasserts substantially the samedisputed debt) and release all claims that were previously assertedrelate to or arise out of the loans in eachits Collection Portfolio, which is valued at Seventy-Six Million Dollars ($76,000,000) and comprised of their three prior complaints. MVF Holdingsloans to more than 39,000 borrowers (none of Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, or Seth Taube have any interest in any of the loans that are being cancelled); (4) requires American Web Loan and Curry to provide certain Non-Monetary Benefits (none of Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, or Seth Taube are conferring any Non-Monetary Benefits pursuant to the Settlement Agreement); (5) fully, finally, and forever releases Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube from any and all claims, for breach of fiduciary duty and related causes of action, have already been dismissedsuits, obligations, debts, demands, agreements, promises, liabilities, damages, losses, controversies, costs, expenses and attorneys’ fees of any nature whatsoever, whether arising under federal law, state law, common law or equity, tribal law, foreign law, territorial law, contract, rule, regulation, any regulatory promulgation (including, but not limited to, any opinion or declaratory ruling), or any other law, including Unknown Claims, whether suspected or unsuspected, asserted or unasserted, foreseen or unforeseen, actual or contingent, liquidated or unliquidated, punitive or compensatory, as of the date of the Final Fairness Approval Order and Judgment, that relate to or arise out of loans made by and/or in the name of AWL (including loans issued in the name of American Web Loan, Inc. or Clear Creek Lending) as of the date of entry of the Preliminary Approval Order (with the exception of claims to enforce the Settlement or the Judgment); (6) provides for a mutual general release between Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube on the one hand, and American Web Loan and Curry on the other hand; and (7) provides that, as of the future Effective Date, none of Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube shall (i) be entitled to indemnification from AWL Defendants (as defined in the Settlement Agreement) or (ii) bring any claim against any Released Parties, including American Web Loan and Curry, that relate to or arise out of loans made by and/or in the name of AWL (including loans issued in the name of American Web Loan, Inc. or Clear Creek Lending) as of the date of entry of the Preliminary Approval Order (with the exception of claims to enforce the Settlement or the Judgment).
On March 31, 2021, the parties to Class Action 1 and the Objectors filed a revised settlement agreement publicly in Class Action 1 (ECF No. 483-1) (the “Revised Settlement Agreement”). As relevant to Medley LLC, the Company, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube, the terms of the Revised Settlement Agreement do not differ from the terms of the original Settlement Agreement. On April 7, 2021, the Court presiding over Class Action 1 held a hearing on Plaintiffs’ motion for preliminary approval of the Revised Settlement Agreement, and entered an order granting preliminary approval of the revised settlement (the “Preliminary Approval Order”). Pursuant to the Preliminary Approval Order, the Court held a Final Approval Hearing relating to the Revised Settlement Agreement on July 9, 2021, and following the hearing, granted Final Approval of the Revised Settlement Agreement and entered the Final Judgment. The effective date of the Revised Settlement Agreement occurred on August 26, 2021.
On or about January 28, 2021, a purported class action lawsuit, captioned Kahn v. PhenixFIN Corporation, et al., was filed against the Company and its directors in the Court of Chancery of the State of Delaware. Plaintiffs allege that a provision in the Company’s bylaws, which provides that directors may be removed from office for cause by the California Superior Court on several occasions, most recently, on June 6, 2016, whenaffirmative vote of 75% of capital stock entitled to vote, is inconsistent with provisions of the Delaware General Corporate Law, which plaintiffs allege would permit removal for cause by a simple majority of capital stock entitled to vote. The plaintiffs seek a declaration that the bylaw provision is invalid and to enjoin the defendants from enforcing it, as well as a reasonable allowance of attorneys’ fee. On February 10, 2021, the Board of the Company approved an amendment to the Company’s Bylaws, which, among other things, allows for the removal of directors for cause by affirmative vote of the holders of a majority of the capital stock entitled to vote at an election of directors.
On May 5, 2021, plaintiffs filed a notice and proposed order voluntarily dismissing the Action as moot and providing that jurisdiction would be retained solely to resolve an anticipated application for attorneys’ fees and expenses, which proposed order was granted by the Court dismissed those claimsof Chancery on May 5, 2021. The parties to the Action subsequently agreed to a payment by PhenixFIN to plaintiffs’ counsel of $25,000, in full satisfaction of their claim for attorneys’ fees, expenses and costs in connection with prejudice. Medleythe Action. The Court of Chancery has not been asked to review or approve, and will pass no judgment on, this payment. The Court of Chancery granted the other defendants believe the outstanding claims for alleged interference with Mr. Barkat's employment contract, and the other causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense.
None.
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of Common Stock
As of September 30, 2021, we had 11stockholders of record of our common stock, which did not include stockholders for whom shares are held in “nominee” or “street name.”
The following table listssets forth, for the periods indicated, the range of high and low closing sale prices forof our common stock and the closing sale pricessales price as a percentage of the net asset value or NAV, and the dividends per share declared by us for each fiscal quarter during the years ended September 30, 2017 and 2016.
| Closing Sales Price | ||||||||||||||||||||||
| Period | NAV(1) | High | Low | Premium/Discount of High Sales Price to NAV(2) | Premium/Discount of Low Sales Price to NAV(2) | Declared Dividends(3) | ||||||||||||||||
| Fiscal year ended September 30, 2017 | ||||||||||||||||||||||
| First quarter | $ | 9.39 | $ | 7.87 | $ | 6.96 | 83.81 | % | 74.12 | % | $ | 0.22 | ||||||||||
| Second quarter | $ | 8.94 | $ | 8.00 | $ | 7.40 | 89.49 | % | 82.77 | % | $ | 0.22 | ||||||||||
| Third quarter | $ | 8.84 | $ | 7.84 | $ | 5.96 | 88.69 | % | 67.42 | % | $ | 0.16 | ||||||||||
| Fourth quarter | $ | 8.45 | $ | 6.57 | $ | 5.79 | 77.75 | % | 68.52 | % | $ | 0.16 | ||||||||||
| Fiscal year ended September 30, 2016 | ||||||||||||||||||||||
| First quarter | $ | 10.01 | $ | 8.16 | $ | 7.01 | 81.52 | % | 70.03 | % | $ | 0.30 | ||||||||||
| Second quarter | $ | 9.80 | $ | 7.74 | $ | 5.37 | 78.98 | % | 54.80 | % | $ | 0.30 | ||||||||||
| Third quarter | $ | 9.76 | $ | 6.95 | $ | 6.26 | 71.21 | % | 64.14 | % | $ | 0.30 | ||||||||||
| Fourth quarter | $ | 9.49 | $ | 7.77 | $ | 7.05 | 81.88 | % | 74.29 | % | $ | 0.22 | ||||||||||
| Premium/ | Premium/ | |||||||||||||||||||
| Closing Market Price | (Discount) of High Market | (Discount) of Low Market | ||||||||||||||||||
| NAV(1) | High | Low | Price to NAV (2) | Price to NAV (2) | ||||||||||||||||
| Fiscal year ending September 30, 2021 | ||||||||||||||||||||
| Fourth Quarter | $ | 57.08 | $ | 43.35 | $ | 40.10 | (24.05 | )% | (29.75 | )% | ||||||||||
| Third Quarter | 58.49 | 42.76 | 32.80 | (26.89 | )% | (43.92 | )% | |||||||||||||
| Second Quarter | 55.91 | 33.99 | 27.70 | (39.21 | )% | (50.46 | )% | |||||||||||||
| First Quarter | 52.94 | 29.88 | 18.14 | (43.56 | )% | (65.73 | )% | |||||||||||||
| Fiscal year ending September 30, 2020 | ||||||||||||||||||||
| Fourth Quarter | $ | 55.30 | $ | 18.19 | $ | 12.40 | (67.11 | )% | (77.58 | )% | ||||||||||
| Third Quarter | 54.83 | 18.70 | 9.00 | (65.89 | )% | (83.59 | )% | |||||||||||||
| Second Quarter | 52.04 | 45.00 | 7.00 | (13.53 | )% | (86.55 | )% | |||||||||||||
| First Quarter | 80.99 | 52.60 | 38.60 | (35.05 | )% | (52.34 | )% | |||||||||||||
| Fiscal year ending September 30, 2019 | ||||||||||||||||||||
| Fourth Quarter | $ | 79.40 | $ | 56.20 | $ | 44.80 | (29.22 | )% | (43.58 | )% | ||||||||||
| Third Quarter | 91.00 | 69.00 | 44.00 | (24.18 | )% | (51.65 | )% | |||||||||||||
| Second Quarter | 102.20 | 72.00 | 52.40 | (29.55 | )% | (48.73 | )% | |||||||||||||
| First Quarter | 112.20 | 79.00 | 53.20 | (29.59 | )% | (52.58 | )% | |||||||||||||
| (1) | Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low market prices. The net asset value per share shown is based on outstanding shares at the end of the period. |
| (2) | Calculated as of the respective high or low closing market price divided by the quarter end net asset value. |
For all periods presented in the table above, there was no return of capital included in any distribution.
Shares of business development companies may trade at a market price that is less than the value of the last day innet assets attributable to those shares. The possibility that our shares of common stock will trade at a discount or premium to net asset value is separate and distinct from the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.
The last reported closing price forof our common stock on December 6, 201715, 2021 was $5.75$42.38 per share.share, approximately 74.25% of the Company’s then-current NAV. As of September 30, 2017,December 15, 2021 we had 1211 stockholders of record.
Sales of the approval date and February 5, 2016. On December 4, 2015, the board of directors extended the duration of the share repurchase program through December 31, 2016, and increased the aggregate amount to $50.0 million. On December 7, 2016, the board of directors extended the duration of the share repurchase program through December 31, 2017. Any stock repurchases will be made through the open market at times, and in such amounts, as management deems appropriate. Unregistered Securities
We did not repurchasesell any shares duringsecurities within the year ended September 30, 2017.
| Record Dates | Payment Dates | Per Share | ||||
| Fiscal year ended September 30, 2011 | ||||||
| June 1, 2011 | June 15, 2011 | $ | 0.16 | |||
| September 1, 2011 | September 15, 2011 | 0.21 | ||||
| Total | $ | 0.37 | ||||
| Fiscal year ended September 30, 2012 | ||||||
| December 15, 2011 | December 30, 2011 | $ | 0.25 | |||
| February 24, 2012 | March 15, 2012 | 0.28 | ||||
| May 25, 2012 | June 15, 2012 | 0.31 | ||||
| August 24, 2012 | September 14, 2012 | 0.36 | ||||
| Total | $ | 1.20 | ||||
| Fiscal year ended September 30, 2013 | ||||||
| November 23, 2012 | December 14, 2012 | $ | 0.36 | |||
| February 27, 2013 | March 15, 2013 | 0.36 | ||||
| May 27, 2013 | June 14, 2013 | 0.36 | ||||
| August 23, 2013 | September 13, 2013 | 0.37 | ||||
| Total | $ | 1.45 | ||||
| Fiscal year ended September 30, 2014 | ||||||
| November 22, 2013 | December 13, 2013 | $ | 0.37 | |||
| February 26, 2014 | March 14, 2014 | 0.37 | ||||
| May 28, 2014 | June 13, 2014 | 0.37 | ||||
| August 27, 2014 | September 12, 2014 | 0.37 | ||||
| Total | $ | 1.48 | ||||
| Fiscal year ended September 30, 2015 | ||||||
| November 26, 2014 | December 12, 2014 | $ | 0.37 | |||
| February 25, 2015 | March 13, 2015 | 0.30 | ||||
| May 20, 2015 | June 12, 2015 | 0.30 | ||||
| August 19, 2015 | September 11, 2015 | 0.30 | ||||
| Total | $ | 1.27 | ||||
| Fiscal year ended September 30, 2016 | ||||||
| November 25, 2015 | December 18, 2015 | $ | 0.30 | |||
| February 24, 2016 | March 18, 2016 | 0.30 | ||||
| May 25, 2016 | June 24, 2016 | 0.30 | ||||
| August 24, 2016 | September 23, 2016 | 0.22 | ||||
| Total | $ | 1.12 | ||||
| Fiscal year ended September 30, 2017 | ||||||
| November 23, 2016 | December 23, 2016 | $ | 0.22 | |||
| February 22, 2017 | March 24, 2017 | 0.22 | ||||
| May 24, 2017 | June 23, 2017 | 0.16 | ||||
| August 23, 2017 | September 22, 2017 | 0.16 | ||||
| Total | $ | 0.76 | ||||
Stock Performance Graph
This graph compares the stockholder return on our common stock from January 20, 2011 (IPO)September 30, 2016 to September 30, 20172021 with that of the Standard & Poor’s 500 Stock Index and the Russell 2000 Financial Services Index. This graph assumes that on January 20, 2011,September 30, 2016, $100 was invested in our common stock, the S&P 500 Index, and the Russell 2000 Financial Services Index. The graph also assumes the reinvestment of all cash dividends prior to any tax effect. Investment performance shown for periods prior to January 1, 2021 was achieved pursuant to our former externally-managed structure.
The graph and other information furnished under this Part II Item 5 of this annual report on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the below graph is not necessarily indicative of future stock performance.
Issuer Purchases of Securities
Information relating to the Company’s purchases of its common stock during the year ended September 30, 2021is as follows:
| Month Ended | Shares Repurchased | Repurchase Price Per Share | Aggregate Consideration for Repurchased Shares | |||||||||
| February 2021 | 13,082 | $30.25 - $30.96 | $ | 397,384 | ||||||||
| March 2021 | 12,241 | $30.25 - $34.42 | 393,938 | |||||||||
| April 2021 | 14,390 | $33.11 - $34.89 | 491,469 | |||||||||
| May 2021 | 25,075 | $34.56 - $39.93 | 976,440 | |||||||||
| August 2021 | 141,700 | $41.03 - $42.28 | 5,944,213 | |||||||||
| Total | 206,488 | $ | 8,203,444 | |||||||||
53
The following selected consolidated financial data should be read in conjunction with Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. The following selected financial and other data for the years ended September 30, 2021, 2020, 2019, 2018, and 2017 2016, 2015, 2014, and 2013(dollars in thousands, except per share amounts) is derived from the audited consolidated financial statements for such years, and included in Part II, Item 8, Consolidated Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
| For the years ended September 30, | ||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||
| Statement of Operations data: | ||||||||||||||
| Total investment income | 96,256 | 120,749 | 149,196 | 139,390 | 88,991 | |||||||||
| Base management fees | 17,773 | 19,470 | 22,450 | 17,684 | 10,918 | |||||||||
| Incentive fees | 896 | 11,492 | 18,234 | 18,667 | 11,600 | |||||||||
| All other expenses | 41,309 | 39,843 | 35,576 | 28,371 | 20,074 | |||||||||
| Management fee waiver | (48 | ) | (143 | ) | — | — | — | |||||||
| Incentive fee waiver | (44 | ) | (3,504 | ) | — | — | — | |||||||
| Net investment income | 36,370 | 53,591 | 72,936 | 74,668 | 46,399 | |||||||||
| Net realized gain/(loss) on investments | (73,086 | ) | (39,383 | ) | (60,910 | ) | 356 | 261 | ||||||
| Net unrealized appreciation/(depreciation) on investments | 21,644 | (42,257 | ) | (26,723 | ) | (21,274 | ) | (7,242 | ) | |||||
| Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | 1,092 | 87 | (61 | ) | (1,592 | ) | — | |||||||
| Loss on extinguishment of debt | (1,097 | ) | — | — | — | — | ||||||||
| Net increase/(decrease) in net assets resulting from operations | (15,077 | ) | (27,962 | ) | (14,758 | ) | 52,158 | 39,418 | ||||||
| Per share data: | ||||||||||||||
| Net asset value per common share at year end | 8.45 | 9.49 | 11.00 | 12.43 | 12.70 | |||||||||
| Market price at year end | 5.97 | 7.63 | 7.44 | 11.81 | 13.79 | |||||||||
| Net investment income | 0.67 | 0.97 | 1.27 | 1.58 | 1.53 | |||||||||
| Net realized and unrealized loss on investments | (0.94 | ) | (1.47 | ) | (1.52 | ) | (0.45 | ) | (0.23 | ) | ||||
| Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | 0.02 | — | (0.01 | ) | (0.03 | ) | — | |||||||
| Loss on extinguishment of debt | (0.02 | ) | — | — | — | — | ||||||||
| Net increase/(decrease) in net assets resulting from operations | (0.28 | ) | (0.50 | ) | (0.26 | ) | 1.10 | 1.30 | ||||||
| Dividends paid | 0.76 | 1.12 | 1.27 | 1.48 | 1.45 | |||||||||
| Statement of Assets and Liabilities data: | ||||||||||||||
| Total investments at fair value | 836,991 | 914,184 | 1,216,092 | 1,245,538 | 749,237 | |||||||||
| Cash and cash equivalents | 108,572 | 104,485 | 15,714 | 36,731 | 8,558 | |||||||||
Other assets(2) | 13,997 | 12,211 | 12,276 | 30,189 | 10,075 | |||||||||
| Total assets | 959,560 | 1,030,880 | 1,244,082 | 1,312,458 | 767,870 | |||||||||
| Total liabilities | 499,131 | 513,961 | 624,162 | 582,601 | 258,036 | |||||||||
| Total net assets | 460,429 | 516,919 | 619,920 | 729,857 | 509,834 | |||||||||
| Other data: | ||||||||||||||
Weighted average annual yield on debt investments(1) | 10.8 | % | 11.8 | % | 12.3 | % | 12.6 | % | 13.8 | % | ||||
| Number of investments at year end | 64 | 58 | 72 | 79 | 57 | |||||||||
| For the years ended September 30 | ||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||
| Statement of Operations data: | ||||||||||||||||||||
| Total investment income | $ | 32,307 | $ | 21,522 | $ | 46,299 | $ | 66,820 | $ | 96,256 | ||||||||||
| Base management fees | 1,146 | 6,359 | 11,190 | 14,724 | 17,773 | |||||||||||||||
| Incentive fees | - | - | - | - | 896 | |||||||||||||||
| All other expenses | 12,638 | 17,883 | 55,976 | 40,072 | 41,309 | |||||||||||||||
| Management fee waiver | - | - | - | (380 | ) | (48 | ) | |||||||||||||
| Incentive fee waiver | - | - | - | - | (44 | ) | ||||||||||||||
| Net investment income/(loss) | 18,523 | (2,720 | ) | (20,867 | ) | 12,404 | 36,370 | |||||||||||||
| Net realized gains/(losses) on investments | (42,486 | ) | (49,979 | ) | (112,173 | ) | (89,221 | ) | (73,086 | ) | ||||||||||
| Net unrealized appreciation/(depreciation) on investments | 25,363 | (10,633 | ) | 38,498 | (32,194 | ) | 21,644 | |||||||||||||
| Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | - | - | - | 474 | 1,092 | |||||||||||||||
| Loss on extinguishment of debt | (122 | ) | (2,481 | ) | (2,033 | ) | (2,387 | ) | (1,097 | ) | ||||||||||
| Net increase/(decrease) in net assets resulting from operations | 1,278 | (65,813 | ) | (96,575 | ) | (110,924 | ) | (15,077 | ) | |||||||||||
| Per share data: | ||||||||||||||||||||
| Net asset value per common share at year end | $ | 57.08 | $ | 55.30 | $ | 79.46 | $ | 117.92 | $ | 169.04 | ||||||||||
| Market price at year end | 42.90 | 17.83 | 51.80 | 76.40 | 119.40 | |||||||||||||||
| Net investment income/(loss) | 6.92 | (1.00 | ) | (7.66 | ) | 4.55 | 13.35 | |||||||||||||
| Net realized and unrealized gains/(losses) on investments | (6.39 | ) | (22.25 | ) | (27.04 | ) | (44.58 | ) | (18.88 | ) | ||||||||||
| Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | - | - | - | 0.17 | 0.40 | |||||||||||||||
| Loss on extinguishment of debt | (0.05 | ) | (0.91 | ) | (0.75 | ) | (0.88 | ) | (0.40 | ) | ||||||||||
| Net increase/(decrease) in net assets resulting from operations | 0.48 | (24.16 | ) | (35.45 | ) | (40.74 | ) | (5.53 | ) | |||||||||||
| Dividends paid | - | - | 3.00 | 10.40 | 15.20 | |||||||||||||||
| Statement of Assets and Liabilities data: | ||||||||||||||||||||
| Total investments at fair value | $ | 151,640 | $ | 246,744 | $ | 396,889 | $ | 655,430 | $ | 836,991 | ||||||||||
| Cash and cash equivalents | 69,433 | 56,522 | 68,245 | 75,666 | 108,572 | |||||||||||||||
| Other assets | 4,019 | 2,837 | 21,133 | 10,500 | 13,997 | |||||||||||||||
| Total assets | 225,092 | 306,103 | 486,267 | 741,596 | 959,560 | |||||||||||||||
| Total liabilities | 81,398 | 155,483 | 269,834 | 420,417 | 499,131 | |||||||||||||||
| Total net assets | 143,694 | 150,620 | 216,433 | 321,179 | 460,429 | |||||||||||||||
| Other data: | ||||||||||||||||||||
| Weighted average annual yield on debt investments(1) | 6.75 | % | 8.50 | % | 9.50 | % | 9.90 | % | 10.80 | % | ||||||||||
| Total return based on market value(2) | 140.61 | % | (65.58 | )% | (29.91 | )% | (27.82 | )% | (12.73 | )% | ||||||||||
| Total return based on net asset value(3) | (4.60 | )% | (30.41 | )% | (29.47 | )% | (21.29 | )% | (0.68 | )% | ||||||||||
| Number of portfolio companies | 42 | 42 | 51 | 67 | 64 | |||||||||||||||
| (1) | The weighted average yield is based upon original cost on our income bearing debt investments. |
| (2) |
| (3) | Total return is historical and assumes changes in NAV, reinvestments of all dividends and distributions at prices obtained under the |
The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this annual report on Form 10-K.
Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to Medley CapitalPhenixFIN Corporation.
Forward-Looking Statements
Some of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including statements as to:
| ● | the introduction, withdrawal, success and timing of business initiatives and strategies; |
| ● | changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes in the value of our assets; |
| ● | the impact of increased competition; |
| ● | the impact of future acquisitions and divestitures; |
| ● | our business prospects and the prospects of our portfolio companies; |
| ● | the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us; |
| ● | our contractual arrangements and relationships with third parties; |
| ● | any future financings by us; |
| ● | fluctuations in foreign currency exchange rates; |
| ● | the impact of changes to tax legislation and, generally, our tax position; |
| ● | our ability to locate suitable investments for us and to monitor and administer our investments; |
| ● | our ability to attract and retain highly talented professionals; |
| ● | market conditions and our ability to access alternative debt markets and additional debt and equity capital; |
| ● | the unfavorable resolution of legal proceedings; |
| ● | uncertainties associated with the impact from the COVID-19 pandemic: including its impact on the global and U.S. capital markets and the global and U.S. economy; the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the operational and financial performance of our portfolio companies, including our and their ability to achieve their respective objectives; and the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business; and |
| ● | risks and uncertainties relating to the possibility that the Company may explore strategic alternatives, including, but are not limited to: the timing, benefits and outcome of any exploration of strategic alternatives by the Company; potential disruptions in the Company’s business and stock price as a result of our exploration of any strategic alternatives; the ability to realize anticipated efficiencies, or strategic or financial benefits; potential transaction costs and risks; and the risk that any exploration of strategic alternatives may have an adverse effect on our existing business arrangements or relationships, including our ability to retain or hire key personnel. There is no assurance that any exploration of strategic alternatives will result in a transaction or other strategic change or outcome. |
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this annual report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this annual report on Form 10-K.
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. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. 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 have filed or in the future may file with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.
COVID-19 Developments
COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of COVID-19 continues to evolve and many countries, including the United States, have reacted at various stages of the pandemic by instituting quarantines, restricting travel, and temporarily closing or limiting capacity at many corporate offices, retail stores, restaurants, fitness clubs and manufacturing facilities and factories in affected jurisdictions. Such actions have created disruption in global supply chains and adversely impacted a number of industries. The outbreak has had and could continue to have an adverse impact on economic and market conditions and trigger a period of global economic slowdown.
We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets. Given the continuing development and fluidity of this situation, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time. Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments. We believe our portfolio companies have taken immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related orders imposed by state and local governments, including developing liquidity plans supported by internal cash reserves, shareholder support, and, as appropriate, accessing their ability to participate in the government Paycheck Protection Program. The Company’s performance was negatively impacted during the pandemic. The longer-term impact of COVID-19 on the operations and the performance of the Company (including certain portfolio companies) is difficult to predict, but may also be adverse. The longer-term potential impact on such operations and performance could depend to a large extent on future developments and actions taken by authorities and other entities to mitigate COVID-19 and its economic impact. The impacts, as well as the uncertainty over impacts to come, of COVID-19 have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown. COVID-19 presents material uncertainty and risks with respect to the underlying value of the Company’s portfolio companies, the Company’s business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.
We have evaluated subsequent events from September 30, 2021 through the filing date of this annual report on Form 10-K. However, as the discussion in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the Company’s financial statements for the quarterly period ended June 30, 2021, the analysis contained herein may not fully account for impacts relating to the COVID-19 pandemic. In that regard, for example, as of September 30, 2021, the Company valued its portfolio investments in conformity with U.S. generally accepted accounting principles (“GAAP”) based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time. Due to the overall volatility that the COVID-19 pandemic may have caused during the months following our most recent valuation (as of September 30, 2021), any valuations conducted now or in the future in conformity with U.S. GAAP could result in a lower fair value of our portfolio. The longer-term impact of COVID-19 on the operations and the performance of the Company (including certain portfolio companies) is difficult to predict, but may also be adverse. The longer-term potential impact on such operations and performance could depend to a large extent on future developments and actions taken by authorities and other entities to contain COVID-19 and its economic impact. The impacts, as well as the uncertainty over impacts to come, of COVID-19 (including the Delta variant) have adversely affected the performance of the Company and may continue to do so in the future. Further, the potential exists for additional variants of COVID-19, including the Omicron variant, to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19.
Overview
We are an externally-managed,internally-managed non-diversified closed-end management investment company that filed an electionhas elected to be regulated as a BDC under the 1940 Act. In addition, we have elected, and qualifiedintend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under subchapterSubchapter M of the Code.
We commenced operations and completed our initial public offering on January 20, 2011. Our investmentUnder our internalized management structure, our activities are managed by MCC Advisorsour senior professionals and are supervised by our board of directors, of which a majority of the members are independent of us.
The Company’s investment objective is to generate current income and capital appreciation by lendingappreciation. The management team seeks to privately-held middle market companies,achieve this objective primarily through directly originated transactions,making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or REITS.) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to help these companies fund acquisitions, growth or refinancing. Ourachieve our investment objective. The portfolio generally consists of senior secured first lien term loans, and senior secured second lien term loans. In some of our investments,loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase the total investment returns.
As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after such borrowing, with certain limited exceptions. To maintain our RIC status,tax treatment, we must meet specified source-of-income and asset diversification requirements. ToIn addition, to maintain our RIC tax treatment, under subchapter M for U.S. federal income tax purposes, we must timely distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable year.
Reverse Stock Split; Authorized Share Reduction
At the Company’s 2020 Annual Meeting of Stockholders held on June 30, 2020 (the “Annual Meeting”), stockholders approved a proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of its common stock, of 1-20 (the “Reverse Stock Split”) and with the Reverse Stock Split to be effective at such time and date, if at all, as determined by the board of directors, but not later than 60 days after stockholder approval thereof and, if and when the reverse stock split is effected, reduce the number of authorized shares of common stock by the approved reverse stock split ratio (the “Authorized Share Reduction”).
Following the Annual Meeting, on July 7, 2020, the board of directors determined that it was in the best interests of the Company and its stockholders to implement the Reverse Stock Split and the Authorized Share Reduction. Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split and the Authorized Share Reduction.
Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on July 24, 2020 (the “Effective Time”), each twenty (20) shares of common stock issued and outstanding, immediately prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, were combined and converted into one (1) share of common stock. In connection with the Reverse Stock Split, the Certificate of Amendment provided for a reduction in the number of authorized shares of common stock from 100,000,000 to 5,000,000 shares of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).
On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of its shares of common stock to the NASDAQ Global Market. The listing and trading of the common stock on the NYSE ceased at the close of trading on December 31, 2020. Since January 4, 2021, the common stock trades on the NASDAQ Global Market under the trading symbol “PFX.”
Revenues
We generate revenue in the form of interest income on the debt that we hold and capital gains, if any, on warrants or other equity interests that we may acquire in portfolio companies. We invest our assets primarily in privately held companies with enterprise or asset values between $25 million and $250 million and generally focus on investment sizes of $10 million to $50 million. We believe that pursuing opportunities of this size offers several benefits including reduced competition, a larger investment opportunity set and the ability to minimize the impact of financial intermediaries. We expect our debt investments to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either monthly or quarterly. In some cases our debt investments may provide for a portion of the interest to be PIK. To the extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned.
Expenses
In periods prior to December 31, 2020, our primary operating expenses include the payment ofincluded management and incentive fees pursuant to the investment management agreement we havehad with MCC Advisors and overhead expenses, including our allocable portion of our administrator’s overhead under the administration agreement.agreement, which were paid during the quarter ended March 31, 2021. Our management and incentive fees compensatecompensated MCC Advisors for its work in identifying, evaluating, negotiating, closing and monitoring our investments. WeOn November 18, 2020, the board of directors adopted an internally managed structure, effective January 1, 2021, under which we bear all other costs and expenses of our operations and transactions, including those relating to:
| ● | our organization and continued corporate existence; |
| ● | calculating our NAV (including the cost and expenses of any independent valuation firms); |
| ● | expenses incurred in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies; |
| ● | interest payable on debt, if any, incurred to finance our investments; |
| ● | the costs of all offerings of common stock and other securities, if any; |
| ● | operating costs associated with employing investment professionals and other staff; |
| ● | distributions on our shares; |
| ● | administration fees payable under our administration agreement; |
| ● | amounts payable to third parties relating to, or associated with, making investments; |
| ● | transfer agent and custodial fees; |
| ● | registration fees and listing fees; |
| ● | U.S. federal, state and local taxes; |
| ● | independent director fees and expenses; |
| ● | costs of preparing and filing reports or other documents with the SEC or other regulators; |
| ● | the costs of any reports, proxy statements or other notices to our stockholders, including printing costs; |
| ● | our fidelity bond; |
| ● | directors and officers/errors and omissions liability insurance, and any other insurance premiums; |
| ● | the operating lease of our office space; |
| ● | indemnification payments; and |
| ● | direct costs and expenses of administration, including audit and legal costs. |
Expense Support Agreement
On June 12, 2020, the cost and expenses of any independent valuation firms);
For the three months ended December 31, 2020, the total management fee and the other operating expenses subject to the Cap (as described above) were $2.5 million, which resulted in $0.3 million of our officersexpense support incurred during the quarter ended December 31, 2020 and their respective staffs (including travel expenses).
Portfolio and Investment Activity
As of September 30, 20172021 and 2016,2020, our portfolio had a fair market value of approximately $837.0$151.6 million and $914.2$246.7 million, respectively. The following table summarizes our portfolio and investment activity during
During the fiscal yearsyear ended September 30, 20172021, we received proceeds from sale and 2016 (dollarssettlements of investments of $124.3 million, including principal and dividend proceeds, realized net losses on investments of $42.5 million, and invested $45.3 million, of which $6.5 million was invested in thousands):
| For the years ended September 30 | |||||||
| 2017 | 2016 | ||||||
| Investments made in new portfolio companies | $ | 169,759 | $ | 25,554 | |||
| Investments made in existing portfolio companies | 62,964 | 68,905 | |||||
| Aggregate amount in exits and repayments | (276,072 | ) | (327,600 | ) | |||
| Net investment activity | $ | (43,349 | ) | $ | (233,141 | ) | |
| Portfolio Companies, at beginning of year | 58 | 72 | |||||
| Number of new portfolio companies | 35 | 2 | |||||
| Number of exited portfolio companies | (29 | ) | (16 | ) | |||
| Portfolio companies, at end of year | 64 | 58 | |||||
| Number of investments in existing portfolio companies | 15 | 17 | |||||
During the year ended September 30, 2020, we received proceeds from sale and settlements of investments of $110.6 million, including principal and dividend proceeds, realized net losses on investments of $50.0 million, and invested $16.8 million.
The following table summarizes the amortized cost and the fair value of our average portfolio company, including until its sale on October 8, 2020, the equity investment andin the MCC Senior Loan Strategy JV I LLC (“MCC JV”), which had been our largest portfolio company investment as of September 30, 2017 and 2016 (dollars in thousands):
| September 30, 2017 | September 30, 2016 | ||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
| Average portfolio company investment | $ | 14,282 | $ | 13,078 | $ | 17,464 | $ | 15,762 | |||||||
| Largest portfolio company investment | 52,137 | 50,667 | 53,777 | 51,930 | |||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
| Average portfolio company | $ | 3,100 | $ | 2,263 | $ | 7,813 | $ | 5,875 | ||||||||
| Largest portfolio company | 19,469 | 26,863 | 37,987 | 40,807 | ||||||||||||
The following table summarizes the amortized cost and the fair value of investments as of September 30, 20172021 (dollars in thousands):
| Amortized Cost | Percentage | Fair Value | Percentage | ||||||||||
| Senior Secured First Lien Term Loans | $ | 559,461 | 61.2 | % | $ | 537,163 | 64.2 | % | |||||
| Senior Secured Second Lien Term Loans | 161,885 | 17.7 | 135,826 | 16.2 | |||||||||
| Senior Secured First Lien Notes | 26,768 | 2.9 | 27,545 | 3.3 | |||||||||
| Unsecured Debt | 22,728 | 2.5 | — | — | |||||||||
| MCC Senior Loan Strategy JV I LLC | 56,087 | 6.1 | 56,138 | 6.7 | |||||||||
| Equity/Warrants | 87,124 | 9.6 | 80,319 | 9.6 | |||||||||
| Total | $ | 914,053 | 100.0 | % | $ | 836,991 | 100.0 | % | |||||
| Amortized Cost | Percentage | Fair Value | Percentage | |||||||||||||
| Senior Secured First Lien Term Loans | $ | 136,740 | 65.7 | % | $ | 61,934 | 40.9 | % | ||||||||
| Senior Secured Second Lien Term Loans | 2,600 | 1.3 | 2,490 | 1.6 | ||||||||||||
| Senior Secured Notes | 9,306 | 4.5 | 9,270 | 6.1 | ||||||||||||
| Secured Debt | 2,500 | 1.2 | 2,500 | 1.6 | ||||||||||||
| Unsecured Debt | 1,561 | 0.8 | - | - | ||||||||||||
| Equity/Warrants | 54,961 | 26.5 | 75,446 | 49.8 | ||||||||||||
| Total Investments | $ | 207,668 | 100.0 | % | $ | 151,640 | 100.0 | % | ||||||||
The following table summarizes the amortized cost and the fair value of investments as of September 30, 20162020 (dollars in thousands):
| Amortized Cost | Percentage | Fair Value | Percentage | ||||||||||
| Senior Secured First Lien Term Loans | $ | 612,762 | 60.5 | % | $ | 565,329 | 61.8 | % | |||||
| Senior Secured Second Lien Term Loans | 229,898 | 22.7 | 213,537 | 23.4 | |||||||||
| Senior Secured First Lien Notes | 26,755 | 2.6 | 27,423 | 3.0 | |||||||||
| Unsecured Debt | 62,150 | 6.1 | 52,809 | 5.8 | |||||||||
| MCC Senior Loan Strategy JV I LLC | 32,113 | 3.2 | 31,252 | 3.4 | |||||||||
| Equity/Warrants | 49,213 | 4.9 | 23,834 | 2.6 | |||||||||
| Total | $ | 1,012,891 | 100.0 | % | $ | 914,184 | 100.0 | % | |||||
| Amortized Cost | Percentage | Fair Value | Percentage | |||||||||||||
| Senior Secured First Lien Term Loans | $ | 178,843 | 54.5 | % | $ | 106,463 | 43.2 | % | ||||||||
| Senior Secured Second Lien Term Loans | 15,476 | 4.7 | 13,927 | 5.6 | ||||||||||||
| Unsecured Debt | 4,601 | 1.4 | 2,669 | 1.1 | ||||||||||||
| MCC Senior Loan Strategy JV I LLC | 79,888 | 24.4 | 41,019 | 16.6 | ||||||||||||
| Equity/Warrants | 49,327 | 15.0 | 82,666 | 33.5 | ||||||||||||
| Total | $ | 328,135 | 100.0 | % | $ | 246,744 | 100.0 | % | ||||||||
As of September 30, 2017,2021, our income-bearing investment portfolio whichbased upon cost represented nearly 80.9%86.6% of our total portfolio had a weighted average yield based upon cost of our portfolio investments of approximately 10.8%, and 83.5% of our income-bearing investment portfoliowhich 74.6% bore interest based on floating rates, such as LIBOR, and 16.5%the London Interbank Offering Rate (“LIBOR”), while 25.4% bore interest at fixed rates. As of September 30, 2017,2021, the weighted average yield based upon cost of our total portfolio was approximately 8.7%6.75%.
We rate the risk profile of each of our investments and rates each of them based on the following categories, which we refer to as MCC Advisors’ investment credit rating:
Credit | |||
| Rating | Definition | ||
| 1 | Investments that are performing above expectations. | ||
| 2 | Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination. | ||
| All new loans are rated ‘2’. | |||
| 3 | Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. | ||
| Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due. | |||
| 4 | Investments that are performing below expectations and for which risk has increased materially since origination. | ||
| Some loss of interest or dividend is expected but no loss of principal. | |||
| In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due). | |||
| 5 | Investments that are performing substantially below expectations and whose risks have increased substantially since origination. | ||
| Most or all of the debt covenants are out of compliance and payments are substantially delinquent. | |||
| Some loss of principal is expected. | |||
The COVID-19 pandemic impacted our investment ratings, causing downgrades of certain portfolio companies. As the COVID-19 situation continues to evolve, we continue to maintain close communications with our portfolio companies to proactively assess and manage potential risks across our investment portfolio. We have also increased oversight and analysis of credits in vulnerable industries in an attempt to improve loan performance and reduce credit risk
The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of September 30, 20172021 and 20162020 (dollars in thousands):
| September 30, 2017 | September 30, 2016 | |||||||||||||
| Investment Performance Rating | Fair Value | Percentage | Fair Value | Percentage | ||||||||||
| 1 | $ | 42,346 | 5.1 | % | $ | 112,770 | 12.3 | % | ||||||
| 2 | 527,410 | 63.0 | 554,384 | 60.6 | ||||||||||
| 3 | 139,481 | 16.7 | 170,496 | 18.7 | ||||||||||
| 4 | 69,864 | 8.3 | 65,349 | 7.2 | ||||||||||
| 5 | 57,890 | 6.9 | 11,185 | 1.2 | ||||||||||
| Total | $ | 836,991 | 100.0 | % | $ | 914,184 | 100.0 | % | ||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||
| Fair Value | Percentage | Fair Value | Percentage | |||||||||||||
| 1 | $ | - | 0.0 | % | $ | 54,256 | 22.0 | % | ||||||||
| 2 | 121,508 | 80.1 | % | 130,742 | 53.0 | % | ||||||||||
| 3 | 13,416 | 8.8 | % | 40,645 | 16.5 | % | ||||||||||
| 4 | 9,925 | 6.6 | % | 11,325 | 4.6 | % | ||||||||||
| 5 | 6,791 | 4.5 | % | 9,776 | 3.9 | % | ||||||||||
| Total | $ | 151,640 | 100.0 | % | $ | 246,744 | 100.0 | % | ||||||||
Results of Operations
Operating results for the years ended September 30, 2017, 20162021, 2020, and 20152019 are as follows (dollars in thousands):
| For the years ended September 30 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Total investment income | $ | 96,256 | $ | 120,749 | $ | 149,196 | |||||
| Total expenses, net | 59,619 | 67,158 | 76,260 | ||||||||
| Net investment income before excise taxes | 36,637 | 53,591 | 72,936 | ||||||||
| Excise tax expense | (267 | ) | — | — | |||||||
| Net investment income | 36,370 | 53,591 | 72,936 | ||||||||
| Net realized gains/(losses) from investments | (73,086 | ) | (39,383 | ) | (60,910 | ) | |||||
| Net unrealized appreciation/(depreciation) on investments | 21,644 | (42,257 | ) | (26,723 | ) | ||||||
| Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | 1,092 | 87 | (61 | ) | |||||||
| Loss on extinguishment of debt | (1,097 | ) | — | — | |||||||
| Net increase in net assets resulting from operations | $ | (15,077 | ) | $ | (27,962 | ) | $ | (14,758 | ) | ||
| For the years ended September 30 | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Total investment income | $ | 32,307 | $ | 21,522 | $ | 46,299 | ||||||
| Less: Net expenses | 13,784 | 24,242 | 67,166 | |||||||||
| Net investment income/(loss) | 18,523 | (2,720 | ) | (20,867 | ) | |||||||
| Net realized gains (losses) on investments | (42,486 | ) | (49,979 | ) | (112,173 | ) | ||||||
| Net change in unrealized gains (losses) on investments | 25,363 | (10,633 | ) | 38,498 | ||||||||
| Loss on extinguishment of debt | (122 | ) | (2,481 | ) | (2,033 | ) | ||||||
Net increase (decrease) in net assets resulting from operations | $ | 1,278 | $ | (65,813 | ) | $ | (96,575 | ) | ||||
Investment Income
For the year ended September 30, 2017,2021, investment income totaled $96.3$32.3 million, of which $89.7$29.6 million was attributable to portfolio interest and dividend income, $2.6 million was attributable to fee income, and $0.1 million was attributable to other income.
For the year ended September 30, 2020, investment income totaled $21.5 million, of which $20.8 million was attributable to portfolio interest and dividend income, and $6.6$0.7 million to fee income.
For the year ended September 30, 2016,2019, investment income totaled $120.7$46.3 million, of which $113.2 million was
Operating Expenses
Operating expenses for the years ended September 30, 2017, 20162021, 2020, and 20152019 are as follows (dollars in thousands):
| For the years ended September 30 | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Base management fees | $ | 17,773 | $ | 19,470 | $ | 22,450 | |||||
| Incentive fees | 896 | 11,492 | 18,234 | ||||||||
| Interest and financing expenses | 31,403 | 30,277 | 25,531 | ||||||||
| Administrator expenses | 3,848 | 3,915 | 4,107 | ||||||||
| General and administrative | 2,555 | 2,336 | 1,932 | ||||||||
| Professional fees | 2,192 | 2,277 | 2,865 | ||||||||
| Directors fees | 647 | 544 | 579 | ||||||||
| Insurance | 397 | 494 | 562 | ||||||||
| Expenses before management and incentive fee waivers | 59,711 | 70,805 | 76,260 | ||||||||
| Management fee waiver | (48 | ) | (143 | ) | — | ||||||
| Incentive fee waiver | (44 | ) | (3,504 | ) | — | ||||||
| Expenses, net of management and incentive fee waivers | $ | 59,619 | $ | 67,158 | $ | 76,260 | |||||
| For the years ended September 30 | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Base management fees | $ | 1,146 | $ | 6,359 | $ | 11,190 | ||||||
| Interest and financing expenses | 5,800 | 14,935 | 24,049 | |||||||||
| General and administrative | 1,012 | 3,285 | 7,399 | |||||||||
| Salaries and benefits | 1,993 | - | - | |||||||||
| Administrator expenses | 613 | 2,227 | 3,324 | |||||||||
| Insurance | 1,620 | 1,463 | 623 | |||||||||
| Directors fees | 1,040 | 1,451 | 1,258 | |||||||||
| Professional fees, net | 560 | (4,768 | ) | 19,323 | ||||||||
| Expenses before waivers and reimbursements | 13,784 | 24,952 | 67,166 | |||||||||
| Expense support reimbursement | - | (710 | ) | - | ||||||||
| Expenses, net of waivers and reimbursements | $ | 13,784 | $ | 24,242 | $ | 67,166 | ||||||
For the year ended September 30, 2017,2021, total operating expenses before management and incentive fee waivers decreased by $11.1$11.2 million, or 15.7%44.8%, compared to the year ended September 30, 2016.
For the year ended September 30, 2016,2020, total operating expenses before management and incentive fee waivers decreased by $5.5$42.2 million, or 7.2%62.9%, compared to the year ended September 30, 2015.
Effective beginning January 1, 2021, the Company did not incur any management or incentive fees, nor was it subject to expense support arrangements due to its transition to an internal management structure. As a result, there were no management or incentive fee waivers or expense support reimbursements for such period.
Interest and Financing Expenses
Interest and financing expenses for the year ended September 30, 2017 increased2021 decreased by $1.1$9.1 million, or 3.7%61.2%, compared to the year ended September 30, 2016.2020. The increasedecrease in interest and financing expenses was primarily due to the increase in LIBOR rates, the issuance of an additional $39.4 million of 6.125% unsecured notes that mature on March 30, 2023 (the “2023 Notes,”) as well as an acceleration of debt issuance costs in the amount of $1.3 million related to the reductionfull repayment of the revolving credit facility (the “Revolving Credit Facility”) commitment to $200.0 million from $343.5 million offset by2021 Notes on November 20, 2020 and the completion of the repayment of the 7.125% unsecured notes (the “2019 Notes”) in February 2017.
Interest and financing expenses for the year ended September 30, 2016 increased2020 decreased by $4.7$9.1 million, or 18.6%37.9%, compared to the year ended September 30, 2015.2019. The increasedecrease in interest and financing expenses was primarily due to the issuancevoluntary repayment of $74.0$135.0 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021SBA-guaranteed debentures (the “2021 Notes”“SBA Debentures”), which the Company repaid between March 28, 2019 and together with theMay 10, 2019, Notes and 2023 Notes, the “Notes,”) as well as an increase in commitment on a five-year senior secured term loan credit facilitythe full repayment of $120.2 million Series A Notes (the “Term Loan Facility”“Israeli Notes”) between August 12, 2019 and together with the Revolving Credit Facility, “the Facilities”).
Base Management Fees and Incentive Fees
Base management fees for the year ended September 30, 20172021 decreased by $1.7$5.2 million, or 8.7%82.0%, compared to the year ended September 30, 2016 due to2020 as, since January 1, 2021, the decline in the portfolio in the period. IncentivesCompany no longer incurs management fees for the year ended September 30, 2017 decreased by $10.6 million, or 92.2%, due to the decrease in pre-incentive fee net investment income. Additionally, both base management and incentive fees declined due to the effect of the Fee Waiver Agreement described in the "Investment Management Agreement" section.
Base management fees for the year ended September 30, 20162020 decreased by $3.0$4.8 million, or 13.3%43.2%, compared to the year ended September 30, 20152019 principally due to the decline in the portfolio inour gross assets during the period. Incentives
No incentive fees were paid for the year ended September 30, 2016 decreased by $6.7 million,2021 or 37.0%, due to the decrease in pre-incentive fee net investment income. Additionally, both base management andyear ended September 30, 2020. Since January 1, 2021, the Company no longer incurs incentive fees declined due to the effect of the Fee Waiver Agreement described in the "Investment Management Agreement" section.
Professional Fees and Other General and Administrative Expenses
Professional fees and general and administrative expenses for the year ended September 30, 20172021 increased by $0.1$3.1 million, or 0.8%206.0%, compared to the year ended September 30, 20162020 primarily due to an increase in legal expenses, directors expenses and general administrative expenses offset by a decrease in audit expenses, administrator expenses,the insurance expenses and valuationproceeds received in the year ended September 30, 2021 which offset legal expenses.
Professional fees and general and administrative expenses for the year ended September 30, 20162020 decreased by $0.5$28.3 million, or 4.8%88.5%, compared to the year ended September 30, 20152019 primarily due to insurance proceeds received related to legal expenses relating to the dismissed stockholder class action, captioned as FrontFour Capital Group LLC, et al. v Brook Taube et al, as well as a decrease in legal expenses, directors expenses, auditgeneral and administrative expenses, administrator expenses, insurancevaluation expenses, and valuationaudit expenses, offset by an increase in generalindependent directors expenses and administrativeinsurance expenses.
Net Realized Gains/Losses from Investments
We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized.
During the year ended September 30, 2017,2021, we recognized $73.1$42.5 million of realized losslosses on our portfolio investments. The realized loss waslosses were primarily due to the non-cash restructuring transactionssale of three investments, the liquidationMCC JV in the first fiscal quarter of one investment as well as the write off of certain investments offset by the non-cash exchange of one equity investment.
During the year ended September 30, 2016,2020, we recognized $39.4$50.0 million of realized losslosses on our portfolio investments. The realized loss waslosses were primarily due to the sale of three investments and the write-off of two investments.
During the year ended September 30, 2019, we recognized $112.2 million of realized losses on our portfolio investments. The realized losses were primarily due to the non-cash restructuring transactions of two investments, the sale of two investments and the write offwrite-off of one investmenttwo investments, partially offset by a realized gain on the saleresulting from exercising warrants and converting junior preferred equity in one portfolio company into common shares of one equity investment.
Realized loss on extinguishment of debt
In the event that we modify or extinguish our debt prior to maturity, we account for it in accordance with ASC 470-50, Modifications and Extinguishments, in which we measure the difference between the reacquisition price of the debt and the net carrying amount of the debt, which includes any unamortized debt issuance costs.
During the year ended September 30, 2017, we2021, the Company recognized $1.1a net loss on extinguishment of debt of $0.1 million, which was due to the Company’s $74.0 million repayment of the 2021 Notes on November 20, 2020.
During the year ended September 30, 2020, the Company recognized a net loss on extinguishment of debt of $2.5 million, which was due to the Company’s $34.1 million repayment of the Israeli Notes on December 31, 2019, $34.9 million repayment of the Israeli Notes on March 31, 2020 and $21.1 million repayment of the Israeli Notes on April 14, 2020.
During the year ended September 30, 2019, the Company recognized a net loss on extinguishment of debt of $2.0 million, which was primarily due to a loss on extinguishment of debt of $1.8 million from the pre-payment of $135.0 million of SBA Debentures in connection with SBIC LP’s surrender of its SBIC license and a $0.2 million loss on extinguishment of debt from the $12.0 million partial redemption of the 2019 Notes as well as the paydown of the Term Loan Facility. There was no loss on extinguishment of debt during the years ended September 30, 2016 and 2015, respectively.
Net Unrealized Appreciation/Depreciation on Investments
Net change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio.
For the year ended September 30, 2017,2021, we had $21.6$25.3 million of net unrealized appreciation on investments. For the years ended September 30, 2016 and 2015, we had $42.3 million and $26.7The net unrealized appreciation was comprised of $54.8 million of net unrealized depreciation on investments respectively.
For the year ended September 30, 2020, we had $10.6 million of net unrealized depreciation on investments. The net unrealized depreciation comprised of $37.1 million of net unrealized depreciation on investments, offset by $26.5 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized, partially sold or written-off during the year.
For the year ended September 30, 2019, we had $38.5 million of net unrealized appreciation on investments. The net unrealized appreciation comprised of $59.6 million of net unrealized depreciation on investments, offset by $98.1 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized or written-off during the year.
Provision for Deferred Taxes on Unrealized AppreciationDepreciation on Investments
Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the years ended September 30, 20172021, 2020 and 2016,2019, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments was $1.1 million and $0.1 million, respectively. investments.
Changes in Net Assets from Operations
For the year ended September 30, 2015, the change in provision for deferred taxes on the unrealized appreciation on investments was $0.1 million.
Financial Condition, Liquidity and Capital Resources
As a RIC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. To fund growth, we have a number of alternatives available to increase capital;capital, including raising equity, increasing debt, and funding from operational cash flow.
Our liquidity and capital resources historically have been generated primarily from the net proceeds of public offerings of common stock, advances from the FacilitiesRevolving Credit Facility (which the Company voluntarily satisfied and terminated) and net proceeds from the issuance of notes as well as cash flows from operations.
As of September 30, 2021, we had $69.4 million in cash and cash equivalents.
In order to satisfymaintain our RIC tax treatment under the Code, requirements applicable to a RIC, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, for each taxable year we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met). This requirement limits the amount that we may borrow.
Unsecured Notes
2021 Notes
On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of the6.50% unsecured notes that mature on January 30, 2021 Notes.(the “2021 Notes”). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after January 30, 2019. The 2021 Notes bearbore interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016.
On October 21, 2020, the Company caused notices to be issued to the holders of the 2021 Notes regarding the Company’s exercise of its option to redeem, in whole, the issued and outstanding 2021 Notes, pursuant to Section 1104 of the Indenture dated as of February 7, 2012, between the Company and U.S. Bank National Association, as trustee, and Section 101(h) of the Third Supplemental Indenture dated as of December 17, 2015. The Company redeemed $74,012,825 in aggregate principal amount of the issued and outstanding 2021 Notes on November 20, 2020 (the “Redemption Date”). The 2021 Notes are listedwere redeemed at 100% of their principal amount ($25 per 2021 Note), plus the accrued and unpaid interest thereon from October 31, 2020, through, but excluding, the Redemption Date. The Company funded the redemption of the 2021 Notes with cash on the NYSE and trade thereon under the trading symbol ‘‘MCX’’.
2023 Notes
On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 2023 Notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company'sCompany’s option. On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2023 Notes bear interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes are listed on the NYSE and trade thereon under the trading symbol “MCV”.
On December 12, 2016, the Company entered into an ATM“At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and raised $38.6 million in net proceeds, since inception ofthrough the ATM debt distribution agreement.
On March 26, 2013, our wholly-owned subsidiary, Medley SBIC LP (“SBIC LP”) received a Small Business Investment10, 2018, the Company (“SBIC”) license from the Small Business Administration (“SBA”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended.
On December 31, 2018, the Company redeemed $12.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
On December 21, 2020, the Company announced that it completed the application process for and was authorized to be paid priortransfer the listing of the 2023 Notes to maturitythe NASDAQ Global Market. The listing and trading of the 2023 Notes on the NYSE ceased at the close of trading on December 31, 2020. Effective January 4, 2021, the 2023 Notes trade on the NASDAQ Global Market under the trading symbol “PFXNL.”
Secured Notes
Israeli Notes
On January 26, 2018, the Company priced a debt offering in Israel of $121.3 million of Israeli Notes. The Israeli Notes were listed on the TASE and denominated in New Israeli Shekels, but may be prepaidlinked to the US Dollar at a fixed exchange rate which mitigates any time without
On June 5, 2018, the Company announced that on June 1, 2018, its board of directors authorized the Company to repurchase and retire up to $20 million of the Company’s outstanding Israeli Notes on the TASE.
During the quarter ended December 31, 2018, the Company exchanged $1.0 million United States Dollars to New Israeli Shekels at a rate of SBA Debentures is3.73 USD/NIS in order to repurchase the Israeli Notes on the TASE. As the Israeli Notes were trading below par at the time of the repurchase, and the USD/NIS (foreign currency) spot rate was higher than the fixed on a semi-annual basis at a market-driven spread over U.S. Treasuryexchange rate agreed upon in the deed of trust, the Company was able to repurchase and retire 3,812,000 units, which resulted in $1,119,201 aggregate principal amount of the Israeli Notes with 10-year maturities.being retired. The SBA,redemption was accounted for as a creditor, will havedebt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a superior claimrealized gain of $0.1 million and was recorded on the Consolidated Statements of Operations as a gain on extinguishment of debt.
On December 31, 2019 in addition to the SBIC LP’s assets over our stockholdersscheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal collections in the event we liquidate the SBIC LP or the SBA exercises its remedies under the SBA Debentures issued by the SBIC LP uponPhenixFIN SLF and PhenixFIN Small Business Fund to pre-pay an event of default.
On March 31, 2020, in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal repayments in assets held by PhenixFIN SLF and PhenixFIN Small Business Fund to pre-pay an additional $19.8 million of the SBA from our 200% asset coverage test underIsraeli Notes. The pre-payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the 1940 Act.Consolidated Statements of Operations as a net loss on extinguishment of debt.
On April 14, 2020, the Company repaid the remaining $21.1 million of Israeli Notes outstanding, and as such is no longer subject to any covenants relating thereto. The exemptive order provides us with increased flexibility underIsraeli Notes were redeemed at 100% of their principal amount, plus the 200% asset coverage test by permitting SBIC LP to borrow up to $150.0 million more than it would otherwise be able to absent the receipt of this exemptive order.
Contractual Obligations and Off-Balance Sheet Arrangements
As of September 30, 2017, the Company had not issued any standby letters of credit under the commitment on behalf of the portfolio company. The guarantee will renew annually until cancellation.
| September 30, 2017 | September 30, 2016 | ||||||
| SMART Financial Operations, LLC - Delayed Draw Term Loan | $ | 4,725 | $ | — | |||
| Barry's Bootcamp Holdings, LLC - Revolver | 4,400 | — | |||||
| Accupac, Inc. - Delayed Draw Term Loan | 2,612 | — | |||||
| CP OPCO LLC - Revolver | 1,973 | 609 | |||||
| AAR Intermediate Holdings, LLC - Revolver | 1,797 | 1,797 | |||||
| SFP Holding, Inc. - Delayed Draw Term Loan | 1,778 | — | |||||
| Barry's Bootcamp Holdings, LLC - Delayed Draw Term Loan | 1,271 | — | |||||
| Trans-Fast Remittance LLC - Delayed Draw Term Loan | 1,057 | — | |||||
| Black Angus Steakhouses, LLC - Delayed Draw Term Loan | 893 | 893 | |||||
| Brantley Transportation LLC - Delayed Draw Term Loan | 788 | 863 | |||||
| Impact Sales, LLC - Delayed Draw Term Loan | 755 | — | |||||
| Black Angus Steakhouses, LLC - Revolver | 516 | 446 | |||||
| Access Media Holdings, LLC - Series AAA Preferred Equity | 277 | — | |||||
| Central States Dermatology Services, LLC - Delayed Draw Term Loan | 254 | — | |||||
| NVTN LLC - Delayed Draw Term Loan | 250 | — | |||||
| SavATree, LLC - Delayed Draw Term Loan | 167 | — | |||||
| Engineered Machinery Holdings, Inc. - Delayed Draw Term Loan | 159 | — | |||||
| Tenere Acquisition Corp. - Delayed Draw Term Loan | — | 2,000 | |||||
| DHISCO Electronic Distribution, Inc. - Revolver | — | 1,905 | |||||
| Lydell Jewelry Design Studio, LLC - Delayed Draw Term Loan | — | 500 | |||||
| Access Media Holdings, LLC - Series AA Preferred Equity | — | 184 | |||||
| Total | $ | 23,672 | $ | 9,197 | |||
| September 30, 2021 | September 30, 2020 | |||||||
| Redwood Services Group, LLC - Revolver | $ | 1,575 | $ | 1,050 | ||||
| 1888 Industrial Services, LLC - Revolver | 1,078 | 1,078 | ||||||
| Alpine SG - Revolver | 1,000 | - | ||||||
| Kemmerer Operations, LLC - Delayed Draw Term Loan | 908 | 908 | ||||||
| NVTN LLC - DDTL | 220 | 220 | ||||||
| Black Angus Steakhouses, LLC - Super Priority DDTL | 167 | - | ||||||
| DataOnline Corp. - Revolver | - | 179 | ||||||
| NVTN LLC - Super Priority DDTL | - | 500 | ||||||
| Total unfunded commitments | $ | 4,948 | $ | 3,935 | ||||
We have certain contracts under which we have material future commitments. We have entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”) in accordance with the 1940 Act. The investment management agreementInvestment Management Agreement became effective upon the pricing of our initial public offering. Under the investment management agreement,Investment Management Agreement, MCC Advisors has agreed to provide us with investment advisory and management services. For these services, we have agreed to pay a base management fee equal to a percentage of our gross assets and an incentive fee based on our performance.
We have also entered into an administration agreement with MCC Advisors as our administrator. The administration agreement became effective upon the pricing of our initial public offering. Under the administration agreement, MCC Advisors has agreed to furnish us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide us with other administrative services necessary to conduct our day-to-day operations. MCC Advisors will also provideprovided on our behalf significant managerial assistance to those portfolio companies to which we are required to provide such assistance.
The following table shows our payment obligations for repaymentInvestment Management Agreement and administration agreement expired at the close of debt and other contractual obligations atbusiness on December 31, 2020, in connection with the Company’s adoption of an internalized management structure.
As of September 30, 2017 (dollars2021, the future fixed commitments for cash payments in thousands):
| Payment Due by Period | |||||||||||||||||||
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||
| Revolving Facility | $ | 68,000 | $ | — | $ | 68,000 | $ | — | $ | — | |||||||||
| Term Loan Facility | 102,000 | — | 102,000 | — | — | ||||||||||||||
| 2021 Notes | 74,013 | — | — | 74,013 | — | ||||||||||||||
| 2023 Notes | 102,847 | — | — | — | 102,847 | ||||||||||||||
| SBA Debenture | 150,000 | — | — | — | 150,000 | ||||||||||||||
| Total contractual obligations | $ | 496,860 | $ | — | $ | 170,000 | $ | 74,013 | $ | 252,847 | |||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| 2023 Notes | $ | - | $ | (77,846,800 | ) | $ | - | $ | - | $ | - | $ | - | $ | (77,846,800 | ) | ||||||||||||
| Operating Lease Obligation (1) | (84,000 | ) | (144,000 | ) | (144,000 | ) | (144,000 | ) | (144,000 | ) | (24,000 | ) | (684,000 | ) | ||||||||||||||
| Total contractual obligations | $ | (84,000 | ) | $ | (77,990,800 | ) | $ | (144,000 | ) | $ | (144,000 | ) | $ | (144,000 | ) | $ | (24,000 | ) | $ | (78,530,800 | ) | |||||||
| (1) | Operating Lease Obligation means a rent payment obligation under a lease classified as an operating lease and disclosed pursuant to ASC 842, as may be modified or supplemented. |
On March 27, 2015, Medley Capital Corporationthe Company and Great American Life Insurance Company (“GALIC”) entered into a limited liability company operating agreement to co-manage MCC Senior Loan Strategy JV I LLC (“MCC JV”). Medley Capital CorporationThe Company and GALIC havehad committed to provide $100 million of equity to MCC JV, with Medley Capital Corporationthe Company providing $87.5 million and GALIC providing $12.5 million.
MCC JV commenced operations on July 15, 2015. On August 4, 2015, MCC JV entered into a senior secured revolving credit facility (the “JV Facility”) led by Credit Suisse, AG with commitments of $100 million. On March 30, 2017, the Company amended the JV Facility previously administered by CS and facilitated the assignment of all rights and obligations of CS under the JV Facility to Deutsche Bank AG, New York Branch, (“DB”) and increased the total loan commitments to $200 million. AsThe JV Facility bears interest at a rate of September 30, 2017, MCC JV has drawn approximately $130.5 million onLIBOR (with no minimum + 2.75% per annum. On March 29, 2019, the JV Facility. AsFacility reinvestment period was extended to June 28, 2019 from March 30, 2019. On June 28, 2019, the JV Facility reinvestment period was extended to October 28, 2019. On October 28, 2019, the JV Facility reinvestment period was further extended from October 28, 2019 to March 31, 2020, the maturity date was extended to March 31, 2023 and the interest rate was modified from bearing an interest rate of September 30, 2017, MCC JV had total investments at fair value of $184.2 million. As of September 30, 2017, MCC JV’s portfolio was comprised of senior secured first lien term loansLIBOR (with no minimum) + 2.50% per annum to 46 different borrowers. As of September 30, 2017, certain investments in one portfolio company were on non-accrual status.
The Company has determined that MCC JV is an investment company under ASC 946, however in accordance with such guidance, Medley Capital Corporationthe Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, Medley Capital Corporationthe Company does not consolidate its interest in MCC JV.
On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in the MCC JV and all of GALIC’s interest in the MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for MCC and GALIC, respectively, on the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement, including the representations, warranties, covenants and indemnities contained therein. In connection with the closing of the transaction on October 8, 2020, MCC JV repaid in full all outstanding borrowings under, and terminated, its senior secured revolving credit facility, dated as of August 4, 2015, as amended, administered by Deutsche Bank AG, New York Branch.
Distributions
We have elected, and qualifiedintend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under subchapterSubchapter M of the Code. As a RIC, in any taxable year with respect to which we timely distribute at least 90 percent of the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax including the federalor excise tax, described below.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:
| at least |
| at least |
| income realized, but not distributed, in preceding years and on which we did not pay federal income tax. |
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of dividends or year-to-year increases in dividends. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay dividends. All dividends will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC status,tax treatment, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay dividends to our stockholders in the future.
To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes.
Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains.
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions.
There were no dividend distributions during the year ended September 30, 2017:
| Date Declared | Record Date | Payment Date | Amount Per Share | |||||
| 11/3/2016 | 11/23/2016 | 12/23/2016 | $ | 0.22 | ||||
| 1/31/2017 | 2/22/2017 | 3/24/2017 | 0.22 | |||||
| 5/5/2017 | 5/24/2017 | 6/23/2017 | 0.16 | |||||
| 8/3/2017 | 8/23/2017 | 9/22/2017 | 0.16 | |||||
| $ | 0.76 | |||||||
| For the years ended September 30 | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Dollar amount repurchased | N/A(1) | $ | 12,870 | $ | 21,205 | ||||
| Shares Repurchased | N/A(1) | 1,862,941 | 2,396,132 | ||||||
| Average price per share | N/A(1) | $ | 6.91 | $ | 8.85 | ||||
| Weighted average discount to Net Asset Value | N/A(1) | 31.0 | % | 23.5 | % | ||||
Related Party Transactions
Concurrent with the pricing of our IPO, we entered into a number of business relationships with affiliated or related parties, including the following:
| ● | We entered into the Investment Management Agreement with MCC Advisors on January 11, 2011, which expired December 31, 2020. Mr. Brook Taube, Chairman and Chief Executive Officer through December 31, 2020 and director through January 21, 2021 and Mr. Seth Taube, director through January 21, 2021, are both affiliated with MCC Advisors and Medley. |
| ● | Through December 31, 2020, MCC Advisors provided us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our administration agreement. We reimbursed MCC Advisors for the allocable portion (subject to the review and approval of our board of directors) of overhead and other expenses incurred by it 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 their respective staffs. |
On June 12, 2020, the Company entered into an investment management agreementthe Expense Support Agreement with MCC Advisors. Mr. Brook Taube, our Chairman and Chief Executive Officer, is a managing partner and senior portfolio manager of MCC Advisors and Mr. Seth Taube, one of our directors, is a managing partner of MCC Advisors.
In addition, we have adopted a formal business code of conduct and ethics that governs the conduct of our CEO, CFO, chief accounting officer (which role is currently fulfilled by our CFO) and MCC Advisors’ officers, directors and employees.controller (Covered Officers). Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporation Law.
Investment Management Agreement
We entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”), which expired December 31, 2020.
Under the terms of our investment management agreement,the Investment Management Agreement, MCC Advisors:
| ● | determined the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; |
| ● | identified, evaluated and negotiated the structure of the investments we made (including performing due diligence on our prospective portfolio companies); and |
| ● | executed, closed, monitored and administered the investments we made, including the exercise of any voting or consent rights. |
MCC Advisors’ services under the investment management agreement areInvestment Management Agreement were not exclusive, and it iswas free to furnish similar services to other entities so long as its services to us arewere not impaired.
Pursuant to our investment management agreement,the Investment Management Agreement, we paypaid MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.
On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the investment management agreement.Investment Management Agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances willwould the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.
The following discussion of our base management fee and two-part incentive fee reflectsreflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement arewere effective as of January 1, 2016, and arewere a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it providesprovided under the investment management agreement.Investment Management Agreement. The Fee Waiver Agreement doesdid not change the second component of the incentive fee, which iswas the incentive fee on capital gains.
On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger Agreement”) was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement is terminated by Sierra, then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of termination to the Company. On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020. On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the then-current quarter, June 30, 2020. On June 12, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through September 30, 2020. On September 29, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through December 31, 2020. Mr. Brook Taube, Chairman and Chief Executive Officer through December 31, 2020 and director through January 21, 2021 and Mr. Seth Taube, director through January 21, 2021 are affiliated with MCC Advisors and Medley.
On November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021. The new management structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31, 2020. To lead the internalized management team, the Board approved the appointment of David Lorber, who has served as an independent director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021. In connection with his appointment, Mr. Lorber stepped down from the Compensation Committee of the Board, the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.
Base Management Fee
Through December 31, 2020, for providing investment advisory and management services to us, MCC Advisors receivesreceived a base management fee. The base management fee iswas calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets and iswas payable quarterly in arrears. The base management fee willwas to be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and willwas to be appropriately pro-rated for any partial quarter.
Incentive Fee
Through December 31, 2020, the incentive fee hashad two components, as follows:
Incentive Fee Based on Income
The first component of the incentive fee iswas payable quarterly in arrears and iswas based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee iswas being calculated. MCC Advisors iswas entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceedsexceeded a quarterly “hurdle rate” of 1.5%. The hurdle amount iswas calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.
The second component of the incentive fee iswas determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreementInvestment Management Agreement as of the termination date) and equalsequaled 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
Valuation of Portfolio Investments
The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy, and certain prior period amounts have been reclassified to conform to the current period presentation. The three levels are defined below:
| ● | Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date. |
| ● | Level 2 - Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities. |
| ● | Level 3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence. |
We value investments for which market quotations are readily available at their market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our board of directors under our valuation policy and process. We may seek pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments.
Valuation methods may include comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Our board of directors is ultimately and solely responsible for determining the fair value of the investments in our portfolio that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.
With respect to investments for which market quotations are not readily available, our board of directors will undertake a multi-step valuation process each quarter, as described below:
| ● | Our quarterly valuation process generally begins with each investment being initially valued by a Valuation Firm. |
| ● | Preliminary valuation conclusions will then be documented and discussed with senior management. |
| ● | The audit committee of the board of directors reviews the preliminary valuations with management and the Valuation Firms. |
| ● | The board of directors discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of management, the respective Valuation Firms and the audit committee. |
In following these approaches, the types of factors that are taken into account in fair value pricing investments include available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flows; the markets in which the portfolio company does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values.
Determination of fair values involves subjective judgments and estimates made by management. The notes to our financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.
Revenue Recognition
Our revenue recognition policies are as follows:
Investments and Related Investment IncomeWe account for investment transactions on a trade-date basis and interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. Origination, closing and/or commitment fees associated with investments in portfolio companies are recognized as income when the investment transaction closes. Other fees are capitalized as deferred revenue and recorded into income over the respective period. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. We report changes in the fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in our Consolidated StatementStatements of Operations.
Non-accrualWe place loans on non-accrual status when principal and interest payments are past due by 90 days or more, or when there is reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. At September 30, 2017,2021, certain investments in six9 portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $72.5$13.9 million, or 8.7%9.2% of the fair value of our portfolio. At September 30, 2016,2020, certain investments in nineeight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $55.9$21.7 million, or 6.1%8.8% of the fair value of our portfolio. At September 30, 2015,
Federal Income Taxes
The Company has elected, and qualifiedintends to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under subchapterSubchapter M of the Code commencing with its first taxable year as a corporation, and it intends to operate in a manner so as to maintain its RIC tax treatment. As a RIC,To do so, among other things, the Company is required to meet certain source of income and asset diversification requirements. Once qualified as a RIC, the Companyrequirements and must timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under subchapter M of the Code.year. The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its net ordinary income for any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which weit did not pay federal income tax. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
Because federal income tax regulationsrequirements differ from GAAP, distributions in accordance with tax regulationsrequirements may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
Recent Developments
On October 31, 2017,November 9, 2021, the Company entered into an underwriting agreement, by and between the Company and Oppenheimer & Co. Inc., as representative of the several underwriters named in Exhibit A thereto, in connection with the issuance and sale (the “Offering”) of $57,500,000 (including the underwriters’ option to purchase up to $7,500,000 aggregate principal amount) in aggregate principal amount of its 5.25% Notes due 2028 (the “2028 Notes”). The Offering occurred on November 15, 2021, pursuant to the Company’s Boardeffective shelf registration statement on Form N-2 previously filed with the SEC, as supplemented by a preliminary prospectus supplement dated November 8, 2021, the pricing term sheet dated November 9, 2021 and a final prospectus supplement dated November 9, 2021. Effective November 16, 2021, the 2028 Notes began trading on the NASDAQ Global Market under the trading symbol “PFXNZ.”
On November 15, 2021, the Company and U.S. Bank National Association, as trustee entered into a Fourth Supplemental Indenture to its base Indenture, dated February 7, 2012, between the Company and the Trustee. The Fourth Supplemental Indenture relates to the Offering of Directors declared a quarterly dividendthe 2028 Notes.
On November 15, 2021, the Company caused notices to be issued to the holders of $0.16 per share payablethe 2023 Notes regarding the Company’s exercise of its option to redeem $55,325,000 in aggregate principal amount of the issued and outstanding 2023 Notes on December 22, 2017,16, 2021.
Subsequent to stockholdersfiscal year ended September 30, 2021, the COVID-19 pandemic continues and may further continue to have adverse consequences on the U.S. and global economies. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. The Company cannot predict the extent to which its financial condition and results of record atoperations will be affected. The potential impact to our results will depend to an extent on future developments and new information that may emerge regarding the closeduration and lasting severity of businessCOVID-19. The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on November 22, 2017.
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments and cash and cash equivalents. Our investment income will be affected by changes in various interest rates, including LIBOR, to the extent our debt investments include floating interest rates. In the future, we expect other loans in our portfolio will have floating interest rates. In addition, U.S. and global capital markets and credit markets have experienced a higher level of stress due to the global COVID-19 pandemic, which has resulted in an increase in the level of volatility across such markets. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. For the year ended September 30, 2017,2021, we did not engage in hedging activities.
As of September 30, 2017, 83.5%2021, 58.1% of our income-bearing investment portfolio bore interest based on floating rates.rates based upon fair value. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in our operating expenses, including with respect to any income incentive fee, or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. In contrast, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. In addition, a rise in interest rates may increase the likelihood that a portfolio company defaults on a loan. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. The composition of our floating rate debt investments by cash interest rate LIBOR floor as of September 30, 20172021 was as follows (dollars in thousands):
| September 30, 2017 | ||||||
| Fair Value | % of Floating Rate Portfolio | |||||
| Under 1% | $ | 84,166 | 14.9 | % | ||
| 1% to under 2% | 425,749 | 75.3 | ||||
| 2% to under 3% | 50,245 | 8.9 | ||||
| 3% | 4,916 | 0.9 | ||||
| Total | $ | 565,076 | 100.0 | % | ||
| September 30, 2021 | ||||||||
| LIBOR Floor | Fair Value | % of Floating Rate Portfolio | ||||||
| Under 1% | $ | - | - | % | ||||
| 1% to under 2% | 59,323 | 100.0 | ||||||
| 2% to under 3% | - | - | ||||||
| No Floor | - | - | ||||||
| Total | $ | 59,323 | 100.0 | % | ||||
Based on our Consolidated StatementStatements of Assets and Liabilities as of September 30, 2017,2021, the following table (dollars in thousands) shows the approximate increase/(decrease) in components of net assets resulting from operations of hypothetical LIBOR base rate changes in interest rates, assuming no changes in our investment and capital structure.
Basis point increase(1) | Interest Income | Interest Expense | Net Increase/ (Decrease) | |||||||||
| 100 | $ | 5,300 | $ | 1,700 | $ | 3,600 | ||||||
| 200 | 11,200 | 3,400 | 7,800 | |||||||||
| 300 | 17,100 | 5,100 | 12,000 | |||||||||
| 400 | 23,000 | 6,800 | 16,200 | |||||||||
| 500 | 28,900 | 8,500 | 20,400 | |||||||||
| Change in Interest Rates | Interest Income(1) | Interest Expense | Net Increase/ (Decrease) | |||||||||
| Up 300 basis points | $ | 6,500 | $ | (2,300 | ) | $ | 4,200 | |||||
| Up 200 basis points | 4,300 | (1,600 | ) | 2,700 | ||||||||
| Up 100 basis points | 2,200 | (800 | ) | 1,400 | ||||||||
| Down 100 basis points | (2,200 | ) | 800 | (1,400 | ) | |||||||
| Down 200 basis points | (4,300 | ) | 1,600 | (2,700 | ) | |||||||
| Down 300 basis points | (6,500 | ) | 2,300 | (4,200 | ) | |||||||
| (1) | Assumes no defaults or prepayments by portfolio companies over the next twelve months. |
| September 30, 2016 | ||||||
| Fair Value | % of Floating Rate Portfolio | |||||
| Under 1% | $ | 141,508 | 22.1 | % | ||
| 1% to under 2% | 445,742 | 69.6 | ||||
| 2% to under 3% | 35,632 | 5.6 | ||||
| 3% | 17,033 | 2.7 | ||||
| Total | $ | 639,915 | 100.0 | % | ||
Basis point increase(1) | Interest Income | Interest Expense | Net Increase/ (Decrease) | |||||||||
| 100 | $ | 3,900 | $ | 1,900 | $ | 2,000 | ||||||
| 200 | 9,700 | 3,800 | 5,900 | |||||||||
| 300 | 17,200 | 5,600 | 11,600 | |||||||||
| 400 | 24,600 | 7,500 | 17,100 | |||||||||
| 500 | 30,100 | 9,400 | 20,700 | |||||||||
| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | ||
| Page | ||
| Report of Independent Registered Public Accounting Firm | ||
| Consolidated Statements of Assets and Liabilities as of September 30, | ||
| Consolidated Statements of Operations for the years ended September 30, | ||
| Consolidated Statements of Changes in Net Assets for the years ended September 30, | ||
| Consolidated Statements of Cash Flows for the years ended September 30, | ||
| Consolidated Schedules of Investments as of September 30, | ||
| Notes to Consolidated Financial Statements |
To the Shareholders and the Board of Directors Opinion on the Financial Statements We have audited the accompanying consolidated statements of assets and liabilities of Basis for Opinion These financial statements are the We conducted our Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a Critical Audit Matter The critical audit matter communicated below is a F-1 Valuation of investments Description of the Matter At September 30, 2021, the fair value of the Company’s investments categorized as Level 3 within the fair value hierarchy (Level 3 investments) totaled $115.8 million. As further described in Notes 2 and 4 to the Company’s consolidated financial statements, management determines the fair value of Level 3 investments by using valuation methodologies (e.g., market or income approach) and associated techniques including, among others, valuations of comparable public companies, recent sales of private and public comparable companies, discounted cash flows, and/or enterprise value analysis. These techniques require management to make judgments about the significant unobservable inputs and assumptions including, among others, market yields, EBITDA multiples, and revenue multiples. Auditing the fair value of the Company’s Level 3 investments is complex, as the unobservable inputs and assumptions used by the Company require significant management judgment or estimation and have a significant effect on the fair value measurements of such investments. Also, applying audit procedures to address the estimation uncertainty involves a high degree of auditor subjectivity. Our audit procedures performed to test the fair value of the Company’s Level 3 investments included, among others and on a sample basis, evaluating the Company’s valuation methodologies and significant unobservable inputs and assumptions used in the valuations, as well as testing the mathematical accuracy of the Company’s valuation models utilized to calculate the fair value. For a sample of Level 3 investments, we obtained and reviewed management’s valuation models and compared the significant portfolio company-specific inputs used in the models to credit agreements, underlying source documents, and/or portfolio company financial information provided to the Company by the investees, as applicable. We assessed whether the significant unobservable inputs and assumptions used by the Company were developed in a manner consistent with its valuation policies. We also evaluated the appropriateness of the inputs and assumptions used in the fair value estimates by comparing them to portfolio company financial information and/or available market information and evaluated the appropriateness of any significant adjustments. Additionally, for a sample of Level 3 investments and with the assistance of our valuation specialists, we developed independent fair value estimates to compare to the Company’s fair value measurements by using market information from third-party sources, such as market multiples and market yields, and/or portfolio company financial information, as applicable. We searched for and evaluated information that corroborated or contradicted the Company's significant unobservable inputs and assumptions. We also evaluated subsequent events and transactions and considered whether they corroborated or contradicted the Company's year-end valuations. /s/ Ernst We have served as the Company’s auditor since 2010. New York, New York December Consolidated Statements of Assets and Liabilities See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows See accompanying notes to consolidated financial statements. F-6 Consolidated Schedule of Investments September 30, The accompanying notes are an integral part of these consolidated financial statements. Consolidated Schedule of Investments September 30, 2020 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements September 30, Note 1. Organization PhenixFIN Corporation On March 26, 2013, our The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The Company’s investment objective is to generate current income and capital Reverse Stock Split; Authorized Share Reduction At the Company’s 2020 Annual Meeting of Stockholders held on June 30, 2020 (the “Annual Meeting”), stockholders approved a proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of its common stock, of 1-20 (the “Reverse Stock Split”) and with the Reverse Stock Split to be effective at such time and date, if at all, as determined by the board of directors, but not later than 60 days after stockholder approval thereof and, if and when the reverse stock split is effected, reduce the number of authorized shares of common stock by the approved reverse stock split ratio (the “Authorized Share Reduction”). Following the 2020 Annual Meeting, on July 7, 2020, the board of directors determined that it was in the best interests of the Company and its stockholders to implement the Reverse Stock Split and the Authorized Share Reduction. Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split and the Authorized Share Reduction. PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on July 24, 2020 (the “Effective Time”), each twenty (20) shares of common stock issued and outstanding, immediately prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, were combined and converted into one (1) share of common stock. In connection with the Reverse Stock Split, the Certificate of Amendment provided for a reduction in the number of authorized shares of common stock from 100,000,000 to 5,000,000 shares of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes). On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of its shares of common stock to the NASDAQ Global Market. The listing and trading of the common stock on the NYSE ceased at the close of trading on December 31, 2020. Since January 4, 2021, the common stock trades on the NASDAQ Global Market under the trading symbol “PFX.” Sale of MCC JV On October 8, 2020, the Company, Great American Life Insurance Company (“GALIC”), MCC Senior Loan Strategy JV I LLC (the “MCC JV”), and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in the MCC JV and all of GALIC’s interest in the MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively. COVID-19 Developments The COVID-19 pandemic continues to have adverse consequences on the U.S. and global economies, as well as on the Company (including certain portfolio companies) in particular. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. The Company’s performance (including that of certain of its portfolio companies) was negatively impacted during the pandemic. The longer-term impact of COVID-19 on the operations and the performance of the Company (including certain portfolio companies) is difficult to predict, but may continue to be adverse. The longer-term potential impact on such operations and performance could depend to a large extent on future developments and actions taken by authorities and other entities to mitigate COVID-19 and its economic impact. The impacts, as well as the uncertainty over impacts to come, of COVID-19 (including the Delta variant) have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future. Further, the potential exists for additional variants of COVID-19, including the Omicron variant, to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19. PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Note 2. Significant Accounting Policies Basis of Presentation The Company Cash, Restricted Cash and Cash Equivalents The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that 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 reporting period. Actual results could differ from those estimates. Debt Issuance Costs Debt issuance costs incurred in connection with Indemnification In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no material claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote. Revenue Recognition Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Dividend income, which represents dividends from equity investments and distributions from Taxable Subsidiaries, is recorded on the ex-dividend date and when the distribution is received, respectively. The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the years ended September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. Investment transactions are accounted for on a trade date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. During the years ended September 30, Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Interest receivable is analyzed regularly and may be reserved against when deemed Investment Classification The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.” Valuation of Investments The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 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 as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotations, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and Investments in investment funds are valued at fair value. Fair values are generally determined utilizing the PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories: The Company The methodologies and information that the Company utilizes when applying the Market Approach for performing investments include, among other things: The methodologies and information that the Company utilizes when applying the Income Approach for performing investments include: For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds). We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below: 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 from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the market environment (including the impact of COVID-19 on financial markets), portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Fair Value of Financial Instruments The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5. Recent Accounting Pronouncements In In May 2020, the Federal Income Taxes The Company has elected, and intends to qualify annually, to be treated as a RIC under Subchapter M of the The Company is subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of September 30, As of September 30, 2021 and 2020, the Company had a deferred tax asset of $22.2 million and ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized. F-23 PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Permanent differences between ICTI and net investment income for financial reporting purposes are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the years ended September 30, (19,047,396 For income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The tax character of distributions paid for the years ended September 30, For federal income tax purposes, the cost of investments owned at September 30, At September 30, The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations. There were no material uncertain income tax positions at September 30, Retroactive Adjustments for Reverse Stock Split and the Authorized Share Reduction The per share amount of the common stock and the authorized shares of common stock in the audited financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split effected on July 24, 2020. See Note 1 for more information regarding the Reverse Stock Split and the Authorized Share Reduction. Segments The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s financial statements. See Note 3 for further information. PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk The Company has broad discretion in making The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase materially. The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately. Company performance (including that of certain of its portfolio companies) has been and may continue to be negatively impacted by the COVID-19 pandemic’s effects. The COVID-19 pandemic has adversely impacted economies and capital markets around the world in ways that may continue and may change in unforeseen ways for an indeterminate period. The pandemic has also adversely affected various businesses, including some in which we are invested. The COVID-19 pandemic may exacerbate pre-existing business performance, political, social and economic risks affecting certain companies and countries generally. The impacts, as well as the uncertainty over impacts to come, of COVID-19 (including the Delta variant) have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future. Further, the potential exists for additional variants of COVID-19, including the Omicron variant, to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19. Note 3. Investments The composition of our investments as of September 30, The composition of our investments as of September 30, In connection with certain of the Company’s investments, the Company receives warrants Total unrealized depreciation PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The following table shows the portfolio composition by industry grouping at fair value at September 30, The following table shows the portfolio composition by industry grouping at fair value at September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The Company invests in portfolio companies principally located in North America. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business. The following table shows the portfolio composition by geographic location at fair value at September 30, The following table shows the portfolio composition by geographic location at fair value at September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Transactions With Affiliated/Controlled Companies The Company had investments in portfolio companies designated as Affiliated Investments and Controlled Investments under the 1940 Act. Transactions with Affiliated Investments and Controlled Investments during the years ended September 30, 2021 and 2020 were as follows: PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Realized PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Fair Value at Purchases/ Transfers Unrealized Realized Fair Value at Income PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Purchases/(sales) of or Loan Participation Sales The Company Such investments where the Company has retained proportionate interests are included in the During the year ended September 30, 2021, the Company did not collect interest and principal payments on behalf of any participant, since there were no participation agreements outstanding. During the years ended September 30, MCC Senior Loan Strategy JV I LLC On March 27, 2015, the Company and GALIC entered into a limited liability company operating agreement to co-manage MCC JV. All portfolio and other material decisions regarding MCC JV On August 4, 2015, MCC JV entered into a senior secured revolving credit facility (the “JV Facility”) led by Credit Suisse AG, Cayman Islands Branch (“CS”) with commitments of $100 million subject to leverage and borrowing base restrictions. On March 30, 2017, the Company amended the JV Facility previously administered by CS and facilitated the assignment of all rights and obligations of CS under the JV Facility to Deutsche Bank AG, New York Branch (“DB”) and increased the total loan commitments to $200 million. On March 31, 2020, the JV Facility On April 20, 2020, the JV Facility was amended to (i) during each 12-month period during the amortization period permit the sale of investments below a price of 97% as long as the sale was approved by DB and the balance of all such investments sold is not greater than 30% of the adjusted balance of all loans as of the first date of each 12-month period and (ii) establish a target effective advance rate at various measurement dates during the amortization period. All principal collections were to be swept to amortize the amount outstanding under the JV Facility and interest collections were to be swept, as applicable, in order to meet the target effective advance rate for the applicable period. PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in MCC JV and all of GALIC’s interest in MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively. Due to the sale transaction on October 8, 2020, the Company no longer held an investment in MCC JV at September 30, 2021. At September 30, Below is a summary of MCC JV’s portfolio, excluding equity investments, as of September 30, 2020, followed by a listing of the individual investments in MCC JV’s portfolio as of September 30, MCC JV Loan Portfolio as of September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Fair Value (2) % of Net Assets (3) PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Fair Value (2) % of Net Assets (3) PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Fair Value (2) % of Net Assets (3) PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Below is certain summarized financial Information for MCC JV as of September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, Unconsolidated Significant Subsidiaries The Company evaluated and Note 4. Fair Value Measurements The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. In addition to using the above inputs in investment valuations, the Company continues to employ The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended September 30, The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Net change in unrealized Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK. Sales represent net proceeds received from investments sold. Settlements represent principal paydowns received. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the year ended September 30, The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The following table PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. Increases in market yields would result in lower fair value The significant unobservable inputs used in the fair value measurement of the Company’s equity/warrants investments are comparable company multiples of In September 2017, the Company entered into an agreement with Global Accessories Group, LLC (“ Note 5. Borrowings As a BDC, we are generally only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. However, in March 2018, the Small Business Credit Availability Act modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements under the 1940 Act are met. Under the 1940 Act, we As of September 30, 2021, the Company’s asset coverage As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage was below 200%, the minimum asset coverage requirement under the 1940 Act. PHENIXFIN CORPORATION Notes to September 30, 2021 The Company’s outstanding debt excluding debt issuance costs as of September 30, Unsecured Notes 2021 Notes On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021 (the “2021 Notes”). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes On October 21, 2020, the Company caused notices to be issued to the holders of the 2021 Notes regarding the Company’s exercise of its option to redeem, in whole, the issued and outstanding 2021 Notes, pursuant to Section 1104 of the Indenture dated as of February 7, 2012, between the Company and U.S. Bank National Association, as trustee, and Section 101(h) of the Third Supplemental Indenture dated as of December 17, 2015. The Company redeemed $74,012,825 in aggregate principal amount of the issued and outstanding 2021 Notes on November 20, 2020 (the “Redemption Date”). The 2021 Notes 2023 Notes On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 6.125% unsecured notes that mature on March 30, 2023 (the On December 12, 2016, the Company entered into an “At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company On March 10, 2018, the Company redeemed $13.0 million in aggregate principal amount of the 2023 Notes. On December 31, 2018, the Company redeemed $12.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.3 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt. On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of the 2023 Notes to the NASDAQ Global Market. The listing and trading of the 2023 Notes on the NYSE ceased at the close of trading on December 31, 2020. Effective January 4, 2021, the 2023 Notes began trading on the NASDAQ Global Market under the trading symbol “PFXNL.” PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Secured Notes Israeli Notes On January 26, 2018, the Company priced a debt offering in Israel of $121.3 million of Israeli Notes (as defined below). The Israeli Notes were listed on the TASE and denominated in New Israeli Shekels, but linked to the US Dollar at a fixed exchange rate which mitigates any currency exposure to the Company. On June 5, 2018, the Company announced that on June 1, 2018, its board of directors authorized the Company to repurchase and retire up to $20 million of the Company’s outstanding Israeli Notes on the TASE. During the quarter ended December 31, 2018, the Company exchanged $1.0 million United States Dollars to New Israeli Shekels at a rate of 3.73 USD/NIS in order to repurchase the Israeli Notes on the TASE. As the Israeli Notes were trading below par at the time of the repurchase, and the USD/NIS (foreign currency) spot rate was higher than the fixed exchange rate agreed upon in the deed of trust, the Company was able to repurchase and retire 3,812,000 units, which resulted in $1,119,201 aggregate principal amount of the Israeli Notes being retired. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized gain of $0.1 million and was recorded on the Consolidated Statements of Operations as a gain on extinguishment of debt. On December 31, 2019, in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal repayments in assets held by PhenixFIN SLF and PhenixFIN Small Business Fund to pre-pay an additional $19.1 million of the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a net loss on extinguishment of debt. On March 31, 2020, in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal repayments in assets held by PhenixFIN SLF and PhenixFIN Small Business Fund to pre-pay an additional $19.8 million of the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt. On April 14, 2020, the Company repaid the remaining $21.1 million of Israeli Notes outstanding, and as such is no longer subject to any covenants relating thereto. The Israeli Notes were redeemed at 100% of their principal amount, plus the accrued interest thereon, through April 14, 2020. Fair Value of Debt Obligations The fair values of our debt obligations are 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. The fair value of the In accordance with ASU 2015-03, the debt issuance costs related to the PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 For the years ended September 30, Note 6. Agreements Investment Management Agreement We had entered into an investment management agreement with MCC Under the terms of MCC Advisors’ services under the Pursuant to On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger Agreement”) was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement was terminated by Sierra, then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of termination to the Company. On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020. On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the then-current quarter, June 30, 2020. On June 12, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through September 30, 2020. On September 29, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through December 31, 2020. Mr. Brook Taube, our Chairman and Chief Executive Officer through December 31, 2020 and one of our directors through January 21, 2021 and Mr. Seth Taube, one of our directors through January 21, 2021 are both affiliated with MCC Advisors and Medley. On November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021. The new management structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31, 2020. To lead the internalized management team, the Board approved the appointment of David Lorber, who had served as an independent director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021. In connection with his appointment, Mr. Lorber stepped down from the Compensation Committee of the Board, the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board. Base Management Fee Through December 31, 2020, for providing investment advisory and management services to us, MCC Advisors PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Incentive Fee Through December 31, 2020, the incentive fee Incentive Fee Based on Income The first component of the incentive fee The second component of the incentive fee For the years ended September 30, As of September 30, As of September 30, 2020 and 2019, $1.4 million and $2.2 million, respectively, were included in “management and incentive fees payable” in the accompanying Consolidated Statements of Assets and Liabilities. Administration Agreement On January 19, 2011, the Company entered into an administration agreement with MCC Advisors. Pursuant to As of September 30, 2021 and 2020, $0.1 million and $0.2 million, respectively, were included in “administrator expenses payable” in the accompanying Consolidated Statements of Assets and Liabilities. PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Expense Support Agreement On June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses and other expenses approved by the Special Committee (as defined in Note 10)) at $667,000 per month (the “Cap”). Under the Expense Support Agreement, the Cap became effective on June 1, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020. The Expense Support Agreement expired by its terms at the close of business on December 31, 2020, in connection with the adoption of the internalized management structure by the board of directors. Note 7. Related Party Transactions Due to Affiliate Due to affiliate consists of certain general and administrative expenses paid by an affiliate on behalf of the Company. Note 8. Commitments Insurance Reimbursements Related to Professional Fees The Company has Unfunded commitments As of September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Lease obligations Effective January 1, 2019, ASC 842 required that a Upon entering into the lease on September 1, 2021, PhenixFIN recorded a right-of-use asset and a lease liability as of that date. Total operating lease cost incurred by PhenixFIN for the year ended September 30, 2021 was $84,000. As of September 30, 2021, the asset related to the The following table shows future minimum payments under PhenixFIN’s operating lease as of Note 9. Fee Income Fee income consists of origination/closing PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Note 10. Directors Fees During calendar year 2021, the On January 26, 2018, the board of directors established the special committee of the Board, comprised solely of directors who are not “interested persons” of the Company as such term is defined in Section 2(a)(19) of the 1940 Act (the “Special Committee”), for the purpose of assessing the merits of various proposed strategic transactions. As compensation for serving on No board Note 11. Earnings Per Share In accordance with the provisions of ASC Topic 260 - Earnings per Share, basic earnings per share is computed by dividing earnings available to common The following information sets forth the computation of the weighted average basic and diluted net increase/(decrease) in net assets per share from operations for the years ended September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Note 12. Financial Highlights The following is a schedule of financial highlights for the years ended September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 The following is a schedule of ratios and supplemental data for the years ended September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 For the year ended September 30, For the year ended September 30, 2019, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is (7.96)%, 25.62%, 0.00%, and 25.62%, respectively. For the year ended September 30, 2018, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is 3.26%, 14.88%, 0.00%, and 14.88%, respectively. For the year ended September 30, 2017, excluding management and incentive fee waivers, the ratio of net investment PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Note 13. Dividends Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by our board of directors. We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have its dividends automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions. The Note 14. On The following table sets forth the number of The Note 15. Selected Quarterly Financial Data (Unaudited) The following tables represent selected unaudited quarterly financial data for the Company during the years ended September 30, PHENIXFIN CORPORATION Notes to Consolidated Financial Statements (continued) September 30, 2021 Note 16. Subsequent Events Management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. On November 9, 2021, the Company entered into an underwriting agreement, by and between the Company and Oppenheimer & Co. Inc., as On November 15, On November 15, 2021, the None. (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, (b) Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our management’s evaluation under the framework in Internal Control—Integrated Framework, management concluded that our internal controls over financial reporting were effective as of September 30, Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. (c) On November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. In connection with the adoption of the internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp. Prior to the internalization of the management structure, we historically relied on MCC Advisors for our business functions, including investment origination, monitoring, portfolio servicing, accounting and management functions. These functions are now performed by the internal management team and U.S. Bancorp. We consider the changes described above to be material changes in our internal controls over financial reporting. Other than as described above, there were no changes in our internal controls over financial reporting (as defined in Rule None. 75 The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our (a) The following documents are filed as part of this Annual Report: The following financial statements are set forth in Item 8: (b) Exhibits: Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 20, 2021 In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the following capacities on December 79Audit Reportand Shareholders of Medley CapitalPhenixFIN CorporationMedley CapitalPhenixFIN Corporation (the Company), including the consolidated schedules of investments, as of September 30, 20172021 and 2016, and2020, the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended September 30, 2017. These2021, and the related notes (collectively referred to as the “consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of September 30, 2017 and 2016 by correspondence with the custodian, directly with designees of the portfolio companies and debt agents, as applicable, or by other appropriate auditing procedures where replies were not received. We believe that our audits provide a reasonable basis for our opinion. referred to above present fairly, in all material respects, the consolidated financial position of Medley Capital Corporationthe Company at September 30, 20172021 and 2016,2020, and the consolidated results of its operations, changes in its net assets, and its cash flows for each of the three years in the period ended September 30, 20172021 in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance withstandardsresponsibility of the Public Company Accounting Oversight Board (United States), Medley Capital Corporation’s internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 7, 2017 expressed an unqualified opinion thereon. /s/ Ernst and Young LLPNew York, New YorkDecember 7, 2017Report on Internal ControlsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders of Medley Capital CorporationWe have audited Medley Capital Corporation’s internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). Medley Capital Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Item 9A of Form 10-K, Management’s Report on Internal Control over Financial Reporting.Company’s management. Our responsibility is to express an opinion on the company’s internal control overCompany’s financial reportingstatements based on our audit.auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effectivethe financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting was maintained in all material respects. Our audit included obtainingreporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting assessingbut not for the riskpurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.material weakness exists, testingtest basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of September 30, 2021 and 2020, by correspondence with the custodians, directly with designees of the portfolio companies, debt agents and brokers, as applicable, or by other appropriate auditing procedures where replies were not received. Our audits also included evaluating the designaccounting principles used and operating effectivenesssignificant estimates made by management, as well as evaluating the overall presentation of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.A company’s internal control over financial reportingprocess designed to provide reasonable assurance regardingmatter arising from the reliabilitycurrent period audit of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertainwas communicated or required to be communicated to the maintenance of recordsaudit committee and that: (1) relates to accounts or disclosures that in reasonable detail, accuratelyare material to the financial statements and fairly reflect the transactions and dispositions(2) involved our especially challenging, subjective or complex judgments. The communication of the assets ofcritical audit matter does not alter in any way our opinion on the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation ofconsolidated financial statements, in accordance with generally accepted accounting principles,taken as a whole, and that receipts and expenditures ofwe are not, by communicating the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havecritical audit matter below, providing a material effectseparate opinion on the financial statements.Because of its inherent limitations, internal control over financial reporting may not preventcritical audit matter or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, Medley Capital Corporation maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the COSO criteria.account or disclosures to which it relates.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of assets and liabilities, including the consolidated schedulesas of September 30, 2017using significant unobservable inputs and 2016, and the related consolidated statements of operations, changes in net assets, and cash flows, for each of the three years in the period ended September 30, 2017, and our report dated December 7, 2017 expressed an unqualified opinion thereon.How We Addressed the Matter in Our Audit and& Young LLP7, 2017Medley Capital Corporation September 30, 2017 September 30, 2016 ASSETS Investments at fair value Non-controlled/non-affiliated investments (amortized cost of $625,108,198 and $813,813,853, respectively) $ 575,495,698 $ 767,302,020 Affiliated investments (amortized cost of $91,026,729 and $10,000,000, respectively) 90,071,365 10,000,000 Controlled investments (amortized cost of $197,918,352 and $189,077,188, respectively) 171,423,836 136,882,275 Total investments at fair value 836,990,899 914,184,295 Cash and cash equivalents 108,571,958 104,485,263 Interest receivable 9,371,048 8,982,154 Other assets 3,321,822 893,140 Fees receivable 765,756 1,403,383 Deferred offering costs 307,015 242,991 Receivable for dispositions and investments sold 231,895 689,379 Total assets $ 959,560,393 $ 1,030,880,605 LIABILITIES Revolving credit facility payable (net of debt issuance costs of $1,777,181 and $3,589,844, respectively) $ 66,222,819 $ 10,410,156 Term loan payable (net of debt issuance costs of $1,045,895 and $2,196,756, respectively) 100,954,105 171,803,244 Notes payable (net of debt issuance costs of $4,122,533 and $4,629,649, respectively) 172,751,776 172,883,176 SBA debentures payable (net of debt issuance costs of $2,845,694 and $3,525,029, respectively) 147,154,306 146,474,971 Management and incentive fees payable (see Note 6) 4,312,004 4,558,619 Interest and fees payable 3,759,891 1,714,023 Accounts payable and accrued expenses 1,863,546 2,662,950 Deferred tax liability 911,936 2,003,724 Administrator expenses payable (see Note 6) 859,794 990,236 Deferred revenue 259,552 369,805 Due to affiliate 81,347 90,559 Total liabilities $ 499,131,076 $ 513,961,463 Guarantees and Commitments (see Note 8) NET ASSETS Common stock, par value $0.001 per share, 100,000,000 common shares authorized, 54,474,211 and 54,474,211 common shares issued and outstanding, respectively $ 54,474 $ 54,474 Capital in excess of par value 705,046,098 705,326,059 Accumulated undistributed net investment income 9,528,367 10,811,762 Accumulated net realized gain/(loss) from investments (176,662,889 ) (99,000,266 ) Net unrealized appreciation/(depreciation) on investments, net of deferred taxes (77,536,733 ) (100,272,887 ) Total net assets 460,429,317 516,919,142 Total liabilities and net assets $ 959,560,393 $ 1,030,880,605 NET ASSET VALUE PER SHARE $ 8.45 $ 9.49 September 30,
2021 September 30,
2020 Assets: Investments at fair value Non-controlled, non-affiliated investments (amortized cost of $92,214,167 and $117,360,954, respectively) $ 84,152,678 $ 114,321,948 Affiliated investments (amortized cost of $75,963,427 and $92,898,755, respectively) 57,595,245 84,873,023 Controlled investments (amortized cost of $39,490,097 and $117,874,821, respectively) 9,891,860 47,548,578 Total Investments at fair value 151,639,783 246,743,549 Cash and cash equivalents 69,433,256 56,522,148 Receivables: Fees receivable 1,872,700 119,028 Interest receivable 371,576 624,524 Paydown receivable 292,015 - Dividends receivable 81,211 - Other assets 1,401,746 2,093,559 Total Assets $ 225,092,287 $ 306,102,808 Liabilities: Notes payable (net of debt issuance costs of $412,795 and $905,624, respectively) $ 77,434,005 $ 150,960,662 Due to broker 1,586,000 - Accounts payable and accrued expenses 1,416,524 2,108,225 Due to affiliates 280,323 53,083 Administrator expenses payable (see Note 6) 67,920 156,965 Management and incentive fees payable (see Note 6) - 1,392,022 Interest and fees payable - 801,805 Deferred revenue - 10,529 Other liabilities 613,534 - Total Liabilities 81,398,306 155,483,291 Commitments and Contingencies (see Note 8) Net Assets: Common Shares, $0.001 par value; 5,000,000 shares authorized; 2,723,709 shares issued; 2,517,221 and 2,723,709 common shares outstanding, respectively 2,517 2,724 Capital in excess of par value 688,866,642 672,381,617 Total distributable earnings (loss) (545,175,178 ) (521,764,824 ) Total Net Assets 143,693,981 150,619,517 Total Liabilities and Net Assets $ 225,092,287 $ 306,102,808 Net Asset Value Per Common Share $ 57.08 $ 55.30 Medley Capital Corporation For the years ended September 30 2017 2016 2015 INVESTMENT INCOME: Interest from investments Non-controlled/non-affiliated investments: Cash $ 65,398,561 $ 98,057,236 $ 125,023,291 Payment-in-kind 9,970,327 8,009,607 8,293,561 Affiliated investments: Cash 1,950,454 667,000 1,138,652 Payment-in-kind 774,543 — 190,446 Controlled investments: Cash 2,045,830 949,732 2,030,504 Payment-in-kind 5,099,935 4,531,210 1,670,033 Total interest income 85,239,650 112,214,785 138,346,487 Dividend income, net of provisional taxes ($0, $511,510 and $143,833, respectively) 4,232,453 1,046,476 107,434 Interest from cash and cash equivalents 163,599 32,242 5,805 Fee income (see Note 9) 6,620,376 7,455,466 10,736,376 Total investment income 96,256,078 120,748,969 149,196,102 EXPENSES: Base management fees (see Note 6) 17,772,593 19,469,583 22,450,398 Incentive fees (see Note 6) 895,675 11,492,006 18,234,110 Interest and financing expenses 31,402,538 30,276,926 25,531,099 Administrator expenses (see Note 6) 3,848,299 3,915,506 4,106,806 General and administrative 2,555,448 2,336,025 1,931,881 Professional fees 2,192,210 2,276,902 2,865,187 Directors fees 646,758 543,847 578,587 Insurance 396,797 494,136 561,594 Expenses before management and incentive fee waivers 59,710,318 70,804,931 76,259,662 Management fee waiver (see Note 6) (47,941 ) (142,546 ) — Incentive fee waiver (see Note 6) (43,663 ) (3,504,103 ) — Total expenses net of management and incentive fee waivers 59,618,714 67,158,282 76,259,662 Net investment income before excise taxes 36,637,364 53,590,687 72,936,440 Excise tax expense (267,183 ) — — NET INVESTMENT INCOME 36,370,181 53,590,687 72,936,440 REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from investments Non-controlled/non-affiliated investments (40,007,550 ) (39,382,650 ) (62,359,239 ) Affiliated investments 3,391,500 — 1,449,030 Controlled investments (36,470,249 ) — — Net realized gain/(loss) from investments (73,086,299 ) (39,382,650 ) (60,910,209 ) Net unrealized appreciation/(depreciation) on investments Non-controlled/non-affiliated investments (7,611,264 ) (4,571,897 ) (14,329,084 ) Affiliated investments 501,163 — (1,491,516 ) Controlled investments 28,754,467 (37,685,558 ) (10,902,125 ) Net unrealized appreciation/(depreciation) on investments 21,644,366 (42,257,455 ) (26,722,725 ) Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments 1,091,788 87,333 (61,329 ) Loss on extinguishment of debt (1,096,682 ) — — Net gain/(loss) on investments (51,446,827 ) (81,552,772 ) (87,694,263 ) NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (15,076,646 ) $ (27,962,085 ) $ (14,757,823 ) WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE $ (0.28 ) $ (0.50 ) $ (0.26 ) WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE $ 0.67 $ 0.97 $ 1.27 WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (SEE NOTE 11) 54,474,211 55,399,646 57,624,779 DIVIDENDS DECLARED PER COMMON SHARE $ 0.76 $ 1.12 $ 1.27 For the Years Ended September 30 2021 2020 2019 Interest Income: Interest from investments Non-controlled, non-affiliated investments: Cash $ 5,974,807 $ 9,137,394 $ 25,368,027 Payment in-kind 609,964 863,744 1,755,260 Affiliated investments: Cash 1,099,809 1,182,294 2,197,555 Payment in-kind 327,804 2,425,557 2,604,279 Controlled investments: Cash 75,000 84,505 337,956 Payment in-kind - 500,767 2,800,890 Total interest income 8,087,384 14,194,261 35,063,967 Dividend income 21,564,348 6,256,250 8,218,480 Interest from cash and cash equivalents 10,402 378,077 712,017 Fee income (see Note 9) 2,566,519 692,988 2,304,287 Other income 78,204 - - Total Investment Income 32,306,857 21,521,576 46,298,751 Expenses: Base management fees (see Note 6) 1,146,403 6,358,750 11,189,646 Interest and financing expenses 5,800,100 14,935,017 24,049,485 General and administrative expenses 1,012,147 3,285,259 7,398,534 Salaries and benefits 1,993,277 - - Administrator expenses (see Note 6) 612,983 2,226,831 3,323,989 Insurance expenses 1,619,536 1,463,391 623,064 Directors fees 1,039,717 1,451,077 1,258,378 Professional fees, net (see Note 8) 559,975 (4,768,050 ) 19,323,082 Expenses before expense support reimbursement and management and incentive fee waivers 13,784,138 24,952,275 67,166,178 Expense support reimbursement (see Note 6) - (710,294 ) - Total expenses net of expense support reimbursement and management and incentive fee waivers 13,784,138 24,241,981 67,166,178 Net Investment Income 18,522,719 (2,720,405 ) (20,867,427 ) Realized and unrealized gains (losses) on investments Net realized gains (losses): Non-controlled, non-affiliated investments 7,747,672 (9,973,416 ) (24,762,224 ) Affiliated investments (10,088,405 ) (928,990 ) (7,670,970 ) Controlled investments (40,144,795 ) (39,076,425 ) (79,739,742 ) Total net realized gains (losses) (42,485,528 ) (49,978,831 ) (112,172,936 ) Net change in unrealized gains (losses): Non-controlled, non-affiliated investments (5,022,484 ) 9,898,237 20,727,499 Affiliated investments (10,342,450 ) 2,648,353 (6,864,255 ) Controlled investments 40,728,006 (23,178,993 ) 24,634,707 Total net change in unrealized gains (losses) 25,363,072 (10,632,403 ) 38,497,951 Loss on extinguishment of debt (see Note 5) (122,355 ) (2,481,374 ) (2,032,655 ) Total realized and unrealized gains (losses) (17,244,811 ) (63,092,608 ) (75,707,640 ) Net Increase (Decrease) in Net Assets Resulting from Operations $ 1,277,908 $ (65,813,013 ) $ (96,575,067 ) Weighted Average Basic and diluted earnings per common share $ 0.48 $ (24.16 ) $ (35.46 ) Weighted Average Basic and diluted net investment income (loss) per common share $ 6.92 $ (1.00 ) $ (7.66 ) Weighted Average Common Shares Outstanding - Basic and Diluted (see Note 11) 2,677,891 2,723,709 2,723,709 Dividends Declared per Common Share $ - $ - $ 3.00 Medley Capital Corporation For the years ended September 30 2017 2016 2015 OPERATIONS: Net investment income $ 36,370,181 $ 53,590,687 $ 72,936,440 Net realized gain/(loss) from investments (73,086,299 ) (39,382,650 ) (60,910,209 ) Net unrealized appreciation/(depreciation) on investments 21,644,366 (42,257,455 ) (26,722,725 ) Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments 1,091,788 87,333 (61,329 ) Loss on extinguishment of debt (1,096,682 ) — — Net increase/(decrease) in net assets from operations (15,076,646 ) (27,962,085 ) (14,757,823 ) SHAREHOLDER DISTRIBUTIONS: Distributions from net investment income (41,400,401 ) (62,122,756 ) (73,973,810 ) Net decrease in net assets from shareholder distributions (41,400,401 ) (62,122,756 ) (73,973,810 ) COMMON SHARE TRANSACTIONS: Offering costs (12,778 ) (46,429 ) — Repurchase of common stock under stock repurchase program (0, 1,862,941, and 2,396,132 shares, respectively) — (12,869,972 ) (21,204,864 ) Net increase/(decrease) in net assets from common share transactions (12,778 ) (12,916,401 ) (21,204,864 ) Total increase/(decrease) in net assets (56,489,825 ) (103,001,242 ) (109,936,497 ) Net assets at beginning of year 516,919,142 619,920,384 729,856,881 Net assets at end of year including accumulated undistributed net investment income of $9,528,367, $10,811,766 and $20,351,831, respectively $ 460,429,317 $ 516,919,142 $ 619,920,384 Net asset value per common share $ 8.45 $ 9.49 $ 11.00 Common shares outstanding at end of year 54,474,211 54,474,211 56,337,152 Common Stock Total Shares Par Amount Capital in Excess of Par Value Distributable Earnings/(Loss) Total Net Assets Balance at September 30, 2018 2,723,709 $ 2,724 $ 698,638,520 $ (377,462,517 ) $ 321,178,727 OPERATIONS Net investment income (loss) - - - (20,867,427 ) (20,867,427 ) Net realized gains (losses) on investments - - - (112,172,936 ) (112,172,936 ) Net change in unrealized appreciation (depreciation) on investments - - - 38,497,951 38,497,951 Net loss on extinguishment of debt - - - (2,032,655 ) (2,032,655 ) SHAREHOLDER DISTRIBUTIONS Return of Capital - - (8,171,130 ) - (8,171,130 ) Tax reclassification of shareholders’ equity in accordance with generally accepted accounting principles - - (16,882,923 ) 16,882,923 - Total Increase (Decrease) in Net Assets - - (25,054,053 ) (79,692,144 ) (104,746,197 ) Balance at September 30, 2019 2,723,709 2,724 673,584,467 (457,154,661 ) 216,432,530 OPERATIONS Net investment income (loss) - - - (2,720,405 ) (2,720,405 ) Net realized gains (losses) on investments - - - (49,978,831 ) (49,978,831 ) Net change in unrealized appreciation (depreciation) on investments - - - (10,632,403 ) (10,632,403 ) Net loss on extinguishment of debt - - - (2,481,374 ) (2,481,374 ) SHAREHOLDER DISTRIBUTIONS Tax reclassification of shareholders’ equity in accordance with generally accepted accounting principles - - (1,202,850 ) 1,202,850 - Total Increase (Decrease) in Net Assets - - (1,202,850 ) (64,610,163 ) (65,813,013 ) Balance at September 30, 2020 2,723,709 2,724 672,381,617 (521,764,824 ) 150,619,517 OPERATIONS Net investment income (loss) - - - 18,522,719 18,522,719 Net realized gains (losses) on investments - - - (42,485,528 ) (42,485,528 ) Net change in unrealized appreciation (depreciation) on investments - - - 25,363,072 25,363,072 Net loss on extinguishment of debt - - - (122,355 ) (122,355 ) CAPITAL SHARE TRANSACTIONS Repurchase of common shares (206,488 ) (207 ) (8,203,237 ) - (8,203,444 ) Tax reclassification of shareholders’ equity in accordance with generally accepted accounting principles - - 24,688,262 (24,688,262 ) - Total Increase (Decrease) in Net Assets (206,488 ) (207 ) 16,485,025 (23,410,354 ) (6,925,536 ) Balance at September 30, 2021 2,517,221 $ 2,517 $ 688,866,642 $ (545,175,178 ) $ 143,693,981 Medley Capital Corporation For the Years Ended
September 30 2021 2020 2019 Cash Flows from Operating Activities: Net increase (decrease) in net assets resulting from operations $ 1,277,908 $ (65,813,013 ) $ (96,575,067 ) Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: Investment increases due to payment-in-kind interest (937,768 ) (4,211,154 ) (9,606,292 ) Net amortization of premium (discount) on investments (44,455 ) (118,290 ) (286,665 ) Amortization of debt issuance cost 363,812 2,870,483 3,022,516 Net realized (gain) loss from investments 42,485,528 49,978,831 112,172,936 Net unrealized (appreciation) depreciation on investments (25,363,072 ) 10,632,403 (38,497,951 ) Proceeds from sale and settlements of investments 124,303,888 110,627,326 261,233,495 Purchases, originations and participations (45,340,354 ) (16,763,667 ) (66,474,607 ) Loss on extinguishment of debt 122,355 2,481,374 2,032,655 (Increase) decrease in operating assets: Other assets (1) 1,305,347 880,172 446,711 Interest receivable 252,948 967,883 4,784,670 Receivable for dispositions and investments sold - 419,299 (259,042 ) Receivable for paydowns (292,015 ) - - Fees receivable (1,753,672 ) (10,723 ) 78,971 Dividends receivable (81,211 ) - - Increase (decrease) in operating liabilities: Accounts payable and accrued expenses (691,701 ) (9,848,530 ) 9,020,922 Interest and fees payable (801,805 ) (2,102,943 ) (375,270 ) Management and incentive fees payable, net (1,392,022 ) (839,153 ) (1,116,499 ) Administrator expenses payable (89,045 ) (704,820 ) 53,239 Deferred revenue (10,529 ) (93,054 ) (88,569 ) Due to affiliate 227,240 8,746 5,286 Due to broker 1,586,000 - - Net cash provided by (used in) operating activities 95,127,377 78,361,170 179,571,439 Paydowns on debt (74,012,825 ) (106,122,925 ) (163,122,780 ) Debt issuance costs paid - - (14,361 ) Payments of cash dividends - - (8,171,130 ) Offering costs paid - - 354,754 Repurchase of common shares (8,203,444 ) - - Net cash provided by (used in) financing activities (82,216,269 ) (106,122,925 ) (170,953,517 ) Net increase (decrease) in cash and cash equivalents 12,911,108 (27,761,755 ) 8,617,922 Cash and cash equivalents, beginning of period 56,522,148 84,283,903 75,665,981 Cash and cash equivalents, end of period $ 69,433,256 $ 56,522,148 $ 84,283,903 Supplemental information: Interest paid during the year $ 6,601,905 $ 14,167,477 $ 21,402,239 Supplemental non-cash information: Non-cash purchase of investments $ - $ 12,950,924 $ 20,576,235 Non-cash sale of investments $ - $ 12,950,924 $ 20,528,752 Cash $ 69,433,256 $ 56,522,148 $ 68,245,213 Restricted Cash - - 16,038,690 Total cash and restricted cash shown in the statement of cash flows $ 69,433,256 $ 56,522,148 $ 84,283,903 For the years ended September 30 2017 2016 2015 Cash flows from operating activities NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS $ (15,076,646 ) $ (27,962,085 ) $ (14,757,823 ) ADJUSTMENTS TO RECONCILE NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES: Investment increases due to payment-in-kind interest (14,743,799 ) (14,442,519 ) (10,443,996 ) Net amortization of premium/(discount) on investments (1,362,534 ) (874,204 ) (1,692,973 ) Amortization of debt issuance costs 4,587,474 3,550,181 2,593,026 Net realized (gain)/loss from investments 73,086,299 39,382,650 60,910,209 Loss on extinguishment of debt 1,096,682 — — Net deferred income taxes (1,091,788 ) 206,368 205,211 Net unrealized (appreciation)/depreciation on investments (21,644,366 ) 42,257,455 26,722,725 Proceeds from sale and settlements of investments 281,354,722 333,056,400 260,419,011 Purchases, originations and participations (239,496,926 ) (97,472,088 ) (306,468,674 ) (Increase)/decrease in operating assets: Interest receivable (388,894 ) 560,393 3,552,956 Other assets (2,428,682 ) (336,853 ) 94,750 Fees receivable 637,627 (13,749 ) 540,445 Receivable for dispositions and investments sold 457,484 (110,511 ) 13,710,742 Increase/(decrease) in operating liabilities: Management and incentive fees payable, net (246,615 ) (5,403,915 ) (482,277 ) Interest and fees payable 2,045,868 400,092 (782,240 ) Accounts payable and accrued expenses (799,404 ) 159,508 173,198 Administrator expenses payable (130,442 ) (10,610 ) (11,620 ) Deferred revenue (110,253 ) (32,224 ) 136,536 Due to affiliate (9,212 ) (18,605 ) 69,600 Payable for investments purchased, originated and participated — — (54,995,000 ) NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES 65,736,595 272,895,684 (20,506,194 ) Cash flows from financing activities Offering costs paid (76,805 ) (80,944 ) — Repurchase of common stock under stock repurchase program — (12,869,972 ) (21,204,864 ) Borrowings on debt 213,863,443 147,112,825 206,000,000 Paydowns on debt (232,500,000 ) (251,800,000 ) (107,300,000 ) Debt issuance costs paid (1,536,137 ) (4,363,830 ) (4,032,364 ) Payments of cash dividends (41,400,401 ) (62,122,756 ) (73,973,810 ) NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES (61,649,900 ) (184,124,677 ) (511,038 ) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 4,086,695 88,771,007 (21,017,232 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 104,485,263 15,714,256 36,731,488 CASH AND CASH EQUIVALENTS, END OF YEAR $ 108,571,958 $ 104,485,263 $ 15,714,256 Supplemental Information: Interest paid during the year $ 24,692,824 $ 26,249,761 $ 23,643,303 Supplemental non-cash information: Payment-in-kind interest income $ 15,844,805 $ 12,540,818 $ 10,154,040 Net amortization of premium/(discount) on investments $ 1,362,534 $ 874,204 $ 1,692,973 Amortization of debt issuance costs $ (4,587,474 ) $ (3,550,181 ) $ (2,593,026 ) Non-cash purchase of investments $ 118,256,477 $ 31,883,728 $ — Non-cash sale of investments $ 118,256,477 $ 31,883,728 $ — (1) Excludes non-cash recognition of a right of use asset of $613,534. Medley Capital Corporation20172021 Industry Maturity Fair Value 3SI Security Systems, Inc. Services: Business 6/16/2023 17,500,000 17,500,000 17,500,000 3.8 % 17,500,000 17,500,000 17,500,000 Containers, Packaging & Glass 9/14/2023 9,887,670 9,887,670 9,887,670 2.2 % 9,887,670 9,887,670 9,887,670 Advanced Diagnostic Holdings, LLC Healthcare & Pharmaceuticals 12/11/2020 14,776,537 14,776,537 14,776,537 3.2 % 14,776,537 14,776,537 14,776,537 American Dental Partners, Inc. Healthcare & Pharmaceuticals 9/25/2023 6,500,000 6,500,000 6,578,000 1.4 % 6,500,000 6,500,000 6,578,000 Autosplice, Inc. High Tech Industries 6/30/2019 14,262,133 14,262,133 14,342,001 3.1 % 14,262,133 14,262,133 14,342,001 Avantor Performance Materials Holdings, LLC Chemicals, Plastics & Rubber 3/10/2025 1,000,000 990,465 1,020,000 0.2 % 1,000,000 990,465 1,020,000 Services: Consumer 7/14/2022 7,628,570 7,628,570 7,628,570 1.7 % 7/14/2022 — — — 0.0 % 7/14/2022 — — — 0.0 % 7,628,570 7,628,570 7,628,570 Be Green Packaging, LLC Containers, Packaging & Glass Equity - 417 Common Units — 416,250 — 0.0 % — 416,250 — Hotel, Gaming & Leisure 4/24/2020 7,700,893 7,700,893 7,375,190 1.6 % 4/24/2020 — — — 0.0 % 4/24/2020 376,360 376,360 343,324 0.1 % 8,077,253 8,077,253 7,718,514 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(4) % of Net
Assets(5) Non-Controlled/Non-Affiliated Investments: Alpine SG, LLC (8) High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14) 11/16/2022 $ 4,715,808 $ 4,715,809 $ 4,715,809 3.29 % Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14) 11/16/2022 472,087 472,087 472,087 0.33 % Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14) 11/16/2022 2,277,293 2,277,293 2,277,293 1.58 % Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14) 11/16/2022 4,174,037 4,107,317 4,174,037 2.90 % Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14) 11/16/2022 2,999,802 2,946,540 2,999,802 2.09 % Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14) 11/16/2022 1,000,000 982,916 1,000,000 0.70 % 15,639,027 15,501,962 15,639,028 10.89 % Autosplice, Inc. Automotive Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash & 2.00% PIK, 1.00% LIBOR Floor)(14) 4/30/2022 11,826,036 11,826,036 11,826,036 8.23 % 11,826,036 11,826,036 11,826,036 8.23 % Be Green Packaging, LLC Containers, Packaging & Glass Equity - 417 Common Units 1 416,250 - 0.00 % 1 416,250 - 0.00 % Chimera Investment Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 117,310 Class C Preferred Units(17)(20) 117,310 2,884,724 3,019,559 2.10 % 117,310 2,884,724 3,019,559 2.10 % Cleaver-Brooks, Inc. Manufacturing 7.875% Senior Secured Notes(18) 3/1/2023 9,364,000 9,306,052 9,270,360 6.45 % 9,364,000 9,306,052 9,270,360 6.45 % CM Finance SPV, LLC Energy: Oil & Gas Unsecured Debt(10) 101,463 101,463 - 0.00 % 101,463 101,463 - 0.00 % CPI International, Inc. Aerospace & Defense Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(13) 7/28/2025 2,607,062 2,599,906 2,489,744 1.73 % 2,607,062 2,599,906 2,489,744 1.73 % DataOnline Corp. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14) 11/13/2025 4,912,500 4,912,500 4,863,375 3.39 % Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(16) 11/13/2025 714,286 714,286 707,143 0.49 % 5,626,786 5,626,786 5,570,518 3.88 % Dividend and Income Fund(11) Banking, Finance, Insurance & Real Estate Equity - 87,483 Common Units(17) 87,483 1,281,845 1,275,502 0.89 % �� 87,483 1,281,845 1,275,502 0.89 % Dream Finders Homes, LLC(11) Construction & Building Preferred Equity (8.00% PIK) 4,905,011 4,905,011 4,757,860 3.31 % 4,905,011 4,905,011 4,757,860 3.31 % Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(4) % of Net
Assets(5) Footprint Acquisition, LLC Services: Business Preferred Equity (8.75% PIK)(10) 4,049,398 4,049,398 2,956,061 2.06 % Equity - 150 Common Units 150 - - 0.00 % 4,049,548 4,049,398 2,956,061 2.06 % Global Accessories Group, LLC Consumer goods: Non-durable Equity - 3.8% Membership Interest 380 151,337 - 0.00 % 380 151,337 - 0.00 % Great AJAX Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 253,651 Common Units(17) 253,651 3,316,414 3,421,752 2.38 % 253,651 3,316,414 3,421,752 2.38 % Invesco Mortgage Capital, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 205,000 Class C Preferred Units(17)(21) 205,000 5,035,506 5,217,250 3.63 % 205,000 5,035,506 5,217,250 3.63 % Lighting Science Group Corporation Containers, Packaging & Glass Warrants - 0.62% of Outstanding Equity(18) 5,000,000 955,680 - 0.00 % 5,000,000 955,680 - 0.00 % MFA Financial, Inc. Banking, Finance, Insurance & Real Estate Equity - 31,692 Class C Preferred Units(17)(24) 31,692 762,171 778,989 0.54 % 31,692 762,171 778,989 0.54 % New Residential Investment Corp.(11) Banking, Finance, Insurance & Real Estate Equity - 206,684 Class B Preferred Units(17)(22) 206,684 5,129,170 5,206,370 3.62 % 206,684 5,129,170 5,206,370 3.62 % New York Mortgage Trust, Inc.(11) Banking, Finance, Insurance & Real Estate Equity - 165,000 Class E Preferred Units(17)(23) 165,000 4,102,076 4,182,750 2.91 % 165,000 4,102,076 4,182,750 2.91 % Point.360 Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10)(15) 7/8/2020 2,777,366 2,103,712 - 0.00 % 2,777,366 2,103,712 - 0.00 % RateGain Technologies, Inc. Hotel, Gaming & Leisure Unsecured Debt (4.50% Cash)(12) 10/2/2023 532,671 532,671 - 0.00 % Unsecured Debt (4.50% Cash)(12) 4/1/2024 704,762 704,762 - 0.00 % 1,237,433 1,237,433 - 0.00 % Redwood Services Group, LLC(8) Services: Business Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)(16) 6/6/2023 175,000 175,000 175,000 0.12 % 175,000 175,000 175,000 0.12 % Sendero Drilling Company, LLC Energy: Oil & Gas Unsecured Debt (9.00% Cash)(10) 8/1/2022 233,750 222,544 - 0.00 % 233,750 222,544 - 0.00 % Seotowncenter, Inc. Services: Business Equity - 3,434,169.6 Common Units 3,434,170 566,475 - 0.00 % 3,434,170 566,475 - 0.00 % Industry Maturity Fair Value Healthcare & Pharmaceuticals 4/20/2022 1,087,248 1,087,248 1,087,248 0.2 % 4/20/2022 155,930 155,930 155,930 0.0 % 1,243,178 1,243,178 1,243,178 Comfort Holding, LLC Consumer goods: Durable 2/3/2025 1,000,000 961,738 850,200 0.2 % 1,000,000 961,738 850,200 Services: Consumer 3/31/2019 1,244,335 1,210,237 338,459 0.1 % 3/31/2019 9,088,659 4,060,507 — 0.0 % 3/31/2019 5,297,476 — — 0.0 % Revolving Credit Facility (ABR + 3.50% Cash, 4.25% ABR Floor) 3/31/2019 — — — 0.0 % Equity - 232 Common Units — — — 0.0 % 15,630,470 5,270,744 338,459 CPI International, Inc. Aerospace & Defense 7/26/2025 5,000,000 4,975,352 4,975,000 1.1 % 5,000,000 4,975,352 4,975,000 Crow Precision Components, LLC Aerospace & Defense 9/30/2019 13,277,500 13,277,500 13,246,962 2.9 % Equity - 350 Common Units — 700,000 273,808 0.1 % 13,277,500 13,977,500 13,520,770 Healthcare & Pharmaceuticals 12/1/2022 7,500,000 7,500,000 7,500,000 1.6 % 7,500,000 7,500,000 7,500,000 DHISCO Electronic Distribution, Inc. Hotel, Gaming & Leisure 11/10/2019 4,005,143 4,005,143 4,005,143 0.9 % 11/10/2019 14,732,716 14,732,716 14,732,716 3.2 % 11/10/2019 12,751,998 11,600,575 6,375,999 1.4 % 11/10/2019 11,956,119 4,701,476 — 0.0 % Equity - 1,230,769 Class A Units — 1,230,769 — 0.0 % 43,445,976 36,270,679 25,113,858 Dream Finders Homes, LLC Construction & Building 10/1/2018 3,460,972 3,417,279 3,495,581 0.8 % Preferred Equity (8.00% PIK) 3,571,500 3,571,500 3,571,500 0.8 % 7,032,472 6,988,779 7,067,081 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(4) % of Net
Assets(5) SMART Financial Operations, LLC Retail Equity - 700,000 Class A Preferred Units 700,000 700,000 - 0.00 % 700,000 700,000 - 0.00 % Stancor, Inc. Services: Business Equity - 263,814.43 Class A Units 263,814 263,814 - 0.00 % 263,814 263,814 - 0.00 % Thryv Holdings, Inc.(11) Services: Business Senior Secured First Lien Term Loan B (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) 3/1/2026 5,770,000 5,610,988 5,863,763 4.08 % 5,770,000 5,610,988 5,863,763 4.08 % Velocity Pooling Vehicle, LLC Automotive Equity - 5,441 Class A Units 5,441 302,464 64,167 0.05 % Warrants - 0.65% of Outstanding Equity 3/30/2028 6,506 361,667 76,727 0.05 % 11,947 664,131 140,894 0.10 % Walker Edison Furniture Company LLC Consumer goods: Durable Equity - 10,244 Common Units 10,244 1,500,000 2,361,242 1.64 % 10,244 1,500,000 2,361,242 1.64 % Watermill-QMC Midco, Inc. Automotive Equity - 1.3% Partnership Interest(9) 518,283 518,283 - 0.00 % 518,283 518,283 - 0.00 % Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) Aerospace & Defense Equity - 350 Common Units 350 700,000 - 0.00 % 350 700,000 - 0.00 % Subtotal Non-Controlled/Non-Affiliated Investments $ 75,318,491 $ 92,214,167 $ 84,152,678 58.56 % Affiliated Investments:(6) 1888 Industrial Services, LLC(8) Energy: Oil & Gas Senior Secured First Lien Term Loan A (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(10)(14) 9/30/2021(25) $ 9,946,741 $ 9,473,066 $ - 0.00 % Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(10)(14) 9/30/2021(25) 25,937,520 19,468,870 - 0.00 % Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(14) 9/30/2021(25) 1,231,932 1,191,257 24,637 0.02 % Revolving Credit Facility (LIBOR +5.00% PIK, 1.00% LIBOR Floor)(14)(16) 9/30/2021(25) 3,554,069 3,554,069 3,554,069 2.47 % Equity - 17,493.63 Class A Units - - - 0.00 % 40,670,262 33,687,262 3,578,706 2.49 % Black Angus Steakhouses, LLC(8) Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13) 6/30/2022 758,929 758,929 758,929 0.53 % Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(10)(13) 6/30/2022 8,412,596 7,767,533 2,279,814 1.59 % Senior Secured First Lien Super Priority DDTL (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)(16) 6/30/2022 1,500,000 1,500,000 1,500,000 1.04 % 10,671,525 10,026,462 4,538,743 3.16 % Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(4) % of Net
Assets(5) Caddo Investors Holdings 1 LLC(11) Forest Products & Paper Equity - 6.15% Membership Interest(19) 2,528,826 2,528,826 3,454,786 2.40 % 2,528,826 2,528,826 3,454,786 2.40 % Dynamic Energy Services International LLC Energy: Oil & Gas Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(10)(15) 12/31/2021 12,109,957 7,328,568 - 0.00 % Equity - 12,350,000 Class A Units 12,350,000 - - 0.00 % 24,459,957 7,328,568 - 0.00 % JFL-NGS Partners, LLC Construction & Building Equity - 57,300 Class B Units 57,300 57,300 26,862,813 18.69 % 57,300 57,300 26,862,813 18.69 % JFL-WCS Partners, LLC Environmental Industries Equity - 129,588 Class B Units 129,588 129,588 8,099,949 5.64 % 129,588 129,588 8,099,949 5.64 % Kemmerer Operations, LLC(8) Metals & Mining Senior Secured First Lien Term Loan (15.00% PIK) 6/21/2023 2,381,985 2,381,985 2,360,547 1.64 % Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK)(16) 6/21/2023 163,915 163,915 162,441 0.11 % Equity - 6.7797 Common Units 7 962,717 553,746 0.39 % 2,545,907 3,508,617 3,076,734 2.14 % Path Medical, LLC Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(10)(13) 10/11/2021 5,805,894 5,805,894 2,249,835 1.57 % Senior Secured First Lien Term Loan B (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10)(13) 10/11/2021 7,646,823 6,483,741 - 0.00 % Warrants - 7.68% of Outstanding Equity 123,867 499,751 - 0.00 % 13,576,584 12,789,386 2,249,835 1.57 % URT Acquisition Holdings Corporation Services: Business Warrants 28,912 - 920,000 0.64 % 28,912 - 920,000 0.64 % US Multifamily, LLC (11) Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan (10.00% Cash) 12/31/2022 2,577,418 2,577,418 2,577,418 1.79 % Equity - 33,300 Preferred Units 33,300 3,330,000 2,236,261 1.56 % 2,610,718 5,907,418 4,813,679 3.35 % Subtotal Affiliated Investments $ 97,279,579 $ 75,963,427 $ 57,595,245 40.08 % Controlled Investments:(7) FlexFIN LLC Services: Business Equity Interest $ 2,500,000 $ 2,500,000 $ 2,500,000 1.74 % 2,500,000 2,500,000 2,500,000 1.74 % NVTN LLC(8) Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(10)(13)(16) 12/31/2024 6,565,875 6,565,875 6,414,860 4.47 % Senior Secured First Lien Super Priority DDTL (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(13)(16) 12/31/2024 1,000,000 998,150 977,000 0.68 % Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10)(13) 12/31/2024 14,963,195 12,305,096 - 0.00 % Industry Maturity Fair Value Dynamic Energy Services International LLC Energy: Oil & Gas 6/6/2018 18,201,153 18,201,153 15,492,821 3.4 % 18,201,153 18,201,153 15,492,821 Capital Equipment 7/18/2025 1,519,149 1,504,143 1,503,957 0.3 % 7/18/2025 21,702 21,487 19,894 0.0 % 1,540,851 1,525,630 1,523,851 Capital Equipment 3/30/2020 11,656,250 11,656,250 11,656,250 2.5 % 11,656,250 11,656,250 11,656,250 Footprint Acquisition, LLC Services: Business 2/27/2020 5,117,626 5,117,626 5,117,626 1.1 % Preferred Equity (8.75% PIK) 6,124,188 6,124,188 5,427,255 1.2 % Equity - 150 Common Units — — — 0.0 % 11,241,814 11,241,814 10,544,881 Freedom Powersports, LLC Automotive 9/26/2019 12,410,000 12,410,000 12,517,967 2.7 % 12,410,000 12,410,000 12,517,967 Friedrich Holdings, Inc. Construction & Building 2/7/2023 10,000,000 10,000,000 10,094,000 2.2 % 10,000,000 10,000,000 10,094,000 Consumer goods: Non-durable Equity - 3.8% Membership Interest — 151,337 151,339 0.0 % — 151,337 151,339 Construction & Building 12/21/2018 52,137,471 52,137,471 50,667,194 11.0 % 52,137,471 52,137,471 50,667,194 Aerospace & Defense Senior Secured First Lien Note (10.25% Cash) 10/15/2019 20,000,000 20,000,000 20,478,000 4.4 % 20,000,000 20,000,000 20,478,000 Imagine! Print Solutions LLC Media: Advertising, Printing & Publishing 6/21/2023 3,000,000 2,956,403 2,955,000 0.6 % 3,000,000 2,956,403 2,955,000 Services: Business 12/30/2021 2,605,312 2,605,312 2,621,986 0.6 % 12/30/2021 119,711 119,711 125,307 0.0 % 2,725,023 2,725,023 2,747,293 InterFlex Acquisition Company, LLC Containers, Packaging & Glass 8/18/2022 14,812,500 14,812,500 14,812,500 3.2 % 14,812,500 14,812,500 14,812,500 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(4) % of Net
Assets(5) Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(10)(13) 12/31/2024 10,014,223 7,570,054 - 0.00 % Equity - 787.4 Class A Units 9,550,922 9,550,922 - 0.00 % 42,094,215 36,990,097 7,391,860 5.15 % Subtotal Control Investments $ 44,594,215 $ 39,490,097 $ 9,891,860 6.89 % Total Investments, September 30, 2021 $ 217,192,285 $ 207,667,691 $ 151,639,783 105.53 % (1) All of our investments are domiciled in the United States. Certain investments also have international operations. (2) Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments. (3) Net unrealized depreciation for U.S. federal income tax purposes totaled $55,318,330. The tax cost basis of investments is $206,958,113 as of September 30, 2021. (4) Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4). (5) Percentage is based on net assets of $143,693,981 as of September 30, 2021. (6) Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company. (7) Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation. (8) The investment has an unfunded commitment as of September 30, 2021 (see Note 8), and fair value includes the value of any unfunded commitments. (9) Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP. (10) The investment was on non-accrual status as of September 30, 2021. (11) The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2021, 20.18% of the Company’s portfolio investments were non-qualifying assets. (12) Security is non-income producing. (13) The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2021 was 0.08%. (14) The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2021 was 0.13 %. (15) The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2021 was 0.13 %. (16) This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2021, and is recorded as a component of interest income on the Consolidated Statements of Operations. (17) This investment represents a Level 1 security in the ASC 820 table as of September 30, 2021 (see Note 4). (18) This investment represents a Level 2 security in the ASC 820 table as of September 30, 2021 (see Note 4). (19) As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment. (20) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 4.743% spread on 9/30/2025. (21) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.29% spread on 9/27/2027. (22) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024. (23) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 6.429% spread on 1/15/2025. (24) The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025. (25) The maturity date was extended to May 1, 2023 subsequent to September 30, 2021. Industry Maturity Fair Value JD Norman Industries, Inc. Automotive 3/6/2019 20,100,000 20,100,000 20,071,860 4.4 % 20,100,000 20,100,000 20,071,860 L & S Plumbing Partnership, Ltd. Construction & Building 2/15/2022 21,234,375 21,234,375 21,412,744 4.7 % 21,234,375 21,234,375 21,412,744 Lighting Science Group Corporation Containers, Packaging & Glass 2/19/2019 13,865,893 13,531,508 13,386,133 2.9 % 2/19/2024 — 955,680 — 0.0 % 13,865,893 14,487,188 13,386,133 Merchant Cash and Capital, LLC Banking, Finance, Insurance & Real Estate 5/31/2017 4,915,635 4,915,635 4,915,635 1.1 % 5/4/2017 15,519,966 15,167,277 7,759,983 1.7 % 20,435,601 20,082,912 12,675,618 Nation Safe Drivers Holdings, Inc. Banking, Finance, Insurance & Real Estate 9/29/2020 35,278,846 35,278,846 35,278,846 7.7 % 35,278,846 35,278,846 35,278,846 Oxford Mining Company, LLC Metals & Mining 12/31/2018 21,127,331 21,127,331 21,127,331 4.6 % 21,127,331 21,127,331 21,127,331 The Plastics Group, Inc. Chemicals, Plastics & Rubber Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK) 2/28/2019 21,755,233 21,755,233 18,992,318 4.1 % 21,755,233 21,755,233 18,992,318 Path Medical, LLC Healthcare & Pharmaceuticals 10/11/2021 8,459,113 8,034,525 8,503,947 1.8 % 10/11/2021 2,808,500 2,808,500 2,823,385 0.6 % Warrants - 1.56% of Outstanding Equity 1/9/2027 — 499,751 83,018 0.0 % 11,267,613 11,342,776 11,410,350 Point.360 Services: Business 7/8/2020 2,085,870 2,085,870 1,844,534 0.4 % — 129,406 38,343 0.0 % 7/8/2020 — 52,757 21,103 0.0 % 2,085,870 2,268,033 1,903,980 Wholesale 12/15/2019 6,800,000 6,767,560 7,066,560 1.5 % 6,800,000 6,767,560 7,066,560 Reddy Ice Corporation Beverage & Food 11/1/2019 17,000,000 17,000,000 16,117,700 3.5 % 17,000,000 17,000,000 16,117,700 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(6) % of Net
Assets(4) Non-Controlled/Non-Affiliated Investments: Alpine SG, LLC High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13) 11/16/2022 4,715,809 4,715,809 4,466,815 3.0 % Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) 11/16/2022 472,087 472,087 472,087 0.3 % Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13) 11/16/2022 2,277,293 2,277,293 2,157,052 1.4 % Revolving Credit Facility (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)(15) 11/16/2022 1,000,000 1,000,000 947,200 0.6 % 8,465,189 8,465,189 8,043,154 American Dental Partners, Inc. Healthcare & Pharmaceuticals Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) 9/25/2023 4,387,500 4,387,500 3,948,750 2.6 % 4,387,500 4,387,500 3,948,750 Autosplice, Inc. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13) 12/17/2021 12,780,349 12,780,349 11,898,505 7.9 % 12,780,349 12,780,349 11,898,505 Avantor, Inc.(10) Wholesale Equity - 545,931 Common Units(16) — 9,553,793 12,277,988 8.2 % — 9,553,793 12,277,988 Be Green Packaging, LLC Containers, Packaging & Glass Equity - 417 Common Units — 416,250 — 0.0 % — 416,250 — CM Finance SPV, LLC Banking, Finance, Insurance & Real Estate Unsecured Debt 6/24/2021 101,463 101,463 101,463 0.1 % 101,463 101,463 101,463 CPI International, Inc. Aerospace & Defense Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(12) 7/28/2025 2,607,062 2,598,252 2,219,392 1.5 % 2,607,062 2,598,252 2,219,392 Crow Precision Components, LLC Aerospace & Defense Equity - 350 Common Units — 700,000 723,131 0.5 % — 700,000 723,131 CT Technologies Intermediate Holdings, Inc.(11) Healthcare & Pharmaceuticals Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13) 12/1/2022 7,500,000 7,500,000 6,832,500 4.5 % 7,500,000 7,500,000 6,832,500 DataOnline Corp.(7) High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) 11/13/2025 4,962,500 4,962,500 4,786,331 3.2 % Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)(15) 11/13/2025 535,714 535,714 510,357 0.3 % 5,498,214 5,498,214 5,296,688 Dream Finders Homes, LLC Construction & Building Preferred Equity (8.00% PIK) 4,531,472 4,531,472 3,928,786 2.6 % 4,531,472 4,531,472 3,928,786 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(6) % of
Net
Assets(4) Footprint Acquisition, LLC Services: Business Preferred Equity (8.75% PIK) 3,969,998 3,969,998 3,969,998 2.6 % Equity - 150 Common Units — — 1,960,830 1.3 % 3,969,998 3,969,998 5,930,828 Global Accessories Group, LLC(11) Consumer goods: Non-durable Equity - 3.8% Membership Interest — 151,337 — 0.0 % — 151,337 — Impact Group, LLC Services: Business Senior Secured First Lien Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(13) 6/27/2023 3,219,964 3,219,964 2,994,565 2.0 % Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(13) 6/27/2023 9,330,056 9,330,056 8,676,952 5.8 % 12,550,020 12,550,020 11,671,517 — InterFlex Acquisition Company, LLC Containers, Packaging & Glass Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) 8/18/2022 12,098,406 12,098,406 11,987,100 8.0 % 12,098,406 12,098,406 11,987,100 Lighting Science Group Corporation Containers, Packaging & Glass Warrants - 0.62% of Outstanding Equity(17) 2/19/2024 — 955,680 — 0.0 % — 955,680 — Manna Pro Products, LLC Consumer goods: Non-durable Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12) 12/8/2023 5,343,674 5,343,674 5,123,515 3.4 % Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12) 12/8/2023 1,085,219 1,085,219 1,040,508 0.7 % 6,428,893 6,428,893 6,164,023 Point.360 Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(9)(14)(21) 7/8/2020 2,777,366 2,103,712 186,083 0.1 % 2,777,366 2,103,712 186,083 RateGain Technologies, Inc. Hotel, Gaming & Leisure Unsecured Debt(18) 7/31/2020 704,106 704,106 — 0.0 % Unsecured Debt(18) 7/31/2021 761,905 761,905 — 0.0 % 1,466,011 1,466,011 — Redwood Services Group, LLC(7) Services: Business Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12 )(15) 6/6/2023 700,000 700,000 647,500 0.4 % 700,000 700,000 647,500 Sendero Drilling Company, LLC Energy: Oil & Gas Unsecured Debt (8.00% Cash)(9) 8/31/2021 488,750 465,319 — 0.0 % 488,750 465,319 — Seotowncenter, Inc. Services: Business Equity - 3,434,169.6 Common Units — 566,475 686,834 0.5 % — 566,475 686,834 SFP Holding, Inc. Construction & Building Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) 9/1/2022 4,776,955 4,776,955 4,733,962 3.1 % Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) 9/1/2022 1,852,522 1,852,522 1,835,850 1.2 % Equity - 101,165.93 Common Units in CI (Summit) Investment Holdings LLC — 1,067,546 657,578 0.4 % 6,629,477 7,697,023 7,227,390 Industry Maturity Fair Value Environmental Industries 6/2/2022 1,330,000 1,330,000 1,330,000 0.3 % 1,330,000 1,330,000 1,330,000 Sendero Drilling Company, LLC Energy: Oil & Gas Warrants - 5.52% of Outstanding Equity 3/18/2019 — 793,523 2,188,676 0.5 % — 793,523 2,188,676 Services: Business 9/11/2019 23,697,976 23,697,976 23,697,976 5.1 % Equity - 3,249.697 Common Units — 500,000 419,731 0.1 % 23,697,976 24,197,976 24,117,707 Construction & Building 9/1/2022 6,222,222 6,222,222 6,222,222 1.4 % Equity - 1.42% Company Interest — 600,000 600,000 0.1 % 6,222,222 6,822,222 6,822,222 Ship Supply Acquisition Corporation Services: Business 7/31/2020 7,648,798 7,648,798 7,337,492 1.6 % 7,648,798 7,648,798 7,337,492 Retail 11/22/2021 2,775,000 2,775,000 2,848,500 0.6 % Equity - 700,000 Class A Preferred Units — 700,000 735,000 0.2 % 2,775,000 3,475,000 3,583,500 SRS Software, LLC High Tech Industries 2/17/2022 7,462,500 7,462,500 7,527,424 1.6 % 7,462,500 7,462,500 7,527,424 Stancor, Inc. Services: Business 8/19/2019 4,346,364 4,346,364 4,346,364 0.9 % Equity - 263,814.43 Class A Units — 263,814 205,775 0.0 % 4,346,364 4,610,178 4,552,139 Starfish Holdco, LLC High Tech Industries 8/18/2025 4,000,000 3,940,532 3,940,000 0.9 % 4,000,000 3,940,532 3,940,000 Taylored Freight Services, LLC Services: Business 11/1/2017 14,895,052 14,895,052 14,895,052 3.2 % 14,895,052 14,895,052 14,895,052 Banking, Finance, Insurance & Real Estate 12/2/2021 3,567,857 3,567,857 3,661,282 0.8 % 12/2/2021 1,875,000 1,875,000 1,875,000 0.4 % 5,442,857 5,442,857 5,536,282 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(6) % of Net
Assets(4) SMART Financial Operations, LLC Retail Equity - 700,000 Class A Preferred Units — 700,000 343,000 0.2 % — 700,000 343,000 Stancor, Inc. Services: Business Equity - 263,814.43 Class A Units — 263,814 150,374 0.1 % — 263,814 150,374 Starfish Holdco, LLC High Tech Industries Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) 8/18/2025 1,000,000 989,935 926,500 0.6 % 1,000,000 989,935 926,500 — URT Acquisition Holdings Corporation Services: Business Unsecured Debt (10.00% PIK) 6/23/2021 2,567,929 2,567,929 2,567,929 1.7 % 2,567,929 2,567,929 2,567,929 Velocity Pooling Vehicle, LLC Automotive Senior Secured First Lien Term Loan (LIBOR + 11.00% PIK, 1.00% LIBOR Floor)(13) 4/28/2023 1,014,440 951,628 1,014,440 0.7 % Equity - 5,441 Class A Units — 302,464 12,841 0.0 % Warrants - 0.65% of Outstanding Equity 3/30/2028 — 361,667 15,354 0.0 % 1,014,440 1,615,759 1,042,635 Walker Edison Furniture Company LLC Consumer goods: Durable Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) 9/26/2024 3,519,878 3,519,878 3,519,878 2.3 % Equity - 1,500 Common Units — 1,500,000 6,000,000 4.0 % 3,519,878 5,019,878 9,519,878 Watermill-QMC Midco, Inc. Automotive Equity - 1.3% Partnership Interest(8) — 518,283 — 0.0 % — 518,283 — Subtotal Non-Controlled/Non-Affiliated Investments $ 101,082,417 $ 117,360,954 $ 114,321,948 Affiliated Investments:(20) 1888 Industrial Services, LLC(7) Energy: Oil & Gas Senior Secured First Lien Term Loan A (LIBOR + 5.00% PIK, 9/30/2021 9,946,741 9,473,067 — 0.0 % 1.00% LIBOR Floor)(9)(13) Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(9)(13) 9/30/2021 25,937,520 19,468,870 — 0.0 % Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(9)(13) 9/30/2021 1,231,932 1,191,257 1,166,763 0.8 % Revolving Credit Facility (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13)(15) 9/30/2021 3,554,069 3,554,069 3,554,069 2.4 % Equity - 17,493.63 Class A Units — — — 0.0 % 40,670,262 33,687,263 4,720,832 Access Media Holdings, LLC Media: Broadcasting & Subscription Senior Secured First Lien Term Loan (10.00% PIK)(9)(21) 7/22/2020 11,105,630 8,446,385 1,110,563 0.7 % Preferred Equity Series A 1,600,000 1,600,000 — 0.0 % Preferred Equity Series AA 800,000 800,000 — 0.0 % Preferred Equity Series AAA 971,200 971,200 — 0.0 % Equity - 16 Common Units — — — 0.0 % 14,476,830 11,817,585 1,110,563 Black Angus Steakhouses, LLC Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) 12/31/2020 758,929 758,929 758,929 0.5 % Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(9)(12) 12/31/2020 8,412,596 7,767,532 5,047,557 3.4 % Equity - 17.9% Membership Interest — — — 0.0 % 9,171,525 8,526,461 5,806,486 Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(6) % of Net
Assets(4) Caddo Investors Holdings 1 LLC(10) Forest Products & Paper Equity - 6.15% Membership Interest(19) — 2,528,826 2,990,776 2.0 % — 2,528,826 2,990,776 — Dynamic Energy Services International LLC Energy: Oil & Gas Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(9)(14) 12/31/2021 12,930,235 7,824,974 905,116 0.6 % Equity - 12,350,000 Class A Units — — — 0.0 % 12,930,235 7,824,974 905,116 JFL-NGS Partners, LLC Construction & Building Preferred Equity - A-2 Preferred (3.00% PIK) 1,795,034 1,795,034 1,795,034 1.2 % Preferred Equity - A-1 Preferred (3.00% PIK) 232,292 232,292 232,292 0.2 % Equity - 57,300 Class B Units — 57,300 38,780,067 25.7 % 2,027,326 2,084,626 40,807,393 — JFL-WCS Partners, LLC Environmental Industries Preferred Equity - Class A Preferred (6.00% PIK) 1,310,649 1,310,649 1,310,649 0.9 % Equity - 129,588 Class B Units — 129,588 4,535,580 3.0 % 1,310,649 1,440,237 5,846,229 — Kemmerer Operations, LLC(7) Metals & Mining Senior Secured First Lien Term Loan (15.00% PIK) 6/21/2023 2,051,705 2,051,705 2,051,705 1.4 % Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK) 6/21/2023 515,699 515,699 515,699 0.4 % Equity - 6.7797 Common Units — 962,717 962,717 0.6 % 2,567,404 3,530,121 3,530,121 Path Medical, LLC Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(12) 10/11/2021 5,905,080 5,905,080 5,905,080 3.9 % Senior Secured First Lien Term Loan B (LIBOR + 13% PIK, 1.00% LIBOR Floor)(9)(12) 10/11/2021 7,783,840 6,599,918 6,794,514 4.5 % Warrants - 7.68% of Outstanding Equity 1/9/2027 — 499,751 — 0.0 % 13,688,920 13,004,749 12,699,594 US Multifamily, LLC(10) Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan (10.00% Cash) 6/17/2021 5,123,913 5,123,913 5,123,913 3.4 % Equity - 33,300 Preferred Units — 3,330,000 1,332,000 0.9 % 5,123,913 8,453,913 6,455,913 Subtotal Affiliated Investments $ 101,967,064 $ 92,898,755 $ 84,873,023 Controlled Investments:(5) MCC Senior Loan Strategy JV I LLC(10) Multisector Holdings Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC — 79,887,500 41,018,500 27.2 % — 79,887,500 41,018,500 Industry Maturity Fair Value Automotive 5/14/2021 1,958,668 1,109,768 1,091,958 0.2 % 5/13/2022 24,000,000 21,696,167 4,080,000 0.9 % 25,958,668 22,805,935 5,171,958 Watermill-QMC Midco, Inc. Automotive — 518,283 672,213 0.1 % — 518,283 672,213 Aerospace & Defense 10/15/2021 14,676,659 14,676,659 14,676,659 3.2 % 14,676,659 14,676,659 14,676,659 Subtotal Non-Controlled/Non-Affiliated Investments $ 640,893,679 $ 625,108,198 $ 575,495,698 Energy: Oil & Gas 9/30/2021 8,984,232 8,984,232 8,984,232 2.0 % 9/30/2021 19,746,290 16,707,477 19,746,290 4.3 % 9/30/2021 — — — 0.0 % Equity - 21,562.16 Class A Units — — — 0.0 % 28,730,522 25,691,709 28,730,522 Media: Broadcasting & Subscription Senior Secured First Lien Term Loan (5.00% Cash, 5.00% PIK) 7/22/2020 8,340,525 8,340,525 8,340,525 1.8 % Preferred Equity Series A 1,600,000 1,600,000 — 0.0 % Preferred Equity Series AA 800,000 800,000 — 0.0 % Preferred Equity Series AAA 363,200 363,200 43,200 0.0 % Equity - 16 Common Units — — — 0.0 % 11,103,725 11,103,725 8,383,725 Energy: Oil & Gas 8/2/2017 11,355,575 9,000,000 7,719,520 1.7 % 8/2/2017 668,105 668,105 668,105 0.1 % Equity - 7.5 Common Units — — — 0.0 % 12,023,680 9,668,105 8,387,625 JFL-NGS Partners, LLC Construction & Building Preferred Equity - A-2 Preferred (3.00% PIK) 30,552,190 30,552,190 30,552,190 6.6 % Preferred Equity - A-1 Preferred (3.00% PIK) 3,953,700 3,953,700 3,953,700 0.9 % Equity - 57,300 Class B Units — 57,300 63,603 0.0 % 34,505,890 34,563,190 34,569,493 Industry Maturity Fair Value Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan (10.00% Cash) 9/10/2019 6,670,000 6,670,000 6,670,000 1.5 % Equity - 33,300 Preferred Units — 3,330,000 3,330,000 0.7 % 6,670,000 10,000,000 10,000,000 Subtotal Affiliated Investments $ 93,033,817 $ 91,026,729 $ 90,071,365 Healthcare & Pharmaceuticals 9/25/2020 26,124,967 20,803,397 18,002,715 3.9 % 9/25/2020 11,304,251 9,153,997 7,789,760 1.7 % Equity - 4,664.6 Class B Units and 9,424.4 Class C Units — 12 — 0.0 % Equity - 2,932.3 Common Units — 400,003 — 0.0 % 37,429,218 30,357,409 25,792,475 Multisector Holdings Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC — 56,087,500 56,137,946 12.2 % — 56,087,500 56,137,946 Hotel, Gaming & Leisure 11/9/2020 3,505,990 3,505,990 3,505,990 0.8 % 11/9/2020 10,604,502 10,604,502 10,604,502 2.3 % 11/9/2020 6,518,046 6,518,046 6,518,046 1.4 % Equity - 787.4 Class A Units — 9,550,922 9,550,922 2.1 % 20,628,538 30,179,460 30,179,460 OmniVere, LLC Services: Business 5/5/2019 25,470,636 22,880,599 24,500,205 5.3 % Senior Secured First Lien Term Loan (8.00% PIK) 5/5/2019 1,409,669 1,409,669 1,409,669 0.3 % 7/24/2025 26,666,961 22,727,575 — 0.0 % Equity - 5,055.56 Common Units — 872,698 — 0.0 % 53,547,266 47,890,541 25,909,874 URT Acquisition Holdings Corporation Services: Business 5/2/2022 14,966,563 14,966,563 14,966,563 3.3 % Preferred Equity (12.00% PIK) 5,500,000 5,500,000 5,500,000 1.2 % Equity - 397,466 Common Units — 12,936,879 12,937,518 2.8 % 20,466,563 33,403,442 33,404,081 Subtotal Controlled Investments $ 132,071,585 $ 197,918,352 $ 171,423,836 Total Investments, September 30, 2017 $ 865,999,081 $ 914,053,279 $ 836,990,899 181.8 % Company(1) Industry Type of Investment Maturity Par Amount(2) Cost(3) Fair Value(6) % of Net
Assets(4) NVTN LLC(7) Hotel, Gaming & Leisure Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(12) 12/31/2024 6,565,875 6,565,875 4,530,078 3.0 % Senior Secured First Lien Super Priority DDTL (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(12) 12/31/2024 2,000,000 1,995,374 2,000,000 1.3 % Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(9)(12) 12/31/2024 14,963,195 12,305,096 — 0.0 % Senior Secured First Lien Term Loan C (LIBOR + 12.00% 12/31/2024 10,014,223 7,570,054 — 0.0 % PIK, 1.00% LIBOR Floor)(9)(12) Equity - 787.4 Class A Units — 9,550,922 — 0.0 % 33,543,293 37,987,321 6,530,078 Subtotal Control Investments $ 33,543,293 $ 117,874,821 $ 47,548,578 Total Investments, September 30, 2020 $ 236,592,774 $ 328,134,530 $ 246,743,549 163.8 % (1) All of our investments are domiciled in the United States. Certain investments also have international operations. (2) Par amount includes accumulated PIKpayment-in-kind (“PIK”) interest, as applicable, and is net of repayments.(3) Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for U.S. federal income tax purposes totaled $15,157,028, $82,394,835,$53,757,923, $134,877,746, and $67,237,807,$81,119,823, respectively. The tax cost basis of investments is $903,754,350$327,863,372 as of September 30, 2017.2020.(4) Percentage is based on net assets of $460,429,317$150,619,517 as of September 30, 2017.2020.(5) ControlledControl Investments are defined by the Investment Company Act of 1940, ("1940 Act"as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.(6) Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4). (7) The investment has an unfunded commitment as of September 30, 20172020 (see Note 8),and includes an analysis of the value of any unfunded commitments.(8) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $27,544,560Represents 1.3% partnership interest in Watermill-QMC Partners, LP and 5.9% of net assets as of September 30, 2017, and are considered restricted.Watermill-EMI Partners, LP.(9) The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (''LIBOR'') floor, or 6 month LIBOR plus a base rate. The 6 month LIBOR as of September 30, 2017 was 1.50%.(10)The investment was on non-accrual status as of September 30, 2017.2020.(11)(10)The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2017, 7.9%2020, 25.4% of the Company'sCompany’s portfolio investments were non-qualifying assets.(12)(11)A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by Medley Capital Corporationthe Company (see Note 3).(13)(12)The interest rate on these loans is subject to the greater of a LIBOR,London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 20172020 was 1.24%0.15%.(14)(13)The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 20172020 was 1.33%0.23%.(15)(14)The interest rate on these loans is subject to a 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2017 was 1.24%.(16)The interest rate on these loans is subject to a 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 20172020 was 1.33%0.24%.(17)(15)This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2017.2020, and is recorded as a component of interest income on the Consolidated Statements of Operations.(18)This investment earns 1.00% commitment fee on all unused commitment as of September 30, 2017.(19)This investment earns 7.25% commitment fee on all unused commitment as of September 30, 2017.(20)(16)This investment represents a Level 1 security in the ASC 820 table as of September 30, 20172020 (see Note 4).(21)(17)This investment represents a Level 2 security in the ASC 820 table as of September 30, 20172020 (see Note 4).(18) (22)Investment changed its name from DLR Restaurants LLC during fiscal year 2017.Security is non-income producing.(19) (23)Represents 1.3% partnership interest in Watermill-QMC Partners, LP, and Watermill-EMI Partners, LP.As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.(20) (24)Refer to Note 16 for additional information regarding this investment.See accompanying notes to consolidated financial statements.Medley Capital CorporationConsolidated Schedule of InvestmentsSeptember 30, 2016(17) Industry Maturity Fair Value Media: Broadcasting & Subscription Senior Secured First Lien Term Loan (10.00%) 7/22/2020 7,929,093 7,929,092 7,832,358 1.5 % Preferred Equity Series A 1,600,000 1,600,000 — 0.0 % Preferred Equity Series AA 616,000 616,000 — 0.0 % Equity - 16 Common Units — — — 0.0 % 10,145,093 10,145,092 7,832,358 Accupac, Inc. Containers, Packaging & Glass 7/14/2020 27,000,000 27,000,000 27,000,000 5.2 % 27,000,000 27,000,000 27,000,000 Advanced Diagnostic Holdings, LLC Healthcare & Pharmaceuticals 12/11/2020 15,262,608 15,262,608 15,701,560 3.0 % 15,262,608 15,262,608 15,701,560 Beverage & Food 10/31/2018 15,972,097 15,972,097 16,131,818 3.1 % 15,972,097 15,972,097 16,131,818 Autosplice, Inc. High Tech Industries 6/30/2019 14,441,783 14,441,784 14,489,296 2.8 % 14,441,783 14,441,784 14,489,296 Backcountry.com, LLC Retail 6/30/2020 2,551,042 2,551,042 2,576,552 0.5 % 2,551,042 2,551,042 2,576,552 Be Green Packaging, LLC Containers, Packaging & Glass Equity - 417 Common Units — 416,250 — 0.0 % — 416,250 — Hotel, Gaming & Leisure 4/24/2020 7,906,250 7,906,250 7,721,117 1.5 % Senior Secured First Lien Delayed Draw (LIBOR + 9.00%, 1.00% LIBOR Floor) 4/24/2020 — — — 0.0 % 4/24/2020 446,429 446,429 441,911 0.1 % 8,352,679 8,352,679 8,163,028 Energy: Oil & Gas 8/2/2017 10,060,902 9,051,055 5,351,092 1.0 % Senior Secured First Lien Delayed Draw (LIBOR + 5.00%, 1.00% LIBOR Floor) 8/2/2017 637,500 637,500 637,500 0.1 % Equity - 7.5 Common Units 8/2/2017 — — — 0.0 % 10,698,402 9,688,555 5,988,592 Industry Maturity Fair Value ConvergeOne Holdings Corporation Telecommunications 6/17/2021 12,500,000 12,406,960 12,458,500 2.4 % 12,500,000 12,406,960 12,458,500 Services: Consumer 3/31/2019 2,805,273 2,805,273 2,805,273 0.6 % 3/31/2019 1,168,864 1,168,864 1,168,864 0.2 % 3/31/2019 8,204,394 4,063,090 4,102,197 0.8 % 3/31/2019 5,107,884 — — 0.0 % 3/31/2019 725,552 725,552 725,552 0.1 % 3/31/2019 638,486 638,485 638,486 0.1 % Equity - 232 Common Units 3/31/2019 — — — 0.0 % 18,650,453 9,401,264 9,440,372 Crow Precision Components, LLC Aerospace & Defense 9/30/2019 13,540,000 13,540,000 13,540,000 2.6 % Equity - 350 Common Units — 700,000 414,305 0.1 % 13,540,000 14,240,000 13,954,305 Hotel, Gaming & Leisure Senior Secured First Lien Term Loan A (LIBOR + 9.00%, 1.50% LIBOR Floor) 11/10/2019 31,238,095 31,238,095 29,545,615 5.7 % Senior Secured First Lien Term Loan B (10.50% PIK) 2/10/2018 6,982,024 6,982,024 6,587,260 1.3 % 5/10/2017 — — — 0.0 % Equity - 1,230,769 Class A Units — 1,230,769 70,624 0.0 % 38,220,119 39,450,888 36,203,499 Hotel, Gaming & Leisure Senior Secured First Lien Term Loan (13.00% Cash, 2.50% PIK) 4/18/2018 24,117,310 24,117,310 23,958,859 4.6 % Unsecured Debt (12.00% Cash, 4.00% PIK) 4/18/2018 287,531 287,531 279,604 0.1 % 24,404,841 24,404,841 24,238,463 Dream Finders Homes, LLC Construction & Building Senior Secured First Lien Term Loan B (LIBOR + 14.50% Cash) 10/1/2018 7,093,318 7,009,174 7,071,897 1.4 % Equity - 5,000 Common Units 10/1/2018 — 180,000 1,619,379 0.3 % 7,093,318 7,189,174 8,691,276 Dynamic Energy Services International LLC Energy: Oil & Gas 3/6/2018 16,046,050 16,046,050 13,307,952 2.6 % 16,046,050 16,046,050 13,307,952 Construction & Building 5/13/2019 23,190,922 20,460,116 1,159,546 0.2 % 23,190,922 20,460,116 1,159,546 Industry Maturity Fair Value Capital Equipment 3/30/2020 14,531,250 14,531,250 14,605,650 2.8 % 14,531,250 14,531,250 14,605,650 Footprint Acquisition LLC Services: Business 2/27/2020 5,250,102 5,250,102 5,340,509 1.0 % Preferred Equity (8.75% PIK) 5,749,795 5,749,795 5,749,508 1.1 % Equity - 150 Common Units — — 1,171,650 0.2 % 10,999,897 10,999,897 12,261,667 Freedom Powersports LLC Automotive 9/26/2019 13,890,000 13,890,000 14,167,800 2.7 % 13,890,000 13,890,000 14,167,800 Construction & Building 12/21/2018 53,776,985 53,776,985 51,930,283 10.1 % 53,776,985 53,776,985 51,930,283 Heligear Acquisition Co. Aerospace & Defense Senior Secured First Lien Note (10.25% Cash) 10/15/2019 20,000,000 20,000,000 21,047,400 4.1 % 20,000,000 20,000,000 21,047,400 JD Norman Industries, Inc. Automotive 3/6/2019 21,300,000 21,300,000 20,219,025 3.9 % 21,300,000 21,300,000 20,219,025 Jordan Reses Supply Company, LLC Healthcare & Pharmaceuticals Senior Secured Second Lien Term Loan (LIBOR + 11.00%, 1.00% LIBOR Floor) 4/24/2020 20,000,000 20,000,000 20,400,000 4.0 % 20,000,000 20,000,000 20,400,000 Lighting Science Group Corporation Containers, Packaging & Glass 2/19/2019 16,053,472 15,515,186 15,077,260 2.9 % 2/19/2024 — 955,680 120,000 0.0 % 16,053,472 16,470,866 15,197,260 LSF9 Atlantis Holdings, LLC Retail Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor) 1/15/2021 9,750,000 9,661,163 9,988,485 1.9 % 9,750,000 9,661,163 9,988,485 Merchant Cash and Capital, LLC Banking, Finance, Insurance & Real Estate 12/4/2016 17,033,522 17,033,522 17,033,522 3.3 % Senior Secured Second Lien Term Loan (12.00% Cash) 5/4/2017 15,000,000 15,000,000 14,999,250 2.9 % 32,033,522 32,033,522 32,032,772 Automotive 5/9/2019 12,695,105 12,695,105 12,478,272 2.5 % 12,695,105 12,695,105 12,478,272 Momentum Telecom, Inc. Telecommunications 3/10/2019 12,593,281 12,593,281 12,719,213 2.5 % 12,593,281 12,593,281 12,719,213 Industry Maturity Fair Value Nation Safe Drivers Holdings, Inc. Banking, Finance, Insurance & Real Estate 9/29/2020 35,278,846 35,278,846 35,631,635 6.9 % 35,278,846 35,278,846 35,631,635 Nielsen & Bainbridge, LLC Consumer goods: Durable 8/15/2021 25,000,000 25,000,000 24,696,000 4.8 % 25,000,000 25,000,000 24,696,000 NorthStar Group Services, Inc. Construction & Building Unsecured Debt (2.5% Cash, 15.5% PIK) 10/24/2019 26,107,691 26,107,691 26,042,683 5.0 % 26,107,691 26,107,691 26,042,683 Oxford Mining Company, LLC Metals & Mining Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 3.00% PIK, 0.75% LIBOR Floor) 12/31/2018 20,661,469 20,661,469 20,245,760 3.9 % 20,661,469 20,661,469 20,245,760 The Plastics Group, Inc. Chemicals, Plastics & Rubber Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK) 2/28/2019 21,867,506 21,867,506 21,457,709 4.2 % 21,867,506 21,867,506 21,457,709 Point.360 Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash) 7/8/2020 1,953,269 1,953,269 1,849,160 0.4 % — 129,406 359,462 0.1 % 7/8/2020 — 52,757 243,317 0.1 % 1,953,269 2,135,432 2,451,939 Prestige Industries LLC Services: Business 11/1/2017 7,679,806 7,596,895 2,818,258 0.6 % Warrants - 0.63% of Outstanding Equity 11/1/2017 — 151,855 — 0.0 % 7,679,806 7,748,750 2,818,258 Wholesale 12/15/2019 6,800,000 6,755,409 6,375,000 1.2 % 6,800,000 6,755,409 6,375,000 Reddy Ice Corporation Beverage & Food 11/1/2019 17,000,000 17,000,000 14,092,830 2.7 % 17,000,000 17,000,000 14,092,830 Response Team Holdings, LLC Construction & Building 6,256,390 5,796,950 3,262,707 0.6 % Warrants - 7.2% of Outstanding Equity 3/28/2019 — 429,012 — 0.0 % 6,256,390 6,225,962 3,262,707 Capital Equipment Unsecured Debt (12.00% Cash) 1/31/2020 15,000,000 15,000,000 15,150,000 2.9 % 15,000,000 15,000,000 15,150,000 Sendero Drilling Company, LLC Energy: Oil & Gas 3/18/2019 3,996,312 3,545,039 4,076,238 0.8 % Warrants - 5.52% of Outstanding Equity 3/18/2019 — 793,523 5,399,817 1.1 % 3,996,312 4,338,562 9,476,055 Industry Maturity Fair Value Services: Business 9/11/2019 24,699,566 24,699,566 24,212,737 4.7 % Equity - 3,249.697 Common Units — 500,000 139,602 0.0 % 24,699,566 25,199,566 24,352,339 Ship Supply Acquisition Corporation Services: Business 7/31/2020 8,073,731 8,073,731 8,151,400 1.6 % 8,073,731 8,073,731 8,151,400 Stancor, Inc. Services: Business 8/19/2019 5,090,909 5,090,909 5,090,909 1.0 % Equity - 263,814.43 Class A Units — 263,815 125,830 0.0 % 5,090,909 5,354,724 5,216,739 T Residential Holdings, LLC Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan (12.00%) 3/28/2019 18,500,000 18,500,000 18,542,920 3.6 % 18,500,000 18,500,000 18,542,920 Taylored Freight Services, LLC Services: Business 11/1/2017 15,040,795 15,040,796 14,841,956 2.9 % 15,040,795 15,040,796 14,841,956 Chemicals, Plastics & Rubber Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK) 12/15/2017 11,051,371 11,051,371 11,181,885 2.2 % 11,051,371 11,051,371 11,181,885 Transtelco, Inc. Telecommunications 11/19/2017 18,672,000 18,672,000 18,837,434 3.7 % 18,672,000 18,672,000 18,837,434 Velocity Pooling Vehicle, LLC Automotive 5/13/2022 24,000,000 21,333,743 12,795,840 2.5 % 24,000,000 21,333,743 12,795,840 Watermill-QMC Midco, Inc. Automotive Equity - 1.3% Partnership Interest — 488,332 641,888 0.1 % — 488,332 641,888 Aerospace & Defense 10/15/2021 16,598,494 16,598,494 16,654,099 3.2 % 16,598,494 16,598,494 16,654,099 Subtotal Non-Controlled/Non-Affiliated Investments $ 825,021,074 $ 813,813,853 $ 767,302,020 Affiliated Investments: Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan (10.00% Cash) 9/10/2019 6,670,000 6,670,000 6,670,000 1.3 % Equity - 33,300 Preferred Units — 3,330,000 3,330,000 0.7 % 6,670,000 10,000,000 10,000,000 Subtotal Affiliated Investments $ 6,670,000 $ 10,000,000 $ 10,000,000 Industry Maturity Fair Value Energy: Oil & Gas 9/30/2021 8,984,232 8,984,232 8,984,232 1.7 % 9/30/2021 18,451,002 14,890,698 14,889,405 2.9 % Revolving Credit Facility (LIBOR + 5.00%, 1.00% LIBOR Floor) 9/30/2021 — — — 0.0 % Equity - 21,562.16 Class A Units — — — 0.0 % 27,435,234 23,874,930 23,873,637 �� Healthcare & Pharmaceuticals 4/28/2019 22,784,841 20,803,397 14,615,564 2.8 % 4/28/2019 9,858,981 9,153,997 6,324,142 1.2 % Equity - 4,664.6 Class B Units and 9,424.4 Class C Units — 12 — 0.0 % Equity - 2,932.3 Common Units — 400,003 — 0.0 % 32,643,822 30,357,409 20,939,706 Consumer goods: Non-durable 9/13/2018 15,576,447 14,269,868 5,707,522 1.1 % 9/13/2018 1,500,000 1,500,000 1,500,000 0.3 % Warrants - 13.3% of Outstanding Equity 9/13/2018 — — — 0.0 % Equity - 4,324,951.76 Common Units — — — 0.0 % 17,076,447 15,769,868 7,207,522 Multisector Holdings Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC — 32,112,500 31,252,416 6.0 % — 32,112,500 31,252,416 OmniVere, LLC Services: Business 5/5/2019 22,360,258 22,053,015 22,360,258 4.3 % 7/24/2025 22,808,291 20,754,889 11,336,861 2.2 % Equity - 5,055.56 Common Units 5/5/2019 — 872,698 — 0.0 % 45,168,549 43,680,602 33,697,119 United Road Towing, Inc. Services: Business Senior Secured Second Lien Term Loan (LIBOR + 9.00% PIK) 2/21/2020 18,725,607 18,725,607 18,725,607 3.6 % 18,802,789 16,337,178 1,186,268 0.2 % 2,990,965 2,456,143 — 0.0 % 5,409,618 4,664,855 — 0.0 % Equity - 65,809.73 Class B Common Units — 1,098,096 — 0.0 % 45,928,979 43,281,879 19,911,875 Subtotal Controlled Investments $ 168,253,031 $ 189,077,188 $ 136,882,275 Total Investments, September 30, 2016 $ 999,944,105 $ 1,012,891,041 $ 914,184,295 176.9 % (1)All of our investments are domiciled in the United States. Certain investments also have international operations.(2)Par amount includes accumulated PIK interest and is net of repayments.(3)Gross unrealized appreciation, gross unrealized depreciation, and net depreciation for federal income tax purposes totaled $20,555,594, $106,924,771 and $86,369,177, respectively. The tax cost basis of investments is $998,987,296 as of September 30, 2016.(4)Percentage is based on net assets of $516,919,142 as of September 30, 2016.(5)ControlledAffiliated Investments are defined by the Investment Company1940 Act of 1940 ("1940 Act") as investments in companies in which the Company owns more thanbetween 5% and 25% of theoutstanding voting securities or maintains greater than 50% of the board representation.is under common control with such portfolio company.(6)This investment may accrue PIK interest at the election of the Borrower (LIBOR + 9.50%, 1.00% LIBOR Floor) and is determined at the end of the rate setting period.(7)(21)The investment has an unfunded commitmentwas past due as of September 30, 2016 (see Note 8).2020.(8)Securities are exempt from registration under Rule 144a of the Securities Act of 1933. This security represents a fair value of $6,375,000 and 1.2% of net assets as of September 30, 2016 and is considered restricted.(9)Includes an analysis of the value of any unfunded loan commitments.(10)The investment was on non-accrual status as of September 30, 2016.(11)The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part.(12)A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by Medley Capital Corporation (see Note 3).(13)This investment may accrue PIK interest at the election of the Borrower (LIBOR + 6.50%, 1.00% LIBOR Floor) and is determined at the end of the rate setting period.(14)The interest rate on these loans is subject to an alternate base rate ("ABR") plus a spread. As the interest rate is subject to a minimum ABR Floor which was greater than the ABR rate at September 30, 2016, the prevailing rate in effect at September 30, 2016 was the spread plus the ABR Floor.(15)The investment earns 0.50% commitment fee on all unused commitment. At September 30, 2016, there was $446,429 of unused commitment.(16)The investment earns 0.50% commitment fee on all unused commitment. At September 30, 2016, there was $1,904,762 of unused commitment.(17)The September 30, 2016 presentation has been revised to conform to the current year presentation.(18)The interest rate on these loans is subject to a base rate plus 1 Month LIBOR, which at September 30, 2016 was 0.52%. As the interest rate is subject to a minimum LIBOR Floor which was greater than the 1 Month LIBOR rate at September 30, 2016, the prevailing rate in effect at September 30, 2016 was the base rate plus the LIBOR Floor.(19)The interest rate on these loans is subject to a base rate plus 3 Month LIBOR, which at September 30, 2016 was 0.84%. As the interest rate is subject to a minimum LIBOR Floor which was greater than the 3 Month LIBOR rate at September 30, 2016, the prevailing rate in effect at September 30, 2016 was the base rate plus the LIBOR Floor.(20)Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).(21)This investment represents a Level 1 security in the ASC 820 table as of September 30, 2016 (see Note 4).(22)This investment represents a Level 2 security in the ASC 820 table as of September 30, 2016 (see Note 4).20172021Medley Capital(the “Company”,(“PhenixFIN.” the “Company,” “we” and “us”) is aan internally-managed non-diversified closed end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and qualifiedintends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We areOn November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC (“MCC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), pursuant to an investment management agreement. MCC Advisors is a majoritywholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc. (NYSE: MDLY), a publicly traded asset management firm (“MDLY”), which in turn is controlled by Medley Group LLC, an entity wholly-ownedwholly owned by the senior professionals of Medley LLC. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, Medley Management Inc.,MDLY, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates.Medley Capital BDC LLC (the “LLC”), a Delaware limited liability company, was formed on April 23, 2010. On Since January 18, 2011, the LLC, in accordance with Delaware law, converted into Medley Capital Corporation, a Delaware corporation, and on January 20, 2011,1, 2021 the Company filed an election to be regulated as a BDC under the 1940 Act.On January 20, 2011, the Company consummated its IPO, sold 11,111,112 shares of common stock at $12.00 per share and commenced its operations and investment activities. On February 24, 2011, an additional 450,000 shares of common stock were issued at a price of $12.00 per sharehas been managed pursuant to the partial exercise of the underwriters’ option to purchase additional shares. Net of underwriting fees and offering costs, the Company received total cash proceeds of approximately $129.6 million.On January 20, 2011, the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “MCC”.Prior to the consummation of our IPO, Medley Opportunity Fund LP (“MOF LP”), a Delaware limited partnership, and Medley Opportunity Fund, Ltd. (“MOF LTD”), a Cayman Islands exempted limited liability company, which are managed by an affiliate of MCC Advisors, transferred all of their respective interests in six loan participations in secured loans to middle market companies with a combined fair value, plus payment-in-kind interest and accrued interest thereon, of approximately $84.95 million (the “Loan Assets”) to MOF I BDC LLC (“MOF I BDC”), a Delaware limited liability company, in exchange for membership interests in MOF I BDC. As a result, MOF LTD owned approximately 90% of the outstanding MOF I BDC membership interests and MOF LP owned approximately 10% of the outstanding MOF I BDC membership interests.On January 18, 2011, each of MOF LTD and MOF LP contributed their respective MOF I BDC membership interests to the LLC in exchange for LLC membership interests. As a result, MOF I BDC became a wholly-owned subsidiary of the LLC. As a result of the LLC’s conversion noted above, MOF LTD and MOF LP’s LLC membership interests were exchanged for 5,759,356 shares of the Company’s common stock at $14.75 per share. On February 23, 2012, MOF LTD and MOF LP collectively sold 4,406,301 shares of common stock in an underwritten public offering. See Note 7 for further information.wholly-ownedwholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership whichthat we own directly and through our wholly-ownedwholly owned subsidiary, Medley SBIC GP, LLC, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended.appreciation by lendingappreciation. The management team seeks to privately-held middle market companies,achieve this objective primarily through directly originated transactions,making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or REITs.) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to help these companies fund acquisitions, growth or refinancing.achieve our investment objective, such as operating and managing an asset-based lending business. The portfolio generally consists of senior secured first lien term loans, and senior secured second lien term loans. In some of our investments,loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase the total investment returns. followsis an investment company following the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 (“ASC 946”)., Financial Services – Investment Companies. The accompanying 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 consolidated accounts of the Company and its wholly-owned subsidiary SBICwholly owned subsidiaries PhenixFIN Small Business Fund, LP (“PhenixFIN Small Business Fund”) and PhenixFIN SLF Funding I LLC (“PhenixFIN SLF”), and its wholly-ownedwholly owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include Medley CapitalPhenixFIN Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X of the Securities Act of 1933. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. 2017, $108.62021 and 2020, we had $69.4 million is investedand $56.5 million in an interest-bearing money market account, which is a Level 1 investment (see Note 4).Deferred Offering CostsDeferred offering costs consist of fees and expenses incurred in connection with the public offering and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These amounts are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective or expensed upon expiration of the registration statement.ourany credit facilities and unsecured notes and SBA Debentures (see Note 5) are deferred and amortized over the life of the respective credit facility or instrument.2017, 2016,2021, 2020 and 2015,2019, the Company earned approximately $15.8$0.9 million, $12.5$3.8 million, and $10.2$7.2 million in PIK interest, respectively.Fee income forFor the years ended September 30, 2017, 2016,2021, 2020 and 20152019, fee income was approximately $6.6$2.6 million, $7.5$0.7 million and $10.7$2.3 million, respectively (see Note 9).20172020 and September 30, 2016, $42.92019, $0.9 million and $15.7$47.8 million, respectively, of ourthe Company’s realized losses were related to certain non-cash restructuring transactions, which isare recorded on the Consolidated Statements of Operations as a component of net realized gain/(loss) from investments. There were no realized gains or losses related to such non-cash restructuring transactions for the year ended September 30, 2015. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations.uncollectible.not collectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At September 30, 2017,2021, certain investments in six9 portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $72.5$13.9 million, or 8.7%9.2% of the fair value of our portfolio. At September 30, 2016,2020, certain investments in nineeight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $55.9$21.7 million, or 6.1% of thefair value of our portfolio. At September 30, 2015, certain investments in three portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $25.5 million, or 2.1%8.8% of the fair value of our portfolio.third partythird-party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.net asset value (“NAV”)NAV supplied by, or on behalf of, management of each investment fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share. NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of their financial statements and offering memorandum. If the Company is in the process of the sale of an investment fund, fair value will be determined by actual or estimated sale proceeds.The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business.The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts.● The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. ● The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts. useshas engaged third-party valuation firms (the “Valuation Firms”) to assist theit and its board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firmsValuation Firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market basedmarket-based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis, which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value.valuations of comparable public companies (“Guideline Comparable Approach”),recent sales of private and public comparable companies (“Guideline Comparable Approach”),recent acquisition prices of the company, debt securities or equity securities (“Acquisition Price Approach”),external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”),subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); andestimating the value to potential buyers.● valuations of comparable public companies (“Guideline Comparable Approach”); ● recent sales of private and public comparable companies (“Guideline Comparable Approach”); ● recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-Length Transaction”); ● external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”); ● subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and ● estimating the value to potential buyers. discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); andBlack-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants.● discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and ● Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants. our quarterly valuation process begins with each portfolio investment being internally valued by the valuation professionals;preliminary valuation conclusions are then documented and discussed with senior management; andan independent valuation firm engaged by our board of directors reviews approximately one third of these preliminary valuations each quarter on a rotating quarterly basis on non-fiscal year-end quarters, such that each of these investments will be valued by independent valuation firms at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms.In addition, all of our investments are subject to the following valuation process:the audit committee of our board of directors reviews the preliminary valuations of the investment professionals, senior management and independent valuation firms; andour board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of MCC Advisors, the respective independent valuation firms and the audit committee.● our quarterly valuation process generally begins with each portfolio investment being internally valued by a Valuation Firm; ● preliminary valuation conclusions are then documented and discussed with senior management; ● the audit committee of the board of directors reviews the preliminary valuations with management and the Valuation Firms; and ● the board of directors discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of management, the respective Valuation Firms and the audit committee. October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. Management has adopted the amendments to Regulation S-X and included required disclosures in the Company’s consolidated financial statements and related disclosures.In May 2014,March 2020, the FASB issued ASU 2014-09, Revenue from Contracts with Customers2020-04, “Reference rate reform (Topic 606), which provides848)—Facilitation of the effects of reference rate reform on financial reporting.” The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that an entity should recognize revenue to depict the transfer of promised goodsreference LIBOR or services to customers in an amount that reflects the consideration to which the entity expectsanother reference rate expected to be entitleddiscontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and also with certain lenders. Many of these agreements include language for choosing an alternative successor rate if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in exchange for such goods or services. To achieve this core principle, an entity should applydetermining whether the following steps: (1) identify the contracts with a customer, (2) identify the performance obligationsmodifications result in the establishment of new contracts (3) determineor the transaction prices, (4) allocate the transaction prices to the performance obligations in the contracts, and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The guidance also requires advanced disclosures regarding the nature, amount, timing and uncertaintycontinuation of revenue and cash flows arising from an entity's contracts with customers.existing contracts. In March 2016,January 2021, the FASB issued ASU 2016-08, Revenue from Contracts with Customers2021-01, “Reference rate reform (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)848),” which clarifiedexpanded the implementation guidance on principal versus agent considerations. In April 2016, the FASB issuedscope of Topic 848. ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations2020-04 and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. The new standard will becomeASU 2021-01 are effective forthrough December 31, 2022 when the Company on October 1, 2018, with early application permittedplans to apply the effective date of October 1, 2017.amendments in this update to account for contract modifications due to changes in reference rates. The Company is evaluatingdoes not believe the effect thatadoption of ASU 2014-092020-04 and ASU 2021-01 will have a material impact on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determinedeffectSEC adopted rule amendments that impacted the requirement of the standard on its ongoing financial reporting. The guidance does not applyinvestment companies, including BDCs, to revenue associated with financial instruments, including loans and notes that are accounted for under other U.S. GAAP. As a result, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its consolidated statements of operations, most closely associated with financial instruments, including realized gains, fees, interest and dividend income. The Company plans to adopt the revenue recognition guidance in the first quarter of fiscal year 2019. The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. While the Company has not yet identified any material changes in the timing of revenue recognition, the Company's review is ongoing, and it continues to evaluate the presentation of certain contract costs.In August 2014, the FASB released Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires the Company to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within the one year period subsequent to the date thatdisclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are issued or within the one year period subsequent the date thatmore likely to materially impact the financial statements are availablecondition of an investment company. The Final Rules became effective on January 1, 2021. The Company evaluated the impact of the Final Rules and determined its impact not to be issued. ASU 2014-15 went into effect formaterial and began voluntary compliance with the annual period ending after December 15, 2016 and annual and interim periods thereafter. The Company concluded that there are no such indicators that would affect its ability to continue as a going concern forFinal Rules since the aforementioned period.Code and operates in a manner so as to continue to qualify for the tax treatment applicable to RICs.Code. In order to continue to qualify as a RIC and be eligible for tax treatment under Subchapter M of the Code, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK,, as defined by the Code, including PIK interest, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under Subchapter M of the Code.year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.year.year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. There was no provision for federal excise tax for the calendar year ended 2020 accrued at September 30, 2021 and the calendar year ended 2019 accrued at September 30, 2020. For the calendar year ended December 31, 2016,2018, there was no excise tax expense as the Company did not distributedistributed at least 98% of its ordinary income and 98.2% of its capital gains. Accordingly, with respect to the calendar year ended December 31, 2016, an excise tax expense of $0.3 million was recorded.20172021 and 2016,2020, the Company recordeddid not record a deferred tax liability of $0.9 million, and $2.0 million, respectively, on the Consolidated Statements of Assets and Liabilities. The change in provision for deferred taxes is included as a component of net realized and unrealized gain/(loss) on investments in the Consolidated Statements of Operations. For the years ended September 30, 20172021, 2020 and 2016,2019, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments was $1.1investments. $0.1$22.8 million, respectively. Forrespectively, consisting primarily of net operating losses and net unrealized losses on the year endedinvestments held within its Taxable Subsidiaries. As of September 30, 2015,2021 and 2020, the change in provision forCompany has booked a valuation allowance of $22.2 million and $22.8 million, respectively, against its deferred taxes on the unrealized appreciation on investments was $0.1 million.2017, 20162021, 2020 and 2015,2019, the Company reclassified for book purposes amounts arising from permanent book/tax differences related to the different tax treatment of distributionsnet operating losses and closing feesinvestments in wholly-owned subsidiaries as follows (dollars in thousands): For the years ended September 30 2017 2016 2015 Capital in excess of par value $ (267,183 ) $ — $ — Accumulated undistributed net investment income/(loss) 3,746,825 (1,008,000 ) (284,593 ) Accumulated net realized gain/(loss) from investments (3,479,642 ) 1,008,000 284,593 For the years ended September 30 2021 2020 2019 Capital in excess of par value $ 24,688,262 $ (1,202,850 ) $ (16,882,923 ) Accumulated undistributed net investment income/(loss) ) 1,202,850 23,174,206 Accumulated net realized gain/(loss) from investments (5,640,866 ) — (6,291,283 ) 2017, 20162021, 2020 and 20152019 were as follows: For the years ended September 30 2017 2016 2015 Ordinary income $ 41,400,401 $ 62,122,756 $ 73,697,139 Distributions of long-term capital gains — — 276,671 Return of capital — — — Distributions on a tax basis $ 41,400,401 $ 62,122,756 $ 73,973,810 For the years ended September 30 2021 2020 2019 Ordinary income $ — $ — $ — Distributions of long-term capital gains — — — Return of capital — — 8,171,130 Distributions on a tax basis $ — $ — $ 8,171,130 2017, 20162021, 2020 and 20152019 were approximately $903.8$206.9 million, $999.0$327.9 million, and $1,252.4$464.9 million, respectively.2017, 20162021, 2020 and 2015,2019, the components of distributable earnings/(accumulated deficits) on a tax basis detailed below differ from the amounts reflected in the Company’s Consolidated Statements of Assets and Liabilities by temporary and other book/tax differences, primarily relating to the tax treatment of certain fee income and organizational expenses, as follows: For the years ended September 30 2017 2016 2015 Undistributed ordinary income $ 17,570,891 $ 8,793,113 $ 959,579 (177,904,733 ) (99,177,258 ) (60,625,616 ) Other temporary differences (17,099,606 ) (11,708,070 ) (187,110 ) Unrealized appreciation/(depreciation) (67,237,807 ) (86,369,176 ) (38,523,401 ) Components of distributable earnings/(accumulated deficits) at year end $ (244,671,255 ) $ (188,461,391 ) $ (98,376,548 ) For the years ended September 30 2021 2020 2019 Undistributed ordinary income $ 265,798 $ — $ — Accumulated capital and other losses(1) (490,032,788 ) (440,538,935 ) (389,066,323 ) Other temporary differences (89,856 ) (106,066 ) (122,274 ) Unrealized appreciation/(depreciation) (55,318,332 ) (81,119,823 ) (67,966,064 ) Components of distributable earnings/(accumulated deficits) at year end $ (545,175,178 ) $ (521,764,824 ) $ (457,154,661 ) (1) Under the Regulated Investment Company Modernization Act of 2010, net capital losses recognized for tax years beginning after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term or long-term losses. As of September 30, 2017,2021, the Company had short-term anda long-term capital loss carryforwardscarryforward available to offset future realized capital gains of $288,664$488,446,626 and $177,616,069, respectively.a short-term capital loss carryforward of $1,586,162.2017.2021. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service.MCC Advisorsinvestments for the Company.investments. Investments will generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuate. MCC Advisors may attempt to minimize this risk by maintaining low loan-to-liquidation values with each loan and the collateral underlying the loan.20172021 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands): Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 559,461 61.2 % $ 537,163 64.2 % Senior Secured Second Lien Term Loans 161,885 17.7 135,826 16.2 Senior Secured First Lien Notes 26,768 2.9 27,545 3.3 Unsecured Debt 22,728 2.5 — — MCC Senior Loan Strategy JV I LLC 56,087 6.1 56,138 6.7 Equity/Warrants 87,124 9.6 80,319 9.6 Total $ 914,053 100.0 % $ 836,991 100.0 % Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 136,740 65.7 % $ 61,934 40.9 % Senior Secured Second Lien Term Loans 2,600 1.3 2,490 1.6 Senior Secured Notes 9,306 4.5 9,270 6.1 Secured Debt 2,500 1.2 2,500 1.6 Unsecured Debt 1,561 0.8 - - Equity/Warrants 54,961 26.5 75,446 49.8 Total Investments $ 207,668 100.0 % $ 151,640 100.0 % 20162020 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands): Amortized Cost Percentage Fair Value Percentage Senior Secured First Lien Term Loans $ 612,762 60.5 % $ 565,329 61.8 % Senior Secured Second Lien Term Loans 229,898 22.7 213,537 23.4 Senior Secured First Lien Notes 26,755 2.6 27,423 3.0 Unsecured Debt 62,150 6.1 52,809 5.8 MCC Senior Loan Strategy JV I LLC 32,113 3.2 31,252 3.4 Equity/Warrants 49,213 4.9 23,834 2.6 Total $ 1,012,891 100.0 % $ 914,184 100.0 % Amortized
Cost Percentage Fair
Value Percentage Senior Secured First Lien Term Loans $ 178,843 54.5 % $ 106,463 43.2 % Senior Secured Second Lien Term Loans 15,476 4.7 13,927 5.6 Unsecured Debt 4,601 1.4 2,669 1.1 MCC Senior Loan Strategy JV I LLC 79,888 24.4 41,019 16.6 Equity/Warrants 49,327 15.0 82,666 33.5 Total $ 328,135 100.0 % $ 246,744 100.0 % whichthat are obtained for the objective of increasing the total investment returns and are not held for hedging purposes. At September 30, 20172021 and 2016,2020, the total fair value of warrants was $2.3 million$996.7 thousand and $5.8 million,$15.3 thousand, respectively, and were included in investments at fair value on the Consolidated StatementStatements of Assets and Liabilities. During the year ended September 30, 2017,2021, the Company acquired additional warrants in one warrant position.existing portfolio company. During the year ended September 30, 2016,2020, the Company did not acquire anyhad no warrant positions. related to warrants for the year ended September 30, 2017 was $3.4 million, and was recorded on the Consolidated Statements of Operations as net unrealized appreciation/(depreciation) on investments. Total unrealized appreciation related to warrants for the years ended September 30, 20162021, 2020, and 20152019 was $2.1 million$981.4 thousand, $9.6 thousand, and $5.4$0.5 million, respectively, and was recorded on the Consolidated Statements of Operations as net unrealized appreciation/(depreciation) on investments. The warrants are received in connection with individual investments and are not subject to master netting arrangements.20172021 (dollars in thousands): Fair Value Percentage Services: Business $ 142,912 17.1 % Construction & Building 130,633 15.6 Healthcare & Pharmaceuticals 67,301 8.0 Banking, Finance, Insurance & Real Estate 63,491 7.6 Hotel, Gaming & Leisure 63,012 7.5 Multisector Holdings 56,138 6.7 Energy: Oil & Gas 54,800 6.5 Aerospace & Defense 53,650 6.4 Automotive 38,434 4.6 Containers, Packaging & Glass 38,086 4.6 High Tech Industries 25,809 3.1 Metals & Mining 21,127 2.5 Chemicals, Plastics & Rubber 20,012 2.4 Beverage & Food 16,118 1.9 Capital Equipment 13,180 1.6 Media: Broadcasting & Subscription 8,384 1.0 Services: Consumer 7,967 1.0 Wholesale 7,067 0.8 Retail 3,584 0.4 Media: Advertising, Printing & Publishing 2,955 0.4 Environmental Industries 1,330 0.2 Consumer goods: Durable 850 0.1 Consumer goods: Non-durable 151 0.0 Total $ 836,991 100.0 % Fair Value Percentage Construction & Building $ 31,619 20.8 % Banking, Finance, Insurance & Real Estate 27,916 18.4 High Tech Industries 21,210 14.0 Services: Business 12,415 8.2 Automotive 11,967 7.9 Hotel, Gaming & Leisure 11,931 7.9 Manufacturing 9,270 6.1 Environmental Industries 8,100 5.3 Energy: Oil & Gas 3,579 2.4 Forest Products & Paper 3,455 2.3 Metals & Mining 3,077 2.0 Aerospace & Defense 2,490 1.6 Consumer goods: Durable 2,361 1.6 Healthcare & Pharmaceuticals 2,250 1.5 Total $ 151,640 100.0 % 20162020 (dollars in thousands): Fair Value Percentage Construction & Building $ 51,964 21.1 % Multisector Holdings 41,019 16.6 High Tech Industries 26,165 10.6 Healthcare & Pharmaceuticals 23,481 9.5 Services: Business 21,841 8.9 Hotel, Gaming & Leisure 12,337 5.0 Wholesale 12,278 5.0 Containers, Packaging & Glass 11,987 4.8 Consumer goods: Durable 9,520 3.8 Banking, Finance, Insurance & Real Estate 6,557 2.7 Consumer goods: Non-durable 6,164 2.5 Environmental Industries 5,846 2.4 Energy: Oil & Gas 5,626 2.3 Metals & Mining 3,530 1.4 Forest Products & Paper 2,991 1.2 Aerospace & Defense 2,942 1.2 Media: Broadcasting & Subscription 1,110 0.5 Automotive 1,043 0.4 Retail 343 0.1 Total $ 246,744 100.0 % Fair Value Percentage Services: Business $ 123,703 13.5 % Banking, Finance, Insurance & Real Estate 96,207 10.5 Construction & Building 91,087 10.0 Hotel, Gaming & Leisure 68,605 7.5 Automotive 60,303 6.6 Healthcare & Pharmaceuticals 57,041 6.2 Energy: Oil & Gas 52,646 5.8 Aerospace & Defense 51,656 5.6 Telecommunications 44,015 4.8 Containers, Packaging & Glass 42,197 4.6 Chemicals, Plastics & Rubber 32,640 3.6 Multisector Holdings 31,252 3.4 Beverage & Food 30,225 3.3 Capital Equipment 29,756 3.3 Consumer goods: Durable 24,696 2.7 Metals & Mining 20,246 2.2 High Tech Industries 14,489 1.6 Retail 12,565 1.4 Services: Consumer 9,440 1.0 Media: Broadcasting & Subscription 7,832 0.9 Consumer goods: Non-durable 7,208 0.8 Wholesale 6,375 0.7 Total $ 914,184 100.0 % 20172021 (dollars in thousands): Fair Value Percentage Midwest $ 188,957 22.6 % Southwest 152,883 18.3 Northeast 152,662 18.2 Southeast 152,469 18.2 West 133,190 15.9 Mid-Atlantic 56,830 6.8 Total $ 836,991 100.0 % Fair Value Percentage Northeast $ 54,211 35.8 % West 44,030 29.0 Southeast 28,887 19.0 Southwest 17,418 11.5 Midwest 7,094 4.7 Total $ 151,640 100.0 % 20162020 (dollars in thousands): Fair Value Percentage Midwest $ 217,229 23.8 % Southwest 195,672 21.4 Southeast 180,159 19.7 West 136,279 14.9 Northeast 134,781 14.7 Mid-Atlantic 50,064 5.5 Total $ 914,184 100.0 % Fair Value Percentage Northeast $ 98,555 39.9 % West 55,400 22.5 Southeast 42,321 17.1 Midwest 27,574 11.2 Mid-Atlantic 13,334 5.4 Southwest 9,560 3.9 Total $ 246,744 100.0 % During the years ended September 30, 2017 and 2016, the Type of Investment Fair Value at September 30, 2016 Purchases/(Sales) of or Advances/(Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2017 Income Earned Affiliated Investments Senior Secured First Lien Term Loan A $ — $ — $ 8,984,232 $ — $ — $ 8,984,232 $ 15,713 Senior Secured First Lien Term Loan B — 15,257 19,746,290 (15,257 ) — 19,746,290 66,248 Revolving Credit Facility — — — — — — 250 Equity — — — — — — Access Media Holdings, LLC Senior Secured First Lien Term Loan — 411,431 7,832,358 96,736 — 8,340,525 817,488 Preferred Equity Series A — — — — — — — Preferred Equity Series AA — 184,000 — (184,000 ) — — — Preferred Equity Series AAA — 363,200 — (320,000 ) — 43,200 — Equity — — — — — — — Brantley Transportation LLC Senior Secured First Lien Term Loan — (51,055 ) 5,351,092 2,419,483 — 7,719,520 (51,055 ) Senior Secured First Lien Delayed Draw Term Loan — 30,605 637,500 — — 668,105 43,343 Equity — — — — — — — Senior Secured First Lien Term Loan B — (3,591,895 ) 1,702,497 (1,502,102 ) 3,391,500 — 851,203 Preferred Equity — — — — — — — JFL-NGS Partners, LLC Preferred Equity A-2 — — 30,552,190 — — 30,552,190 278,736 Preferred Equity A-1 — 3,953,700 — — — 3,953,700 36,071 Equity — 57,300 — 6,303 — 63,603 — US Multifamily, LLC Senior Secured First Lien Term Loan 6,670,000 — — — — 6,670,000 667,000 Equity 3,330,000 — — — — 3,330,000 — Total Affiliated Investments $ 10,000,000 $ 1,372,543 $ 74,806,159 $ 501,163 $ 3,391,500 $ 90,071,365 $ 2,724,997 Controlled Investments Senior Secured First Lien Term Loan A $ 8,984,232 $ — $ (8,984,232 ) $ — $ — $ — $ 541,003 Senior Secured First Lien Term Loan B 14,889,405 1,801,521 (19,746,290 ) 3,055,364 — — 2,220,060 Revolving Credit Facility — — — — — — 27,255 Equity — — — — — — 6,622 Capstone Nutrition Senior Secured First Lien Term Loan 14,615,564 — — 3,387,151 — 18,002,715 — Senior Secured First Lien Delayed Draw Term Loan 6,324,142 — — 1,465,618 — 7,789,760 — Equity — — — — — — — Name of Investment(3) Type of
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September 30,
2021 Income
Earned Affiliated Investments 1888 Industrial Services, LLC Senior Secured First Lien Term Loan A $ - $ - $ - $ - $ - $ - $ - Senior Secured First Lien Term Loan B - - - - - - - Senior Secured First Lien Term Loan C 1,166,763 - - (1,142,124 ) - 24,639 93,832 Revolving Credit Facility 3,554,069 - - - - 3,554,069 219,687 Access Media Holdings, LLC Senior Secured First Lien Term Loan 1,110,563 (1,239,334 ) - 7,335,819 (7,207,048 ) - - Preferred Equity Series A - - - 1,600,000 (1,600,000 ) - - Preferred Equity Series AA - - - 800,000 (800,000 ) - - Preferred Equity Series AAA - - - 971,200 (971,200 ) - - Black Angus Steakhouses,LLC Senior Secured First Lien Delayed Draw Term Loan 758,929 - - - - 758,929 76,947 Senior Secured First Lien Term Loan 5,047,557 - - (2,767,743 ) - 2,279,814 - Senior Secured First Lien Super Priority DDTL - 1,500,000 - - - 1,500,000 125,262 Caddo Investors Holdings 1 LLC Equity 2,990,776 - - 464,010 - 3,454,786 - Dynamic Energy Services International LLC Senior Secured First Lien Term Loan 905,116 (820,278 ) - (408,709 ) 323,871 - - JFL-NGS Partners, LLC Preferred Equity A-2 1,795,034 (2,110,987 ) - - 315,953 - (16,377 ) Preferred Equity A-1 232,292 - - - (232,292 ) - (2,119 ) Equity 38,780,067 - - (11,917,254 ) - 26,862,813 - JFL-WCS Partners, LLC Preferred Equity Class A 1,310,649 (1,330,460 ) - - 19,811 - (53,623 ) Equity 4,535,580 - - 3,564,369 - 8,099,949 - Kemmerer Operations, LLC Senior Secured First Lien Term Loan 2,051,705 330,280 - (21,438 ) - 2,360,547 330,418 Senior Secured First Lien Delayed Draw Term Loan 515,699 (351,784 ) - (1,474 ) - 162,441 54,849 Equity 962,717 - - (408,971 ) - 553,746 - Path Medical, LLC Senior Secured First Lien Term Loan A 5,905,080 (99,186 ) - (3,556,059 ) - 2,249,835 105,026 Senior Secured First Lien Term Loan B 6,794,514 (137,017 ) - (6,678,337 ) 20,840 - 2,974 URT Acquisition Holdings Corporation Unsecured Debt - (2,609,589 ) 2,567,929 - 41,660 - 168,642 Warrants - - - 920,000 - 920,000 - US Multifamily, LLC Senior Secured First Lien Term Loan 5,123,913 (2,546,497 ) - - - 2,577,416 322,095 Equity 1,332,000 - - 904,261 - 2,236,261 - Total Affiliated Investments $ 84,873,023 $ (9,414,852 ) $ 2,567,929 $ (10,342,450 ) $ (10,088,405 ) $ 57,595,245 $ 1,427,613 Name of Investment(3) Type of
Investment Fair Value at
September 30,
2020 Purchases/
(Sales) of or
Advances/
(Distributions) Transfers
In/(Out) of
Affiliates Unrealized
Gain/(Loss) Realized
Gain/(Loss) Fair Value at
September 30,
2021 Income
Earned Controlled Investments FlexFin LLC Equity Interest $ - $ 2,500,000 $ - $ - $ - $ 2,500,000 $ 75,000 MCC Senior Loan Strategy JV I LLC(1)(2) Equity 41,018,500 (39,739,929 ) - 38,869,000 (40,147,571 ) - - NVTN LLC Senior Secured First Lien Term Loan 4,530,078 - - 1,884,782 - 6,414,860 - Super Priority Senior Secured First Lien Term Loan 2,000,000 (1,000,000 ) - (25,776 ) 2,776 977,000 - Total Controlled Investments $ 47,548,578 $ (38,239,929 ) $ - $ 40,728,006 $ (40,144,795 ) $ 9,891,860 $ 75,000 Name of Investment(3) Type of
Investment Fair Value at
September 30,
2019 Purchases/
(Sales) of or
Advances/
(Distributions) Transfers
In/(Out) of
Affiliates Unrealized
Gain/(Loss)
Gain/(Loss) Fair Value at
September 30,
2020 Income
Earned Affiliated Investments 1888 Industrial Services, LLC Senior Secured First Lien Term Loan A $ 9,304,145 $ 168,923 $ — $ (9,473,068 ) $ — $ — $ 167,086 Senior Secured First Lien Term Loan B 5,886,892 — — (5,886,892 ) — — — Senior Secured First Lien Term Loan C 1,170,014 21,242 — (24,493 ) — 1,166,763 21,012 Senior Secured First Lien Term Loan D 224,456 (224,456 ) — — — — 15,103 Senior Secured First Lien Term Loan E — — — — — — 53,342 Revolving Credit Facility 4,387,025 (832,956 ) — — — 3,554,069 246,271 Equity — — — — — — — Access Media Holdings, LLC Senior Secured First Lien Term Loan 2,509,089 — — (1,398,526 ) — 1,110,563 — Preferred Equity Series A — — — — — — — Preferred Equity Series AA — — — — — — — Preferred Equity Series AAA (100,800 ) — — 100,800 — — — Equity — — — — — — — Black Angus Steakhouses, LLC Senior Secured First Lien Delayed Draw Term Loan — — 758,929 — — 758,929 11,148 Senior Secured First Lien Term Loan — — 5,863,872 (816,315 ) — 5,047,557 — Equity — — — — — — — Caddo Investors Holdings 1 LLC Equity 2,830,051 2,452 — 158,273 — 2,990,776 — Dynamic Energy Services International LLC Senior Secured First Lien Term Loan 1,264,841 — — (359,725 ) — 905,116 — Revolving Credit Facility 545,103 (545,103 ) — — — — 6,692 Equity — — — — — — — JFL-NGS Partners, LLC Preferred Equity A-2 20,150,684 (18,355,650 ) — — — 1,795,034 352,315 Preferred Equity A-1 2,607,661 (2,375,369 ) — — — 232,292 45,592 Equity 19,096,371 — — 19,683,696 — 38,780,067 — JFL-WCS Partners, LLC Preferred Equity Class A 1,236,269 74,380 — — — 1,310,649 77,412 Equity 2,755,041 — — 1,780,539 — 4,535,580 — Kemmerer Operations, LLC Senior Secured First Lien Term Loan 1,766,511 285,194 — — — 2,051,705 285,313 Senior Secured First Lien Delayed Draw Term Loan 706,604 (190,905 ) — — — 515,699 80,201 Equity 962,717 — — — — 962,717 — Type of Investment Fair Value at September 30, 2016 Purchases/(Sales) of or Advances/(Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2017 Income Earned Equity — — — — — — — Lydell Jewelry Design Studio, LLC Senior Secured First Lien Term Loan 5,707,522 (181,578 ) — 8,562,347 (14,088,291 ) — — Senior Secured First Lien Delayed Draw Term Loan 1,500,000 (276,513 ) — — (1,223,487 ) — 155,461 Equity — — — — — — Equity — — — — — — Equity 31,252,416 23,975,000 — 910,530 — 56,137,946 4,156,250 NVTN LLC Senior Secured First Lien Term Loan — 1,980,789 1,525,201 — — 3,505,990 151,132 Senior Secured First Lien Term Loan B — — 10,604,502 — — 10,604,502 955,110 Senior Secured First Lien Term Loan C — — 6,518,046 — — 6,518,046 732,441 Equity — — 9,550,922 — — 9,550,922 — OmniVere LLC Senior Secured First Lien Term Loan 22,360,258 827,584 — 1,312,363 — 24,500,205 828,406 Senior Secured First Lien Term Loan — 1,409,669 — — — 1,409,669 44,174 Unsecured Debt 11,336,861 1,972,687 — (13,309,548 ) — — — Equity — — — — — — — United Road Towing, Inc Senior Secured Second Lien Term Loan 18,725,607 (18,725,607 ) — — — — 652,723 Preferred Equity Class C 1,186,268 (2,255,263 ) — 15,150,910 (14,081,915 ) — 8,242 Preferred Equity Class C-1 — (466,844 ) — 2,456,143 (1,989,299 ) — 1,572 Preferred Equity Class A-2 — (675,694 ) — 4,664,855 (3,989,161 ) — 2,420 Equity — — — 1,098,096 (1,098,096 ) — — URT Acquisition Holdings Corporation Senior Secured Second Lien Term Loan — 10,466,563 4,500,000 — — 14,966,563 632,897 Preferred Equity — — 5,500,000 — — 5,500,000 186,247 Equity — — 12,936,880 638 — 12,937,518 — Total Controlled Investments $ 136,882,275 $ 19,852,314 $ 22,405,029 $ 28,754,467 $ (36,470,249 ) $ 171,423,836 $ 11,302,015 Type of Investment Fair Value at September 30, 2015 Purchases/(Sales) of or Advances/(Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2016 Income Earned Affiliated Investments US Multifamily, LLC Senior Secured First Lien Term Loan $ 6,670,000 $ — $ — $ — $ — $ 6,670,000 $ 667,000 Equity 3,330,000 — — — — 3,330,000 — Total Affiliated Investments $ 10,000,000 $ — $ — $ — $ — $ 10,000,000 $ 667,000 Controlled Investments AAR Intermediate Holdings, LLC Senior Secured First Lien Term Loan A $ — $ — $ 8,984,232 $ — $ — $ 8,984,232 $ 1,497 Senior Secured First Lien Term Loan B — — 14,890,699 (1,294 ) — 14,889,405 4,613 Type of Investment Fair Value at September 30, 2015 Purchases/(Sales) of or Advances/(Distributions) Transfers In/(Out) of Affiliates Unrealized Gain/(Loss) Realized Gain/(Loss) Fair Value at September 30, 2016 Income Earned Revolving Credit Facility — — — — — — — Equity — — — — — — 25 Capstone Nutrition Senior Secured First Lien Term Loan — 718,252 20,109,849 (6,212,537 ) — 14,615,564 701,514 Senior Secured First Lien Delayed Draw Term Loan — 9,153,997 — (2,829,855 ) — 6,324,142 81,845 Equity — 12 — (12 ) — — — Equity — 3 731,126 (731,129 ) — — — Lydell Jewelry Design Studio, LLC Senior Secured First Lien Term Loan — 74,300 11,888,075 (6,254,853 ) — 5,707,522 — Senior Secured First Lien Delayed Draw Term Loan — 1,500,000 — — — 1,500,000 22,479 Equity — — — — — — — Equity — — — — — — — Equity 14,215,834 17,675,000 — (638,418 ) — 31,252,416 1,080,625 OmniVere LLC Senior Secured First Lien Term Loan 17,805,885 4,646,425 — (92,052 ) — 22,360,258 2,922,578 Unsecured Debt 7,059,693 8,272,054 — (3,994,886 ) — 11,336,861 — Equity — — — — — — — United Road Towing, Inc. Senior Secured Second Lien Term Loan 16,489,975 1,725,607 — 510,025 — 18,725,607 1,746,391 Preferred Equity Class C 17,747,200 — — (16,560,932 ) — 1,186,268 — Preferred Equity Class C-1 27,028 — — (27,028 ) — — — Preferred Equity Class A-2 690,695 — — (690,695 ) — — — Equity 161,892 — — (161,892 ) — — — Total Controlled Investments $ 74,198,202 $ 43,765,650 $ 56,603,981 $ (37,685,558 ) $ — $ 136,882,275 $ 6,561,567 Name of Investment(3) Type of
Investment Fair Value at
September 30,
2019 Purchases/
(Sales) of or
Advances/
(Distributions) Transfers
In/(Out) of
Affiliates Unrealized
Gain/(Loss) Realized
Gain/(Loss) Fair Value at
September 30,
2020 Income
Earned Path Medical, LLC Senior Secured First Lien Term Loan 8,845,167 (8,639,959 ) — 449,792 (655,000 ) — 1,203,692 Senior Secured First Lien Term Loan A 3,047,473 (3,010,987 ) — 237,504 (273,990 ) — 380,499 Senior Secured First Lien Term Loan C 344,291 (344,463 ) — 172 — — 17,776 Senior Secured First Lien Term Loan A — 5,905,080 — — — 5,905,080 51,670 Senior Secured First Lien Term Loan B — 6,599,918 — 194,596 — 6,794,514 — Equity — — — — — — — US Multifamily, LLC Senior Secured First Lien Term Loan 6,670,000 (1,546,087 ) — — — 5,123,913 592,727 Equity 3,330,000 — — (1,998,000 ) — 1,332,000 — Total Affiliated Investments $ 99,539,605 $ (23,008,746 ) $ 6,622,801 $ 2,648,353 $ (928,990 ) $ 84,873,023 $ 3,607,851 Name of Investment(3) Type of
Investment
September 30,
2019
(Sales) of or
Advances/
(Distributions)
In/(Out) of
Affiliates
Gain/(Loss)
Gain/(Loss)
September 30,
2020
Earned Controlled Investments MCC Senior Loan Strategy JV I LLC(1)(2) Equity $ 69,948,970 $ 1,312,500 $ — $ (30,242,970 ) $ — $ 41,018,500 $ 6,256,250 NVTN LLC Senior Secured First Lien Term Loan 4,255,990 2,309,885 — (2,035,797 ) — 4,530,078 62,840 Super Priority Senior Secured First Lien Term Loan — 1,995,374 — 4,626 — 2,000,000 1,983 Senior Secured First Lien Term Loan B 7,152,352 — — (7,152,352 ) — — — Senior Secured First Lien Term Loan C — — — — — — — Equity — — — — — — — TPG Plastics LLC Senior Secured Second Lien Term Loan 352,984 (352,984 ) — — — — 12,806 Unsecured Debt 278,810 (278,810 ) — — — — 6,876 Unsecured Debt 1,644,751 (1,630,312 ) — 1,672,398 (1,686,837 ) — — URT Acquisition Holdings Corporation Senior Secured Second Lien Term Loan 18,905,403 1,594,416 — — (20,499,819 ) — 500,767 Preferred Equity 4,914,667 (2,533,622 ) — 1,638,223 (4,019,268 ) — — Equity — (66,378 ) — 12,936,879 (12,870,501 ) — — Total Controlled Investments $ 107,453,927 $ 2,350,069 $ — $ (23,178,993 ) $ (39,076,425 ) $ 47,548,578 $ 6,841,522 (1) The Company and Great American Life Insurance Company (“GALIC”) areGALIC were the members of MCC Senior Loan Strategy JV, I LLC (“MCC JV”), a joint venture formed as a Delaware limited liability company that iswas not consolidated by either member for financial reporting purposes. The members of MCC JV makemade capital contributions as investments by MCC JV arewere completed, and all portfolio and other material decisions regarding MCC JV must bewere submitted to MCC JV’s board of managers, which iswas comprised of an equal number of members appointed by each of the Company and GALIC. Approval of MCC JV’s board of managers requiresrequired the unanimous approval of a quorum of the board of managers, with a quorum consisting of equal representation of members appointed by each of the Company and GALIC. Because management of MCC JV iswas shared equally between the Company and GALIC, the Company doesdid not have operational control over the MCC JV for purposes of the 1940 Act or otherwise. On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in MCC JV and all of GALIC’s interest in MCC JV.(2) Amount representsof income earned represented distributions from MCC JV to the Company and is a component of dividend income, net of provisional taxes in the Consolidated Statements of Operations.(3) During the year ended September 30, 2017, the Company entered into certain transactions which changed its percentage of the investment's voting securities. As a result, the Company has changed it's classification for the investment during the fiscal year.(4)The par amount and additional detail are shown in the consolidated scheduleConsolidated Schedule of investments.Investments.(4) Securities with a zero value at the beginning and end of the period, and those that had no transaction activity were excluded from the roll forward. advances/advances to/(distributions) tofrom Affiliated Investments and Controlled Investments represent the proceeds from sales and settlements of investments, purchases, originations and participations, investment increases due to PIK interest as well as net amortization of premium/(discount) on investments and are included in the purchases and sales presented on the Consolidated Statements of Cash Flows for the years ended September 30, 2017, 2016,2021, 2020 and 2015.2019. Transfers in/(out) of Affiliated Investments and Controlled Investments represent the fair value for the month an investment became or was removed as an Affiliated Investment or a Controlled Investment.Investment, as applicable. Income received from Affiliated Investments and Controlled Investments is included in total investment income on the Consolidated Statements of Operations for the years ended September 30, 2017, 20162021, 2020 and 2015.sellsmay sell portions of its investments via participation agreements to a managed account, managed by an affiliate and non-affiliate of the Company. At September 30, 2017,2021, there were eightno participation agreements outstanding. At September 30, 2020, there were two participation agreements outstanding with an aggregate fair value of $124.5 million. At September 30, 2016 there were 14 participation agreements outstanding with an aggregate fair value of $254.5$6.8 million. The transfer of the participated portion of thetransferred investments have been isolated from the Company - put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership,each participant has the right to pledge or exchange the transferred investments it received, and no condition both constrains the participant from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the Company; andthe Company, its consolidated affiliates or its agents do not maintain effective control over the transferred investments through either: (i) an agreement that entitles and/or obligates the Company to repurchase or redeem the assets before maturity, or (ii) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.● transferred investments have been isolated from the Company, and put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership, ● each participant has the right to pledge or exchange the transferred investments it received, and no condition both constrains the participant from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the Company; and ● the Company, its consolidated affiliates or its agents do not maintain effective control over the transferred investments through either: (i) an agreement that entitles and/or obligates the Company to repurchase or redeem the assets before maturity, or (ii) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call. consolidated scheduleConsolidated Schedule of investments.Investments. All of these investments are classified within Level 3 of the fair value hierarchy, as defined in Note 4.2017, 2016,2020 and 2015,2019, the Company collected interest and principal payments on behalf of the participantparticipants in aggregate amounts of $11.7 million, $26.4$2.7 million and $24.2$3.7 million, respectively. Under the terms of the participation agreements, the Company will collectcollected and remitremitted periodic payments to the participantparticipants equal to the participant'sparticipant’s proportionate share of any principal and interest payments received by the Company from the underlying investee companies.must bewere submitted to MCC JV’s board of managers, which iswas comprised of four members, two of whom arewere selected by the Company and the other two of whom arewere selected by GALIC. The Company has concluded that it doesdid not operationally control MCC JV. As the Company doesdid not operationally control MCC JV, it doesdid not consolidate the operations of MCC JV within the consolidated financial statements. As a practical expedient, the Company uses NAV to determine the value of its investment in MCC JV; therefore, this investment has been presented as a reconciling item within the fair value hierarchy (see Note 4). Investments held by MCC JV are measured at fair value using the same valuation methodologies as described in Note 2.As of September 30, 2017, MCC JV had total capital commitments of $100.0 million, with the Company providing $87.5 million and GALIC providing $12.5 million. Approximately $64.1 million was funded as of September 30, 2017 relating to these commitments, of which $56.1 million was from the Company.TheOn March 29, 2019, the JV Facility bearsreinvestment period was extended from March 30, 2019 to June 28, 2019. On June 28, 2019, the JV Facility reinvestment period was further extended from June 28, 2019 to October 28, 2019. On October 28, 2019, the JV Facility reinvestment period was further extended from October 28, 2019 to March 31, 2020 and the interest at arate was modified from bearing an interest rate of LIBOR (with no minimum)a 0.00% floor) + 2.50% per annum to LIBOR (with a 0.00% floor) + 2.75% per annum. TheEffective as of March 31, 2020, the maturity date of the JV Facility reinvestment period ends onwas extended to March 30, 2019 and the stated maturity date is March 30, 2022.31, 2023. As of September 30, 2017 and September 30, 2016,2020, there was approximately $130.5 million and $68.1$111.3 million outstanding under the JV Facility.respectively.2017 and 2016,2020, MCC JV had total investments at fair value of $184.2 million and $93.4 million, respectively.$163.1 million. As of September 30, 2017 and 2016,2020, MCC JV’s portfolio was comprised of senior secured first lien term loans to 46 and 30 borrowers, respectively.of 45 borrowers. As of September 30, 2017 and 2016,2020, certain investments in one portfolio company held by MCC JV were on non-accrual status.2017 and 2016: September 30, 2017 September 30, 2016 $ 187,473,188 $ 95,872,612 6.69 % 6.70 % Number of borrowers in MCC JV 46 30 $ 11,346,929 $ 5,216,234 $ 44,015,117 $ 22,637,363 September 30,
2020 Senior secured loans(1) $ 182,514,110 Weighted average current interest rate on senior secured loans(2) 6.02 % Number of borrowers in MCC JV 45 Largest loan to a single borrower(1) $ 10,653,501 Total of five largest loans to borrowers(1) $ 39,191,213 (1) At par value. (2) Computed as the (a) annual stated interest rate on accruing senior secured loans, divided by (b) total senior secured loans at principal amount.par.20172020Company Industry Type of Investment Maturity Par Amount Cost Fair
Value(2) % of Net Assets(3) 4Over International, LLC Media: Advertising, Printing & Senior Secured First Lien Term Loan (LIBOR + 6.00%, 6/7/2022 $ 10,653,501 $ 10,653,501 $ 9,995,115 16.8 % Publishing 1.00% LIBOR Floor)(1) 10,653,501 10,653,501 9,995,115 Cardenas Markets LLC Retail Senior Secured First Lien Term Loan (LIBOR + 5.75%, 11/29/2023 5,293,750 5,269,829 5,287,398 8.9 % 1.00% LIBOR Floor)(1) 5,293,750 5,269,829 5,287,398 CHA Consulting, Inc. Construction & Building Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) 4/10/2025 1,340,389 1,336,046 1,274,308 2.1 % Senior Secured First Lien Term Loan (LIBOR + 4.50%, 4/10/2025 592,500 592,500 563,290 0.9 % 1.00% LIBOR Floor)(1) 1,932,889 1,928,546 1,837,598 Covenant Surgical Partners, Inc. Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan (LIBOR + 4.00%)(1) 7/1/2026 4,950,187 4,909,373 4,435,496 7.4 % 4,950,187 4,909,373 4,435,496 CT Technologies Intermediate Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan (LIBOR + 4.25%, 12/1/2021 5,086,116 5,005,862 4,875,042 8.2 % Holdings, Inc. 1.00% LIBOR Floor)(1) 5,086,116 5,005,862 4,875,042 Company Industry Type of Investment Maturity Cost 4Over International, LLC Media: Advertising, Printing & Publishing 6/7/2022 11,346,929 11,346,929 11,346,929 17.7 % 11,346,929 11,346,929 11,346,929 AccentCare, Inc. Healthcare & Pharmaceuticals 10/1/2021 5,006,781 4,978,815 4,981,747 7.8 % 5,006,781 4,978,815 4,981,747 Acrisure, LLC Banking, Finance, Insurance & Real Estate 11/22/2023 497,500 496,327 502,475 0.8 % 497,500 496,327 502,475 Amplify Snack Brands, Inc. Beverage & Food 9/4/2023 1,811,579 1,796,231 1,781,688 2.8 % 1,811,579 1,796,231 1,781,688 Apco Holdings, Inc. Automotive 1/31/2022 3,508,277 3,432,083 3,508,277 5.5 % 3,508,277 3,432,083 3,508,277 API Technologies Corp. Aerospace and Defense 4/22/2022 2,951,250 2,906,128 2,951,250 4.6 % 2,951,250 2,906,128 2,951,250 Associated Asphalt Partners, LLC Construction & Building 4/5/2024 997,500 992,848 992,513 1.5 % 997,500 992,848 992,513 Avantor Performance Materials Holdings, Inc. Chemicals, Plastics and Rubber 3/11/2024 2,985,000 2,978,117 2,985,000 4.7 % 2,985,000 2,978,117 2,985,000 Blount International, Inc. Capital Equipment 4/12/2023 2,962,500 2,918,684 2,962,500 4.6 % 4/12/2023 7,500 7,389 7,500 0.0 % 2,970,000 2,926,073 2,970,000 Canyon Valor Companies, Inc. (fka GTCR Valor Companies, Inc.) Media: Diversified & Production 6/16/2023 2,475,000 2,468,952 2,499,750 3.9 % 2,475,000 2,468,952 2,499,750 Cardenas Markets LLC Retail 11/29/2023 5,458,750 5,410,676 5,450,016 8.5 % 5,458,750 5,410,676 5,450,016 CD&R TZ Purchaser, Inc Services: Consumer 7/21/2023 3,465,000 3,421,596 3,456,338 5.4 % 3,465,000 3,421,596 3,456,338 Company Industry Type of Investment Maturity Par Amount Cost Envision Healthcare Corporation Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% 10/10/2025 1,940,438 1,888,530 1,397,503 2.3 % LIBOR Floor)(1) 1,940,438 1,888,530 1,397,503 GC EOS Buyer, Inc. Automotive Senior Secured First Lien Term Loan (LIBOR + 4.50%, 8/1/2025 1,420,440 1,404,814 1,304,532 2.2 % 1.00% LIBOR Floor)(1) 1,420,440 1,404,814 1,304,532 GK Holdings, Inc. Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1/20/2021 2,877,863 2,876,803 2,142,856 3.6 % 1.00% LIBOR Floor)(1) 2,877,863 2,876,803 2,142,856 Glass Mountain Pipeline Holdings, Energy: Oil & Gas Senior Secured First Lien Term Loan (LIBOR + 4.50%, 12/23/2024 4,850,625 4,839,587 2,601,390 4.4 % LLC 1.00% LIBOR Floor)(1) 4,850,625 4,839,587 2,601,390 Golden West Packaging Group LLC Forest Products & Paper Senior Secured First Lien Term Loan (LIBOR + 5.25%, 6/20/2023 4,069,771 4,069,771 3,968,027 6.7 % 1.00% LIBOR Floor)(1) 4,069,771 4,069,771 3,968,027 High Ridge Brands Co. Consumer Goods: Non-Durable Senior Secured First Lien Term Loan (LIBOR + 7.00%, 6/30/2022 1,732,439 1,724,570 593,187 1.0 % 1.00% LIBOR Floor)(1)(4) 1,732,439 1,724,570 593,187 Highline Aftermarket Acquisitions, Automotive Senior Secured First Lien Term Loan (LIBOR + 3.50%, 4/26/2025 4,025,000 4,016,286 3,597,545 6.0 % LLC 1.00% LIBOR Floor)(1) 4,025,000 4,016,286 3,597,545 Infogroup, Inc. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 6.50%, 4/3/2023 4,825,000 4,804,770 4,224,770 7.1 % 1.00% LIBOR Floor)(1) 4,825,000 4,804,770 4,224,770 Intermediate LLC High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 4.00%, 7/1/2026 2,722,500 2,708,089 2,513,684 4.2 % 1.00% LIBOR Floor)(1) 2,722,500 2,708,089 2,513,684 Isagenix International, LLC Wholesale Senior Secured First Lien Term Loan (LIBOR + 5.75%, 6/16/2025 2,626,629 2,616,715 1,337,742 2.2 % 1.00% LIBOR Floor)(1) 2,626,629 2,616,715 1,337,742 IXS Holdings, Inc. Automotive Senior Secured First Lien Term Loan (LIBOR + 5.00%, 3/5/2027 994,874 985,714 981,543 1.6 % 1.00% LIBOR Floor)(1) 994,874 985,714 981,543 Keystone Acquisition Corp. Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan (LIBOR + 5.25%, 5/1/2024 6,099,815 6,040,757 5,505,083 9.2 % 1.00% LIBOR Floor)(1) 6,099,815 6,040,757 5,505,083 KNB Holdings Corporation Consumer Goods: Durable Senior Secured First Lien Term Loan (LIBOR + 5.50%, 4/26/2024 4,743,170 4,694,643 1,992,131 3.3 % 1.00% LIBOR Floor)(1) 4,743,170 4,694,643 1,992,131 Liason Acquisition, LLC High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 4.50%, 12/20/2026 3,466,288 3,458,579 3,372,351 5.7 % 1.00% LIBOR Floor)(1) 3,466,288 3,458,579 3,372,351 Company Industry Type of Investment Maturity Par Amount Cost LifeMiles Ltd. Services: Consumer Senior Secured First Lien Term Loan (LIBOR + 5.50%, 8/18/2022 4,229,263 4,220,573 3,880,349 6.5 % 1.00% LIBOR Floor)(1) 4,229,263 4,220,573 3,880,349 Manna Pro Products, LLC Consumer Goods: Non-Durable Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) 12/8/2023 2,998,542 2,998,542 2,875,002 4.8 % Senior Secured First Lien Delayed Draw Term Loan 12/8/2023 608,958 608,958 583,869 1.0 % (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) 3,607,500 3,607,500 3,458,871 Mileage Plus Holdings, LLC Transportation: Consumer Senior Secured First Lien Term Loan (LIBOR + 5.25%, 6/21/2027 4,401,819 4,407,746 4,475,769 7.5 % 1.00% LIBOR Floor)(1) 4,401,819 4,407,746 4,475,769 NGS US Finco, LLC Capital Equipment Senior Secured First Lien Term Loan (LIBOR + 4.25%, 10/1/2025 2,943,223 2,932,700 2,755,445 4.6 % 1.00% LIBOR Floor)(1) 2,943,223 2,932,700 2,755,445 Northern Star Industries, Inc. Capital Equipment Senior Secured First Lien Term Loan (LIBOR + 4.50%, 3/28/2025 4,143,750 4,130,394 3,630,754 6.1 % 1.00% LIBOR Floor)(1) 4,143,750 4,130,394 3,630,754 Offen, Inc. Transportation: Cargo Senior Secured First Lien Term Loan (LIBOR + 5.00%)(1) 6/22/2026 3,626,659 3,596,886 3,494,880 5.9 % 3,626,659 3,596,886 3,494,880 Patriot Rail Company LLC Transportation: Cargo Senior Secured First Lien Term Loan (LIBOR + 5.25%, 10/19/2026 1,741,250 1,711,104 1,730,454 2.9 % 1.00% LIBOR Floor)(1) 1,741,250 1,711,104 1,730,454 PetroChoice Holdings, Inc. Chemicals, Plastics and Rubber Senior Secured First Lien Term Loan (LIBOR + 5.00%, 8/19/2022 6,279,803 6,270,073 5,418,842 9.1 % 1.00% LIBOR Floor)(1) 6,279,803 6,270,073 5,418,842 Port Townsend Holdings Company, Forest Products & Paper Senior Secured First Lien Term Loan (LIBOR + 4.75%, 4/3/2024 2,945,600 2,928,240 2,632,777 4.4 % Inc. 1.00% LIBOR Floor)(1) 2,945,600 2,928,240 2,632,777 PT Network, LLC Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan (LIBOR + 5.50%, 11/30/2023 4,955,627 4,638,237 4,460,064 7.5 % 1.00% LIBOR Floor, 2% PIK)(1)(5) Class C Common Stock 1 — — 4,955,628 4,638,237 4,460,064 Company Industry Type of Investment Maturity Cost CP OPCO, LLC Services: Consumer 4/1/2019 219,589 213,451 59,728 0.1 % 4/1/2019 1,603,881 717,016 — 0.0 % 4/1/2019 934,849 — — 0.0 % 4/1/2019 — — — 0.0 % Common Stock 41 — — 0.0 % 2,758,360 930,467 59,728 CSP Technologies North America, LLC Containers, Packaging and Glass 1/31/2022 2,480,781 2,480,781 2,480,781 3.9 % 2,480,781 2,480,781 2,480,781 CT Technologies Intermediate Holdings, Inc. Healthcare & Pharmaceuticals 12/1/2021 5,218,206 5,063,171 5,218,206 8.1 % 5,218,206 5,063,171 5,218,206 Elite Comfort Solutions, Inc. Chemicals, Plastics and Rubber 1/15/2021 5,810,616 5,810,616 5,810,616 9.1 % 5,810,616 5,810,616 5,810,616 Evo Payments International, LLC Banking, Finance, Insurance & Real Estate 12/22/2023 3,482,500 3,451,297 3,517,325 5.5 % 3,482,500 3,451,297 3,517,325 Explorer Holdings, Inc. Healthcare & Pharmaceuticals 5/2/2023 979,038 976,115 982,758 1.5 % 979,038 976,115 982,758 GK Holdings, Inc. Services: Business 1/20/2021 2,969,466 2,957,674 2,908,592 4.5 % 2,969,466 2,957,674 2,908,592 Global Eagle Entertainment Inc. Telecommunications 1/6/2023 4,147,500 4,079,692 4,116,394 6.4 % 4,147,500 4,079,692 4,116,394 Golden West Packaging Group LLC Forest Products & Paper 6/20/2023 6,708,188 6,708,188 6,708,188 10.5 % 6,708,188 6,708,188 6,708,188 High Ridge Brands Co. Consumer Goods: Non-Durable 6/30/2022 1,851,563 1,828,706 1,773,982 2.8 % 1,851,563 1,828,706 1,773,982 Highline Aftermarket Acquisitions, LLC Automotive 3/18/2024 3,110,895 3,096,476 3,110,895 4.8 % 3,110,895 3,096,476 3,110,895 Company Industry Type of Investment Maturity Par
Amount Cost PVHC Holding Corp Containers, Packaging and Glass Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) 8/5/2024 1,952,427 1,946,107 1,850,511 3.1 % 1,952,427 1,946,107 1,850,511 Quartz Holding Company High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) 4/2/2026 3,936,357 3,924,382 3,847,789 6.5 % 3,936,357 3,924,382 3,847,789 RB Media, Inc. Media: Diversified & Production Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) 8/29/2025 5,651,270 5,620,482 5,605,495 9.4 % 5,651,270 5,620,482 5,605,495 Salient CRGT Inc. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) 2/28/2022 2,533,036 2,518,601 2,343,058 3.9 % 2,533,036 2,518,601 2,343,058 SFP Holding, Inc. Construction & Building Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) 9/1/2022 4,776,954 4,739,017 4,733,961 7.9 % Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) 9/1/2022 1,852,521 1,852,521 1,835,849 3.1 % 6,629,475 6,591,538 6,569,810 Shift4 Payments, LLC Banking, Finance, Insurance & Real Estate Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) 11/29/2024 7,304,819 7,283,042 7,255,877 12.2 % 7,304,819 7,283,042 7,255,877 Simplified Logistics, LLC Services: Business Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) 2/27/2022 3,447,500 3,447,500 3,358,899 5.6 % 3,447,500 3,447,500 3,358,899 Syniverse Holdings, Inc. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) 3/9/2023 2,905,253 2,891,007 2,229,200 3.7 % 2,905,253 2,891,007 2,229,200 The Octave Music Group, Inc. Media: Diversified & Production Senior Secured First Lien Term Loan (LIBOR + 4.75%,1.00% LIBOR Floor)(1) 5/29/2025 5,896,552 5,844,063 5,071,034 8.5 % 5,896,552 5,844,063 5,071,034 ThoughtWorks, Inc. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1) 10/11/2024 2,627,704 2,620,849 2,585,136 4.3 % 2,627,704 2,620,849 2,585,136 Vero Parent, Inc. High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) 8/16/2024 3,875,924 3,856,982 3,813,522 6.4 % 3,875,924 3,856,982 3,813,522 Wawona Delaware Holdings, LLC Beverage & Food Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) 9/11/2026 945,350 937,295 912,358 1.5 % 945,350 937,295 912,358 Wheels Up Partners LLC Aerospace & Defense Senior Secured First Lien Term Loan (LIBOR + 8.55%, 1.00% LIBOR Floor)(1) 10/15/2021 1,509,917 1,497,761 1,509,917 2.5 % 1,509,917 1,497,761 1,509,917 Company Industry Type of Investment Maturity Cost Imagine! Print Solutions, LLC Media: Advertising, Printing & Publishing 6/21/2022 7,960,000 7,884,180 7,880,400 12.3 % 7,960,000 7,884,180 7,880,400 Infogroup, Inc. Services: Business 4/3/2023 4,975,000 4,928,990 4,925,250 7.7 % 4,975,000 4,928,990 4,925,250 Keystone Acquisition Corp. Healthcare & Pharmaceuticals 5/1/2024 8,000,000 7,857,692 8,000,000 12.5 % 8,000,000 7,857,692 8,000,000 KNB Holdings Corporation Consumer Goods: Durable 4/26/2024 6,500,000 6,377,734 6,516,250 10.3 % 6,500,000 6,377,734 6,516,250 LifeMiles Ltd. Services: Consumer 8/18/2022 5,000,000 4,950,691 4,950,000 7.7 % 5,000,000 4,950,691 4,950,000 Lighthouse Network, LLC Banking, Finance, Insurance & Real Estate 10/13/2023 4,466,250 4,427,648 4,466,250 7.1 % 4,466,250 4,427,648 4,466,250 MB Aerospace ACP Holdings II Corp. Aerospace and Defense 12/15/2022 5,163,678 5,128,257 5,163,678 8.0 % 5,163,678 5,128,257 5,163,678 New Media Holdings II LLC Media: Advertising, Printing & Publishing 7/14/2022 2,932,340 2,932,340 2,932,340 4.6 % 2,932,340 2,932,340 2,932,340 Peraton Corp. Aerospace and Defense 4/29/2024 4,987,500 4,963,982 4,962,563 7.7 % 4,987,500 4,963,982 4,962,563 PetroChoice Holdings, Inc. Chemicals, Plastics and Rubber 8/22/2022 4,962,025 4,962,025 4,962,025 7.7 % 4,962,025 4,962,025 4,962,025 Pomeroy Group LLC Services: Business 11/30/2021 2,343,582 2,288,650 2,329,989 3.6 % 11/30/2021 419,501 409,668 417,068 0.7 % 2,763,083 2,698,318 2,747,057 PT Network, LLC Healthcare & Pharmaceuticals 11/30/2021 4,962,500 4,921,159 4,996,741 7.8 % 4,962,500 4,921,159 4,996,741 Company Industry Type of Investment Maturity Cost Quorum Health Corporation Healthcare & Pharmaceuticals 4/29/2022 1,176,137 1,158,096 1,191,191 1.9 % 1,176,137 1,158,096 1,191,191 Rough Country, LLC Automotive 5/25/2023 4,987,500 4,940,019 4,937,625 7.7 % 4,987,500 4,940,019 4,937,625 Salient CRGT Inc. High Tech Industries 2/28/2022 2,948,214 2,895,729 2,935,832 4.6 % 2,948,214 2,895,729 2,935,832 SCS Holdings I Inc. Wholesale 10/31/2022 2,778,498 2,737,893 2,806,283 4.4 % 2,778,498 2,737,893 2,806,283 Starfish Holdco, LLC High Tech Industries 8/16/2024 5,000,000 4,950,395 4,950,000 7.7 % 5,000,000 4,950,395 4,950,000 Sundial Group Holdings LLC Consumer Goods: Non-Durable 8/15/2024 10,000,000 9,852,004 9,850,000 15.4 % 10,000,000 9,852,004 9,850,000 Survey Sampling International, LLC Services: Business 12/16/2020 2,954,530 2,934,263 2,954,530 4.6 % 2,954,530 2,934,263 2,954,530 TouchTunes Interactive Networks, Inc. Media: Diversified & Production 5/28/2021 4,974,555 4,974,555 5,005,894 7.8 % 4,974,555 4,974,555 5,005,894 TrialCard Incorporated Services: Consumer 10/26/2021 3,300,075 3,273,215 3,300,075 5.1 % 3,300,075 3,273,215 3,300,075 VCVH Holding Corp. Healthcare & Pharmaceuticals 6/1/2023 2,962,500 2,938,097 2,958,353 4.6 % 2,962,500 2,938,097 2,958,353 VIP Cinema Holdings, Inc. Consumer Goods: Durable 3/1/2023 728,165 724,860 735,446 1.1 % 728,165 724,860 735,446 Total Investments, September 30, 2017 $ 187,473,229 $ 183,950,100 $ 184,241,231 287.6 % Company Industry Type of Investment Maturity Par Amount Cost Fair Value(2) % of
Net Assets(3) Wok Holdings Inc. Retail Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) 3/1/2026 6,550,249 6,505,809 4,864,216 8.2 % 6,550,249 6,505,809 4,864,216 Wrench Group LLC Services: Consumer Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) 4/30/2026 2,942,820 2,920,082 2,834,231 4.8 % 2,942,820 2,920,082 2,834,231 Xebec Global Holdings, LLC High Tech Industries Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) 2/12/2024 8,053,168 8,053,168 8,053,168 13.5 % 8,053,168 8,053,168 8,053,168 Z Medica, LLC Healthcare & Pharmaceuticals Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) 9/29/2022 2,566,500 2,566,500 2,528,002 4.3 % 2,566,500 2,566,500 2,528,002 Total Investments, September 30, 2020 $ 182,514,111 $ 181,365,360 $ 163,133,421 273.5 % (1) Represents the weighted average annual current interest rate as of September 30, 2017.2020. All interest rates are payable in cash, unless otherwise noted.(2) Represents the fair value in accordance with ASC Topic 820 as reported by MCC JV. The determination of such fair value is not included in the Company’s board of directors’ valuation process described elsewhere herein.(3) Percentage is based on MCC JV’s net assets of $59,617,800 as of September 30, 2020. (3)(4) This investment was on non-accrual status as of September 30, 2017.2020.(4)(5)PercentagePar amount includes accumulated PIK interest and is based on MCC JV's net assets of $64,157,655 as of September 30, 2017.repayments.MCC JV Loan Portfolio as of September 30, 2016Company Industry Type of Investment Maturity Cost 4Over International, LLC Media: Advertising, Printing & Publishing 6/7/2022 2,487,500 2,487,500 2,487,500 7.0 % 2,487,500 2,487,500 2,487,500 AccentCare, Inc. Healthcare & Pharmaceuticals 9/3/2021 2,747,500 2,724,808 2,728,295 7.6 % 2,747,500 2,724,808 2,728,295 Amplify Snack Brands, Inc. Beverage & Food 9/2/2023 4,000,000 3,960,392 3,960,000 11.1 % 4,000,000 3,960,392 3,960,000 APCO Holdings, Inc Automotive 1/31/2022 3,703,125 3,604,166 3,660,168 10.2 % 3,703,125 3,604,166 3,660,168 API Technologies Corp. Aerospace and Defense 4/22/2022 2,992,500 2,936,717 2,932,650 8.2 % 2,992,500 2,936,717 2,932,650 Blount International, Inc. Capital Equipment 4/12/2023 3,000,000 2,947,612 2,910,000 8.1 % 3,000,000 2,947,612 2,910,000 CD&R TZ Purchaser, Inc. Services: Consumer 7/21/2023 3,500,000 3,448,618 3,395,002 9.5 % 3,500,000 3,448,618 3,395,002 CP OPCO, LLC Services: Consumer 3/31/2019 495,048 495,048 495,048 1.4 % 3/31/2019 206,270 206,270 206,270 0.6 % 3/31/2019 1,447,834 717,016 717,016 2.0 % 3/31/2019 901,391 — — 0.0 % 3/31/2019 128,038 128,038 128,038 0.4 % 3/31/2019 112,674 112,674 112,674 0.3 % Common Stock 41 — — 0.0 % 3,291,296 1,659,046 1,659,046 CRGT Inc. High Tech Industries 12/19/2020 2,646,703 2,641,393 2,646,703 7.4 % 2,646,703 2,641,393 2,646,703 Company Industry Type of Investment Maturity Cost Elite Comfort Solutions, Inc Chemicals, Plastics & Rubber 1/15/2021 4,196,875 4,196,875 4,238,844 11.9 % 4,196,875 4,196,875 4,238,844 Explorer Holdings, Inc. Healthcare & Pharmaceuticals 5/2/2023 2,992,500 2,981,967 2,962,575 8.3 % 2,992,500 2,981,967 2,962,575 GTCR Valor Companies, Inc. Media: Diversified & Production 6/16/2023 3,990,000 3,835,508 3,795,687 10.6 % 3,990,000 3,835,508 3,795,687 HarborTouch Payments, LLC Banking, Finance, Insurance & Real Estate 5/31/2022 3,478,125 3,445,054 3,443,344 9.6 % 3,478,125 3,445,054 3,443,344 High Ridge Brands Co. Consumer Goods - Non-Durable 6/30/2022 1,870,313 1,842,364 1,842,257 5.2 % 1,870,313 1,842,364 1,842,257 Imagine! Print Solutions, LLC Media: Advertising, Printing & Publishing 3/30/2022 4,977,182 4,918,462 5,020,982 14.1 % 4,977,182 4,918,462 5,020,982 Keurig Green Mountain, Inc. Beverage & Food 3/3/2023 4,013,275 3,963,303 4,013,275 11.2 % 4,013,275 3,963,303 4,013,275 Kraton Polymers LLC Chemicals, Plastics & Rubber 1/6/2022 3,000,000 2,891,792 3,030,000 8.5 % 3,000,000 2,891,792 3,030,000 MB Aerospace ACP Holdings II Corp. Aerospace and Defense 12/15/2022 5,216,234 5,173,584 5,160,681 14.4 % 5,216,234 5,173,584 5,160,681 MWI Holdings, Inc. Capital Equipment 6/29/2020 1,995,000 1,976,126 1,990,012 5.5 % 1,995,000 1,976,126 1,990,012 NetSmart Inc. High Tech Industries 4/19/2023 2,493,750 2,469,871 2,503,227 7.0 % 2,493,750 2,469,871 2,503,227 New Media Holdings II LLC Media: Advertising, Printing & Publishing 6/4/2020 2,962,302 2,962,302 2,948,972 8.3 % 2,962,302 2,962,302 2,948,972 Pomeroy Group LLC High Tech Industries 11/30/2021 3,491,206 3,389,703 3,386,470 9.5 % 3,491,206 3,389,703 3,386,470 Company Industry Type of Investment Maturity Cost Quorum Health Corporation Healthcare & Pharmaceuticals 4/29/2022 2,487,500 2,441,013 2,409,765 6.7 % 2,487,500 2,441,013 2,409,765 SCS Holdings I Inc. Wholesale 10/30/2022 2,966,292 2,914,417 2,904,564 8.1 % 2,966,292 2,914,417 2,904,564 Sundial Group Holdings LLC Consumer Goods - Non-Durable 10/19/2021 2,925,000 2,875,629 2,879,721 8.1 % 2,925,000 2,875,629 2,879,721 Survey Sampling International, LLC Services: Business 12/16/2020 2,984,843 2,957,468 2,954,994 8.3 % 2,984,843 2,957,468 2,954,994 TaxAct, Inc. Banking, Finance, Insurance & Real Estate 1/3/2023 4,233,796 4,129,461 4,302,807 12.0 % 4,233,796 4,129,461 4,302,807 VCVH Holding Corp. High Tech Industries 6/1/2023 2,992,500 2,963,504 2,971,852 8.3 % 2,992,500 2,963,504 2,971,852 Victory Capital Operating, LLC. Banking, Finance, Insurance & Real Estate 10/29/2021 1,643,836 1,619,749 1,615,069 4.5 % 1,643,836 1,619,749 1,615,069 Western Digital Corporation High Tech Industries 4/29/2023 2,593,500 2,541,321 2,617,879 7.3 % 2,593,500 2,541,321 2,617,879 Total Investments, September 30, 2016 $ 95,872,654 $ 92,899,725 $ 93,372,341 261.4 % (1)Represents the weighted average annual current interest rate as of September 30, 2016. All interest rates are payable in cash, unless otherwise noted.(2)Represents the fair value in accordance with ASC Topic 820 as reported by MCC JV. The determination of such fair value is not included in the Company’s board of directors’ valuation process described elsewhere herein.(3)This investment was on non-accrual status as of September 30, 2016.(4)Percentage is based on MCC JV's net assets of $35,717,047 as of September 30, 2016.2017 and 2016,2020, and for the years ended September 30, 20172020 and 2016, and the period from July 15, 2015 (commencement of operations) through 2019: September 30,
2020 Selected Consolidated Statement of Assets and Liabilities Information: Investments in loans at fair value (amortized cost of $181,365,360) $ 163,133,421 Cash 6,055,178 Other assets 1,148,102 Total assets $ 170,336,701 Line of credit (net of debt issuance costs of $1,574,115) $ 109,745,367 Other liabilities 424,095 Interest payable 549,439 Total liabilities 110,718,901 Members’ capital 59,617,800 Total liabilities and members’ capital $ 170,336,701 For the Years Ended
September 30 2020 2019 Selected Consolidated Statement of Operations Information: Total revenues $ 15,727,674 $ 20,351,843 Total expenses (9,346,799 ) (10,962,484 ) Net unrealized appreciation/(depreciation) (8,203,330 ) (9,055,476 ) Net realized gain/(loss) (12,851,425 ) (772,239 ) Net income/(loss) $ (14,673,880 ) $ (438,356 ) 2015: September 30, 2017 September 30, 2016 Selected Consolidated Statement of Assets and Liabilities Information: Investments in loans at fair value (cost: of $183,950,100 and $92,899,725, respectively) $ 184,241,231 $ 93,372,341 Cash 8,908,117 9,720,324 Other assets 597,831 268,136 Total assets $ 193,747,179 $ 103,360,801 Line of credit (net of debt issuance costs of $1,789,953 and $1,000,841, respectively) $ 128,690,047 $ 67,079,159 Other liabilities 440,959 340,088 Interest payable 458,518 224,507 Total liabilities 129,589,524 67,643,754 Members' capital 64,157,655 35,717,047 Total liabilities and members' capital $ 193,747,179 $ 103,360,801 Period from July 15, 2015 (commencement of operations) through September 30, 2015 Selected Consolidated Statement of Operations Information: Total revenues $ 10,359,041 $ 3,916,605 $ 100,056 Total expenses (5,239,634 ) (2,480,499 ) (339,615 ) Net unrealized appreciation/(depreciation) (181,485 ) 486,437 (13,821 ) Net realized gain/(loss) 852,684 (1,415,210 ) 47 Net income/(loss) $ 5,790,606 $ 507,333 $ (253,333 ) In accordance with Rules 3-094-08(g) of Regulation S-X, the Company must determine which of its unconsolidated Control Investments, if any, are considered “significant subsidiaries.” In evaluating these investments, there are three tests utilized to determine if any Controlled Investments are considereddetermined that it had no significant subsidiaries: the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X requires the Company to includeseparate audited financial statements of any unconsolidated majority-owned subsidiary (Control Investments in which the Company owns greater than 50% of the voting securities) in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information of Control Investments in an annual report if any of the three tests exceeds 10%, and summarized financial information in a quarterly report if any of the three tests exceeds 20% pursuant to Rule 10-01(b)(1) of Regulation S-X.Assubsidiaries as of September 30, 2017 and 2016, the Company had no single majority-owned subsidiary that exceeded 20% in any of the three tests.As of September 30, 2017, the Company had no Control Investments that represented greater than 10% of its total investment portfolio at fair value, no Control Investments whose assets represented greater than 10% of its total assets, and one Control Investment whose income generated more than 10% of its income during the year ended September 30, 2017.As of September 30, 2016, the Company had no Control Investments that exceeded 10% in any of the three tests.The following tables show summarized unaudited financial information for NVTN LLC, which met the 10% income test for the year ended September 30, 2017: September 30, 2017 Current assets $ 4,952,291 Non-current assets 34,375,960 Current liabilities 2,216,025 Non-current liabilities 29,531,858 Period from November 9, 2016 through September 30, 2017 Total revenues $ 38,347,251 Cost of sales 9,289,103 Operating expenses 27,105,300 Other expenses 6,707,925 Net loss $ (4,755,077 ) (1)All amounts are unaudited.The Company also determined that the assets of MCC JV represented greater than 10% of its total assets and also generated more than 10% of the Company’s total income primarily due to dividend income. Accordingly, the related summary financial information is presented in the “MCC Senior Loan Strategy JV I LLC” heading above.The three levels are defined below. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities athierarchy, and certain prior period amounts have been reclassified to conform to the measurement date.Level 2 - Valuations based on inputs other than quoted prices in active markets included in Level 1, whichcurrent period presentation. The three levels are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.Level 3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.● Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date. ● Level 2 - Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities. ● Level 3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence. thea valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.20172021 (dollars in thousands): Fair Value Hierarchy as of September 30, 2021 Investments: Level 1 Level 2 Level 3 Total Senior Secured First Lien Term Loans $ - $ - $ 61,934 $ 61,934 Senior Secured Second Lien Term Loans - - 2,490 2,490 Senior Secured Notes - 9,270 - 9,270 Secured Debt - - 2,500 2,500 Equity/Warrants 23,102 - 48,889 71,991 Total $ 23,102 $ 9,270 $ 115,813 $ 148,185 Investments measured at net asset value(1) 3,455 Total Investments, at fair value $ 151,640 (1) Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities. Level 1 Level 2 Level 3 Total Senior Secured First Lien Term Loans $ — $ — $ 537,163 $ 537,163 Senior Secured Second Lien Term Loans — — 135,826 135,826 Senior Secured First Lien Notes — 7,067 20,478 27,545 Unsecured Debt — — — — Equity/Warrants 38 21 80,260 80,319 Total $ 38 $ 7,088 $ 773,727 $ 780,853 $ 56,138 Total Investments, at fair value $ 836,991 20162020 (dollars in thousands): Level 1 Level 2 Level 3 Total Senior Secured First Lien Term Loans $ — $ — $ 565,329 $ 565,329 Senior Secured Second Lien Term Loans — — 213,537 213,537 Senior Secured First Lien Notes — 6,375 21,048 27,423 Unsecured Debt — — 52,809 52,809 Equity/Warrants 359 363 23,112 23,834 Total $ 359 $ 6,738 $ 875,835 $ 882,932 $ 31,252 Total Investments, at fair value $ 914,184 (1) Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities. Level 1 Level 2 Level 3 Total Senior Secured First Lien Term Loans $ — $ — $ 106,463 $ 106,463 Senior Secured Second Lien Term Loans — — 13,927 13,927 Unsecured Debt — — 2,669 2,669 MCC Senior Loan Strategy JV I LLC(1) — — 41,019 41,019 Equity/Warrants 12,278 — 67,397 79,675 Total $ 12,278 $ — $ 231,475 $ 243,753 Investments measured at net asset value(2) 2,991 Total Investments, at fair value $ 246,744 (1) MCC Senior Loan Strategy JV I LLC was sold on October 8, 2020 and as such fair value was measured as a Level 3 investment as of September 30, 2020. Previously fair value had been measured using NAV. (2) Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities. 20172021 (dollars in thousands): Equities/Warrants Total Balance as of September 30, 2016 $ 565,329 $ 213,537 $ 21,048 $ 52,809 $ 23,112 $ 875,835 Purchases and other adjustments to cost 13,015 8,059 — 4,445 387 25,906 Originations 185,462 39,440 — 1,973 65,079 291,954 Sales (45,701 ) (38,500 ) — (30,552 ) — (114,753 ) Settlements (164,622 ) (69,510 ) — (15,000 ) (2,312 ) (251,444 ) Net realized gains/(losses) from investments (41,455 ) (7,587 ) — (289 ) (23,564 ) (72,895 ) Net transfers in and/or out of Level 3 — — — — — — Net unrealized gains/(losses) 25,135 (9,613 ) (570 ) (13,386 ) 17,558 19,124 Balance as of September 30, 2017 $ 537,163 $ 135,826 $ 20,478 $ — $ 80,260 $ 773,727 Senior Secured First Lien Term Loans Senior Secured Second Lien Term Loans Secured Debt Unsecured Debt MCC Senior Loan Strategy JV I LLC Equities/ Warrants Total Balance as of September 30, 2020 $ 106,463 $ 13,927 $ - $ 2,669 $ 41,019 $ 67,397 $ 231,475 Purchases and other adjustments to cost 11,026 - 2,500 - - - 13,526 Sales (28,374 ) (11,892 ) - (3,070 ) (39,740 ) (7,635 ) (90,711 ) Net realized gains/(losses) from investments (24,818 ) 4 - 30 (40,148 ) 311 (64,621 ) Net unrealized gains/(losses) (2,363 ) 451 - 371 38,869 (11,184 ) 26,144 Balance as of September 30, 2021 $ 61,934 $ 2,490 $ 2,500 $ - $ - $ 48,889 $ 115,813 20162020 (dollars in thousands): Senior Senior MCC Secured Secured Senior First Lien Second Loan Term Lien Term Unsecured Strategy Equities/ Loans Loans Debt JV I LLC Warrants Total Balance as of September 30, 2019 $ 192,770 $ 36,508 $ 2,653 $ — $ 78,329 $ 310,260 Purchases and other adjustments to cost 1,820 655 168 — 1,259 3,902 Originations 28,085 945 2,500 — 182 31,712 Sales (186 ) (1,237 ) — — (5,714 ) (7,137 ) Settlements (86,048 ) (613 ) (721 ) — (24,881 ) (112,263 ) Net realized gains/(losses) from investments (929 ) (23,362 ) — — (18,577 ) (42,868 ) Net transfers in and/or out of Level 3 — �� — — 41,019 — 41,019 Net unrealized gains/(losses) (29,049 ) 1,031 (1,931 ) — 36,799 6,850 Balance as of September 30, 2020 $ 106,463 $ 13,927 $ 2,669 $ 41,019 $ 67,397 $ 231,475 Equities/Warrants Total Balance as of September 30, 2015 $ 695,970 $ 372,176 $ 30,669 $ 45,661 $ 50,584 $ 1,195,060 Purchases and other adjustments to cost 8,692 2,855 9 2,932 1,165 15,653 Originations 86,857 12,000 — 8,278 1,433 108,568 Sales — — — — — — Settlements (181,177 ) (164,072 ) (11,000 ) — (6,383 ) (362,632 ) Net realized gains/(losses) from investments (42,441 ) — 39 — 3,479 (38,923 ) Net transfers in and/or out of Level 3 — — — — — — Net unrealized gains/(losses) (2,572 ) (9,422 ) 1,331 (4,062 ) (27,166 ) (41,891 ) Balance as of September 30, 2016 $ 565,329 $ 213,537 $ 21,048 $ 52,809 $ 23,112 $ 875,835 lossgain (loss) for the years ended September 30, 2021 and 2020 included in earnings related to investments still held as of September 30, 20172021 and 2016,2020 was approximately $29.9$(24.3) million and $72.6$(42.6) million, respectively.2017,2021, none of our investments transferred ininto or out of Level 3. During the year ended September 30, 2016 one of our senior secured first lien notes2020 MCC JV transferred from Level 2 tointo the Level 3 backcategory as the investment was sold subsequently to Level 2 withSeptember 30, 2020 (see Note 3). In previous periods, as a practical expedient the Company had used the net change inasset value of MCC JV to determine the fair value of $0 because of the decrease and subsequent increase in availability of the transaction data or the inputs to the valuation became observable.20172021 (dollars in thousands): Fair Value Valuation Technique Unobservable Input Range (Weighted Average) Senior Secured First Lien Term Loans $ 288,134 Income Approach (DCF) Market yield 8.63% - 14.74% (11.15%) Senior Secured First Lien Term Loans 5,254 Enterprise Value Analysis Expected Proceeds $0.0M - $4.9M ($4.6M) Senior Secured First Lien Term Loans 184,059 Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF) 0.60x - 3.00x (1.42x) / 5.50x - 8.00x (6.77x) / 10.00% - 22.00% (17.79%) Senior Secured First Lien Term Loans 59,716 Recent Arms-Length Transaction Recent Arms Length Transaction N/A Senior Secured First Lien Notes 20,478 Income Approach (DCF) Market yield 8.85% - 8.85% (8.85%) Senior Secured Second Lien Term Loan 88,126 Income Approach (DCF) Market yield 9.92% - 16.16% (12.22%) Senior Secured Second Lien Term Loans 7,760 Enterprise Value Analysis Expected Proceeds $0.0M - $15.5M ($7.8M) Senior Secured Second Lien Term Loan 20,894 Recent Arms-Length Transaction Recent Arms-Length Transaction N/A Senior Secured Second Lien Term Loan 19,046 Market Approach (Guideline Comparable)/Income Approach (DCF) Unsecured Debt — Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF) 1.00x-1.40x (1.20x) / 17.50%-23.50% (20.50%) Equity 38,893 Recent Arms-Length Transaction Recent Arms Length Transaction N/A Equity 41,367 Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF) 0.70x - 3.00x (0.74x) / 5.00x - 8.63x (7.10x) / 10.00%-20.50% (16.42%) / $1.9M - $8.0M ($5.0M) Equity — Enterprise Value Analysis Expected Proceeds $0.0M Total $ 773,727 Fair Value Valuation Methodology Unobservable Input Range
(Weighted Average) Senior Secured First Lien Term Loans $ 25,783 Market Approach Market Yield 7.50% - 102.38% (32.78% ) Senior Secured First Lien Term Loans 15,639 Market Approach Arms Length Transaction N/A Senior Secured First Lien Term Loans 7,567 Market Approach (Guideline Comparable) Market Yield 5.00% - 8.00% (5.55% ) Senior Secured First Lien Term Loans 4,539 Market Approach EBITDA Multiple(1) 4.50x - 5.50x (5.00x ) Senior Secured First Lien Term Loans 3,579 Enterprise Value Analysis Revenue Multiple(1) 0.40x - 0.50x (0.45x ) Senior Secured First Lien Term Loans 2,577 Market Approach Capitalization Rate 4.50% - 5.50% (5.00% ) Estimated Proceeds $1.04 - $8.10 ($4.57 ) Senior Secured First Lien Term Loans 2,250 Market Approach Revenue Multiple(1) 0.25x - 0.40x (0.33x ) Senior Secured Second Lien Term Loans 2,490 Market Approach (Guideline Comparable) EBITDA Multiple(1) 9.75x - 10.75x (10.25x ) Secured Debt 2,500 Cost Approach Replacement Cost N/A Equity/Warrants 38,939 Market Approach EBITDA Multiple(1) 1.25x - 12.75x (12.31x ) Equity/Warrants 4,758 Market Approach Market Yield 10.50% - 12.00% (11.25% ) Equity/Warrants 2,956 Market Approach Revenue Multiple(1) 0.11x - 0.40x (0.16x ) Equity/Warrants 2,236 Market Approach Capitalization Rate 4.50% - 5.50% (5.00% ) Estimated Proceeds $1.04 - $8.10 ($4.57 ) Total $ 115,813 (1) Represents inputs used when the Company has determined that market participants would use such multiples when measuring the fair value of these investments. has been modified to conform to the current year presentation, and presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 20162020 (dollars in thousands): Fair Value Valuation Technique Unobservable Input Range (Weighted Average) Senior Secured First Lien Term Loans $ 446,549 Income Approach (DCF) Market yield 7.55% - 16.00% (11.54%) Senior Secured First Lien Term Loans 110,950 Market Approach (Guideline Comparable)/Income Approach (DCF) 0.40x - 1.50x (0.92x)/5.00x - 7.00x (6.56x)/16.00% - 20.00% (18.73%)/$393.75 - $525.00 ($525.00) Senior Secured First Lien Term Loans 1,160 Enterprise Valuation Analysis Expected Proceeds $0.0M - $1.2M ($1.2M) Senior Secured First Lien Term Loans 6,670 Recent Arms-Length Transaction Recent Arms Length Transaction N/A Senior Secured First Lien Notes 21,048 Income Approach (DCF) Market yield 8.02% - 8.02% (8.02%) Senior Secured Second Lien Term Loans 179,197 Income Approach (DCF) Market yield 8.97% - 17.86% (11.54%) Senior Secured Second Lien Term Loans 34,340 Market Approach (Guideline Comparable) 0.50x - 0.75x (0.63x)/5.50x - 8.75x (7.26x) Unsecured Debt 11,337 Market Approach (Guideline Comparable)/Income Approach (DCF) 0.75x-1.25x (1.25x)/6.50x-7.00x (7.00x)/ 17.50%-22.50% (20.00%) Unsecured Debt 41,472 Income Approach (DCF) Market Yield 10.58%-18.50% (15.60%) Equity 5,749 Income Approach (DCF) Market Yield 8.75%-8.75% (8.75%) Equity 3,330 Recent Arms-Length Transaction Recent Arms Length Transaction N/A Equity 8,633 Market Approach (Guideline Comparable)/Income Approach (DCF)/Recent Arms-Length Transaction 0.40x - 1.50x (0.63x)/4.75x - 7.50x (6.76x)/15.00%-20.00% (16.96%)/$393.75 - $525.00 ($525.00)/ $185.3M - $185.3M ($185.3M) Warrants 5,400 Market Approach (Guideline Comparable)/Income Approach (DCF) 0.63x - 1.00x (0.81x)/5.50x - 7.50x (6.00x)/0.75x - 1.00x (0.88x)/17.00% - 20.00% (18.50%) Total $ 875,835 Fair Value Valuation Methodology Unobservable Input Range
(Weighted Average) Senior Secured First Lien Term Loans $ 50,135 Income Approach (DCF) Market yield 7.52% - 15.27% (10.34%) Senior Secured First Lien Term Loans 55,856 Market Approach (Guideline Revenue Multiple(1) 0.25x - 0.50x (0.49x) Comparable)//Income Approach (DCF)/ EBITDA Multiple(1) 2.50x - 8.50x (5.73x) Enterprise Value Analysis Capitalization Rate 5.50x - 5.50x (5.50x) Discount Rate 17.90% - 17.90% (17.90%) Expected Proceeds $8.25 - $52.00 ($45.65) Senior Secured First Lien Term Loans 472 Recent Arms-Length Transaction Recent Arms Length Transaction N/A Senior Secured Second Lien Term Loan 9,978 Income Approach (DCF) Market yield 12.01% - 14.82% (14.01%) Senior Secured Second Lien Term Loans 3,949 Market Approach (Guideline EBITDA Multiple(1) 8.00x - 8.00x (8.00x) Comparable)/Income Approach (DCF) Discount Rate 21.00% - 21.00% (21.00%) Unsecured Debt — Market Approach (Guideline Comparable) EBITDA Multiple(1) 2.50x - 4.50x (3.50x) Unsecured Debt 2,669 Recent Arms-Length Transaction Recent Arms Length Transaction N/A MCC Senior Loan Strategy JV I LLC 41,019 Recent Arms-Length Transaction Recent Arms Length Transaction N/A Equity 63,468 Market Approach (Guideline Revenue Multiple(1) 0.50x - 0.88x (0.69x) Comparable)/Income Approach/Enterprise EBITDA Multiple(1) 2.50x - 9.50x (8.25x) Value Analysis Capitalization Rate 5.50% - 5.50% (5.50%) Discount Rate 14.50% - 14.50% (14.50%) Expected Proceeds $8.25 - $52.00 ($38.00) Equity 3,929 Income Approach (DCF) Market Yield 15.40% - 15.40% (15.40%) Total $ 231,475 (1) Represents inputs used when the Company has determined that market participants would use such multiples when measuring the fair value of these investments. (1) Represents inputs used when the Company has determined that market participants would use such multiples when measuring the fair value of these investments.measurements holding all other variables constant.Revenuerevenue or EBITDA (earnings before interest, taxes, depreciation and amortization) for the lastlatest twelve months (“LTM”), next twelve months (“NTM”) or a reasonable period a market participant would consider. Increases in EBITDA multiples in isolation would result in higher fair value measurements.Global”Global Accessories”), in which itthe Company exchanged its full position in Lydell Jewelry Design Studio, LLC for a 3.8% membership interest in Global Accessories, which is included in the Consolidated Schedule of Investments. As part of the agreement, the Company is entitled to a contingent consideration in the form of cash payments (“Earnout”), as well as up to an additional 5% membership interest (“AMI”), provided Global Accessories achieves certain financial benchmarks over specified time frames.through calendar year ended 2022. The Earnout and AMI were initially recorded with an aggregate fair value of $2.4 million on the transaction date using the income approachIncome Approach and were included on the Consolidated StatementStatements of Assets and Liabilities in Other Assets.other assets. The contingent consideration will beis remeasured to fair value at each reporting date until the contingency is resolved. Any changes in fair value will be recognized in earnings.On November 16, 2012,obtained an exemptive order from the SECare allowed to permit us to exclude the debtincrease our leverage capacity if stockholders representing at least a majority of the SBIC LP guaranteed byvotes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the SBA fromfirst day after such approval. Alternatively, the 1940 Act allows the majority of our 200%independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.testwas 285.6% after giving effect to leverage and therefore the Company’s asset coverage was greater than 200%, the minimum asset coverage requirement applicable presently to the Company under the 1940 Act.The exemptive order provides us with increased flexibility underAs a result, the 200%Company was prohibited from making distributions to stockholders, including the payment of any dividend, and could not employ further leverage until the Company’s asset coverage test by permitting SBIC LPwas at least 200% after giving effect to borrow upsuch leverage.$150 million more than it would otherwise be able to absent the receipt of this exemptive order.20172021 and 20162020 was as follows (dollars in thousands): September 30, 2017 September 30, 2016 Revolving Credit Facility $ 200,000 $ 68,000 $ 68,000 $ 68,000 $ 343,500 $ 14,000 $ 14,000 $ 14,000 Term Loan Facility 102,000 102,000 102,000 102,000 174,000 174,000 174,000 174,000 2019 Notes — — — — 40,000 40,000 40,000 40,704 2021 Notes 74,013 74,013 74,013 77,121 74,013 74,013 74,013 76,677 2023 Notes 102,847 102,847 102,847 103,464 63,500 63,500 63,500 63,856 SBA Debentures 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 Total $ 628,860 $ 496,860 $ 496,860 $ 500,585 $ 845,013 $ 515,513 $ 515,513 $ 519,237 Credit FacilityThe Company has a Senior Secured Term Loan Credit Agreement, as amended (the ‘‘Term Loan Facility’’) and a Senior Secured Revolving Credit Agreement, as amended (the ‘‘Revolving Credit Facility’’ and, collectively with the Term Loan Facility, as amended, the ‘‘Facilities’’) with ING Capital LLC, as Administrative agent, in order to borrow funds to make additional investments.The pricing in the case of the Term Loan Facility for LIBOR loans is LIBOR (with no minimum) plus 3.00%. The pricing on the Revolving Credit Facility, is LIBOR (with no minimum) plus 2.75%. The pricing on both the Term Loan Facility and Revolving Credit Facility will decrease by an additional 25 basis points upon receiving an investment grade rating from Standard & Poor’s.The Term Loan Facility’s bullet maturity is July 28, 2020 and the Revolving Credit Facility’s revolving period ends July 28, 2019, followed by a one-year amortization period and a final maturity on July 28, 2020.On February 14, 2017, the Company elected to reduce the total commitment of the Revolving Credit Facility to $200.0 million from $343.5 million. The reduction was accounted for as a debt modification to a line-of credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $1.3 million and recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.On September 1, 2017, the Company reduced the Term Loan Facility commitment from $174.0 million to $102.0 million. The reduction was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to a realized loss of $0.6 million and recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base, and substantially all of the Company’s assets are pledged as collateral under the Facilities. In addition, the Facilities require the Company to, among other things (i) make representations and warranties regarding the collateral as well the Company’s business and operations, (ii) agree to certain indemnification obligations and (iii) agree to comply with various affirmative and negative covenants. The documentation for each of the Facilities also includes default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control and the failure by the Company to materially perform under the operative agreements governing the Facilities, which, if not complied with, could accelerate repayment under the Facilities, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations.At September 30, 2017, the carrying amount of our borrowings under the Facilities approximated their fair value. The fair values of our debt obligations are 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. The fair value of our borrowings under the Facilities are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2017 and 2016, the valuation of the Facilities would be deemed to be Level 3 in the fair value hierarchy, as defined in Note 4.In accordance with ASU 2015-03, the debt issuance costs related to the Facilities are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the Facilities. As of September 30, 2017 and 2016, debt issuance costs related to the Facilities were as follows (dollars in thousands): September 30, 2017 September 30, 2016 Total Debt Issuance Costs $ 8,546 $ 4,490 $ 8,199 $ 4,290 Amortized Debt Issuance Costs 6,769 3,444 4,609 2,093 Unamortized Debt Issuance Costs $ 1,777 $ 1,046 $ 3,590 $ 2,197 The following table shows the components of interest expense, commitment fees related to the Facilities, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the Facilities for the years ended September 30, 2017, 2016, and 2015 (dollars in thousands): 2017 2016 2015 Revolving Facility interest $ 586 $ 2,116 $ 5,386 Revolving Facility commitment fee 2,419 2,491 852 Term Facility interest 6,662 6,047 5,991 Amortization of debt issuance costs 2,870 1,948 1,617 Agency and other fees 77 79 77 Total $ 12,614 $ 12,681 $ 13,923 Weighted average stated interest rate 4.0 % 3.4 % 3.3 % Weighted average outstanding balance $ 182,711 $ 241,522 $ 350,418 September 30, 2021 September 30, 2020 Aggregate
Principal Available Principal Amount
Outstanding Carrying Value Fair Value Aggregate
Principal Available Principal Amount
Outstanding Carrying Value Fair Value 2021 Notes $ - $ - $ - $ - $ 74,013 $ 74,013 $ 73,803 $ 73,095 2023 Notes 77,847 77,847 77,434 79,092 77,847 77,847 77,158 72,460 Total debt $ 77,847 $ 77,847 $ 77,434 $ 79,092 $ 151,860 $ 151,860 $ 150,961 $ 145,555 2019 NotesOn March 21, 2012, the Company issued $40.0 million in aggregate principal amount of 7.125% unsecured notes which were scheduled to mature on March 30, 2019 (the "2019 Notes"). The 2019 Notes bore interest at a rate of 7.125% per year, and were payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2012. The 2019 Notes were listed on the NYSE and traded thereon under the trading symbol “MCQ”. On February 22, 2017, the 2019 Notes were redeemed at par plus accrued and unpaid interest. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to a realized loss of $0.5 million.may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after January 30, 2019. The 2021 Notes bearbore interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016.are listedwere redeemed at 100% of their principal amount ($25 per 2021 Note), plus the accrued and unpaid interest thereon from October 31, 2020, through, but excluding, the Redemption Date. The Company funded the redemption of the 2021 Notes with cash on the NYSE and trade thereon under the trading symbol “MCX”."2023 Notes," and together with the 2019 Notes and 2021 Notes, the “Unsecured“2023 Notes”). On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company'sCompany’s option. The 2023 Notes bear interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes are listed on the NYSE and trade thereon under the trading symbol “MCV”.has sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and has raised $38.6 million in net proceeds, since inception ofthrough the ATM debt distribution agreement.Unsecured Notes, which are publicly traded, is based upon closing market quotes as of the measurement date. AtAs of September 30, 20172021 and 2016,September 30, 2020, the Unsecured Notes would be deemed to be Level 1 in the fair value hierarchy, as defined in Note 4. Unsecured Notes are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the Unsecured Notes. As of September 30, 20172021 and 2016,September 30, 2020, debt issuance costs related to the Unsecured Notes were as follows (dollars in thousands): September 30, 2021 September 30, 2020 2023 Notes Total 2021 Notes 2023 Notes Total Total debt issuance costs $ 3,102 $ 3,102 $ 3,226 $ 3,102 $ 6,328 Amortized debt issuance costs 2,689 2,689 3,016 2,406 5,422 Unamortized debt issuance costs $ 413 $ 413 $ 210 $ 696 $ 906 September 30, 2017 September 30, 2016 Total Total Total Debt Issuance Costs $ 1,475 $ 3,226 $ 3,102 $ 7,803 $ 1,475 3226 $ 2,129 $ 6,830 Amortized Debt Issuance Costs 1,475 1,127 1,078 3,680 951 498 751 2,200 Unamortized Debt Issuance Costs $ — $ 2,099 $ 2,024 $ 4,123 $ 524 $ 2,728 $ 1,378 $ 4,630 2017, 2016,2021, 2020 and 2015,2019, the components of interest expense, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the Unsecured Notes were as follows (dollars in thousands): 2017 2016 2015 2019 Unsecured Notes interest $ 1,116 $ 2,850 $ 2,850 2021 Unsecured Notes interest 4,811 3,782 N/A 2023 Unsecured Notes interest 5,686 3,889 3,889 2023 Unsecured Notes premium (2 ) N/A N/A Amortization of debt issuance costs 1,040 921 422 Total $ 12,651 $ 11,442 $ 7,161 Weighted average stated interest rate 6.4 % 6.5 % 6.5 % Weighted average outstanding balance $ 182,016 $ 161,491 $ 103,500 SBA DebenturesOn March 26, 2013, SBIC LP received an SBIC license from the SBA.The SBIC license allows SBIC LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, will have a superior claim to the SBIC LP’s assets over our stockholders in the event we liquidate the SBIC LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the SBIC LP upon an event of default.SBA regulations currently limit the amount that the SBIC LP may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.As of September 30, 2017 and 2016, SBIC LP had $75.0 million in regulatory capital and had $150.0 million SBA Debentures outstanding that mature between September 2023 and September 2025.Our fixed-rate SBA Debentures as of September 30, 2017 and 2016 were as follows (dollars in thousands): September 30, 2017 September 30, 2016 Rate Fix Date September 2013 $ 5,000 4.404 % $ 5,000 4.404 % March 2014 39,000 3.951 39,000 3.951 September 2014 50,000 3.370 50,000 3.370 September 2014 6,000 3.775 6,000 3.775 September 2015 50,000 3.571 50,000 3.571 Weighted Average Rate/Total $ 150,000 3.639 % $ 150,000 3.639 % As of September 30, 2017, the carrying amount of the SBA Debentures approximated their fair value. The fair values of the SBA Debentures are 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. The fair value of the SBA Debentures are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At September 30, 2017 and 2016, the SBA Debentures would be deemed to be Level 3 in the fair value hierarchy, as defined in Note 4.In accordance with ASU 2015-03, the debt issuance costs related to the SBA Debentures are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the SBA Debentures. As of September 30, 2017 and 2016, debt issuance costs related to the SBA Debentures were as follows (dollars in thousands): September 30, 2017 September 30, 2016 Total Debt Issuance Costs $ 5,138 $ 5,138 Amortized Debt Issuance Costs 2,292 1,613 Unamortized Debt Issuance Costs $ 2,846 $ 3,525 For the years ended September 30, 2017, 2016, and 2015, the components of interest, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the SBA Debentures were as follows (dollars in thousands): 2017 2016 2015 SBA Debentures interest $ 5,458 $ 5,473 $ 3,893 Amortization of debt issuance costs 679 681 554 Total $ 6,137 $ 6,154 $ 4,447 Weighted average stated interest rate 3.6 % 3.7 % 3.4 % Weighted average outstanding balance $ 150,000 $ 150,000 $ 114,285 For the Years Ended September 30 2021 2020 2019 2021 Notes Interest $ 668 $ 4,811 $ 4,811 2023 Notes Interest 4,768 4,768 4,954 2023 Notes Premium (3 ) (3 ) (3 ) Israeli Notes Interest - 2,486 6,817 Amortization of debt issuance costs 367 2,873 2,735 Total $ 5,800 $ 14,935 $ 19,314 Weighted average stated interest rate 7.0 % 6.4 % 6.1 % Weighted average outstanding balance $ 82,930 $ 189,039 $ 273,211 Advisors. Mr. Brook Taube, our Chairman and Chief Executive Officer, is a managing partner and senior portfolio manager of MCC Advisors and Mr. Seth Taube, one of our directors, is a managing partner of MCC Advisors.our investment management agreement,the Investment Management Agreement, MCC Advisors:determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); andexecutes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.● determined the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; ● identified, evaluated and negotiated the structure of the investments we made (including performing due diligence on our prospective portfolio companies); and ● executed, closed, monitored and administered the investments we made, including the exercise of any voting or consent rights. investment management agreement areInvestment Management Agreement were not exclusive, and it iswas free to furnish similar services to other entities so long as its services to us arewere not impaired.our investment management agreement,the Investment Management Agreement, we paypaid MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.investment management agreement.Investment Management Agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances willwould the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.arewere effective as of January 1, 2016 and arewere a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it providesprovided under the investment management agreement.Investment Management Agreement. The Fee Waiver Agreement doesdid not change the second component of the incentive fee, which iswas the incentive fee on capital gains.Forreceivesreceived a base management fee. The base management fee iswas calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets and iswas payable quarterly in arrears. The base management fee will bewas calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quartersquarters. For the years ended September 30, 2021, 2020 and will be appropriately pro-rated for any partial quarter.Thehashad two components, as follows:iswas payable quarterly in arrears and iswas based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee iswas being calculated. MCC Advisors iswas entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceedsexceeded a quarterly “hurdle rate” of 1.5%. The hurdle amount is calculated after making appropriate adjustmentsto the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). We refer to such period as the “Trailing Twelve Quarters.”The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount iswas calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately prorated. Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.Determination of Quarterly Incentive Fee Based on IncomeThe incentive fee on net investment income for each quarter is determined as follows:No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income; and17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued. Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued. Accretion to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.Incentive Fee Based on Capital Gainsiswas determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreementInvestment Management Agreement as of the termination date) and equalsequaled 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.Base Management Fee - Prior to Fee Waiver AgreementThe base management fee was calculated at an annual rate of 1.75% of our gross assets (which is defined as all the assets of Medley Capital, including those acquired using borrowings for investment purposes), and was payable quarterly in arrears. The base management fee was based on the average value of our gross assets at the end of the two most recently completed calendar quarters.Incentive Fee - Prior to Fee Waiver AgreementThe incentive fee based on net investment income was calculated as 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets calculated as of the end of the calendar quarter immediately preceding the calendar quarter for which the incentive fee is being calculated, exceeds a 2.0% (which is 8.0% annualized) hurdle rate but also includes a “‘catch-up’ provision. Under this provision, in any calendar quarter, our investment adviser receives no incentive fee until our net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up”, 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if the hurdle rate did not apply. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter including the base management fee, expenses payable under the administration agreement, and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash.For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016. In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016. If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.2017, 20162021, 2020, and 2015,2019, the Company incurred base management fees to MCC Advisors of $17.8 million, $19.5 million and $22.5 million, respectively.For the years ended September 30, 2017, 2016 and 2015, base management fees, net of $47,941 and $142,546 waived under the Fee Waiver Agreement were $17.7 million, $19.3 million and $22.5 million, respectively.Thedid not incur any incentive fees shown in the Consolidated Statements of Operations is calculated using the fee structure set forth inon net investment management agreement, and then adjusted to reflect the terms of the Fee Waiver Agreement. Pursuant to the investment management agreement, pre -incentiveincome because pre-incentive fee net investment income is compared to adid not exceed the hurdle rate of 2.0% of the net asset value at the beginning of the period and is calculated as follows:1)No incentive fee is recorded during the quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;2)100% of pre-incentive fee net investment income that exceeds the hurdle rate but is less than 2.5% in the quarter; and3)20.0% of the amount of pre-incentive fee net investment income, if any, that exceeds 2.5% of the hurdle rate.For purposes of implementing the fee waiver under the Fee Waiver Agreement, we calculate the incentive fee based upon the formula that exists under the investment management agreement, and then apply the terms of wavier set forth in the Fee WaiverInvestment Management Agreement. The Investment Management Agreement if applicable.For the years ended September 30, 2017, 2016terminated as of December 31, 2020, and 2015, the Company incurred $0.9 million, $11.5 million and $18.2 million ofno longer incurs incentive fees related to pre-incentive fee net investment income.For the years ended September 30, 2017, 2016 and 2015, incentive fees, net of $43,663 and $3.5 million waived under the Fee Waiver agreement were $0.9 million, $8.0 million and $18.2 million, respectively.20172021 and 2016, $4.3 million2020, $0 and $4.6$1.4 million, respectively, were included in “management and incentive fees payable” in the accompanying Consolidated Statements of Assets and Liabilities.thisthe administration agreement, MCC Advisors furnishesfurnished us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company. We reimbursereimbursed MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration agreement, including rent and our allocable portion of the cost of certain of our officersChief Financial Officer and Chief Compliance Officer and their respective staff.staffs. From time to time, our administrator maywas able to pay amounts owed by us to third-party service providers and we willwould subsequently reimburse our administrator for such amounts paid on our behalf. In connection with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp Fund Services, LLC d/b/a U.S. Bank Global Fund Services (“U.S. Bancorp”). The administration agreement with MCC Advisors terminated by its terms on December 31, 2020. Effective January 1, 2021, US Bancorp serves as custodian and provides us with fund accounting and financial reporting services pursuant to the Fund Accounting Servicing Agreement and Administration Servicing Agreement. For the years ended September 30, 2017, 2016,2021, 2020 and 2015,2019, we incurred $3.8$0.6 million, $3.9$2.2 million, and $4.1$3.3 million in administrator expenses, respectively.Other Related Party TransactionsCertain affiliates of MCC Advisors, Medley Capital LLC, their respective affiliates and some of their employees purchased in the IPO an aggregate of 833,333 shares of common stock at the IPO price per share of $12.00. The Company received the full proceeds from the sale of these shares, and no underwriting discounts or commissions were paid in respect of these shares.Opportunities for co-investments may arise when MCC Advisors or an affiliated investment adviser becomes aware of investment opportunities that may be appropriate for the Company and other clients, or affiliated funds. The Company obtained an exemptive order from the SEC on November 25, 2013 (the “Prior Exemptive Order”). On March 29, 2017, the Company, MCC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the “Exemptive Order”) that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “New Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly- or majority-owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. The terms of the New Exemptive Order are otherwise substantially similar to the Exemptive Order. Co-investment under the Exemptive Order is subject to certain conditions, including the condition that, in the case of each co-investment transaction, our board of directors determines that it would to be in our best interest to participate in the transaction. However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them. Guaranteesa guaranteereceived insurance proceeds under its insurance policy primarily relating to issue up to $7.0 million in standby letters of credit through a financial intermediary on behalf of a certain portfolio company. Under this arrangement, if the standby letters of credit were to be issued,legal expenses associated with the dismissed stockholder class action, captioned as FrontFour Capital Group LLC, et al. v Brook Taube et al. During the year ended September 30, 2021, the Company would be required to make payments to third parties ifreceived $2.1 million of insurance proceeds. During the portfolio company was to defaultyear ended September 30, 2020, the Company received $6.1 million of insurance proceeds. The reimbursements have been recorded as an offset or reduction in professional fees and expenses on its related payment obligations. the Consolidated Statements of Operations.2017, the Company had not issued any standby letters of credit under the commitment on behalf of the portfolio company. The guarantee will renew annually until cancellation.Unfunded commitmentsAs of September 30, 20172021 and 2016,2020, we had commitments under loan and financing agreements to fund up to $23.7$4.9 million to 15six portfolio companies and $9.2$3.9 million to 8five portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and a revolver,revolvers, and an analysisthe determination of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of September 30, 20172021 and 20162020 is shown in the table below (dollars in thousands): September 30,
2021 September 30,
2020 Redwood Services Group, LLC - Revolver $ 1,575 $ 1,050 1888 Industrial Services, LLC - Revolver 1,078 1,078 Alpine SG - Revolver 1,000 - Kemmerer Operations, LLC - Delayed Draw Term Loan 908 908 NVTN LLC - DDTL 220 220 Black Angus Steakhouses, LLC - Super Priority DDTL 167 - DataOnline Corp. - Revolver - 179 NVTN LLC - Super Priority DDTL - 500 Total unfunded commitments $ 4,948 $ 3,935 September 30, 2017 September 30, 2016 SMART Financial Operations, LLC - Delayed Draw Term Loan $ 4,725 $ — Barry's Bootcamp Holdings, LLC - Revolver 4,400 — Accupac, Inc. - Delayed Draw Term Loan 2,612 — CP OPCO LLC - Revolver 1,973 609 AAR Intermediate Holdings, LLC - Revolver 1,797 1,797 SFP Holding, Inc. - Delayed Draw Term Loan 1,778 — Barry's Bootcamp Holdings, LLC - Delayed Draw Term Loan 1,271 — Trans-Fast Remittance LLC - Delayed Draw Term Loan 1,057 — Black Angus Steakhouses, LLC - Delayed Draw Term Loan 893 893 Brantley Transportation LLC - Delayed Draw Term Loan 788 863 Impact Sales, LLC - Delayed Draw Term Loan 755 — Black Angus Steakhouses, LLC - Revolver 516 446 Access Media Holdings, LLC - Series AAA Preferred Equity 277 — Central States Dermatology Services, LLC - Delayed Draw Term Loan 254 — NVTN LLC - Delayed Draw Term Loan 250 — SavATree, LLC - Delayed Draw Term Loan 167 — Engineered Machinery Holdings, Inc. - Delayed Draw Term Loan 159 — Tenere Acquisition Corp. - Delayed Draw Term Loan — 2,000 DHISCO Electronic Distribution, Inc. - Revolver — 1,905 Lydell Jewelry Design Studio, LLC - Delayed Draw Term Loan — 500 Access Media Holdings, LLC - Series AA Preferred Equity — 184 Total $ 23,672 $ 9,197 Legal ProceedingsWe arepartylessee evaluate its leases to certain legal proceedings incidentaldetermine whether they should be classified as operating or financing leases. PhenixFIN identified one operating lease for its office space. The lease commenced September 1, 2021 and expires November 30, 2026.normal courseoperating lease was $613,500 and is included in the Other assets balance on the Consolidated Balance Sheet. The lease liability was $(613,500) and is included in the Other liabilities balance on the Consolidated Balance Sheet. As of our business, including where third parties may try to seek to impose liability on us in connection withSeptember 30, 2021, the activitiesremaining lease term was five years and the implied borrowing rate was 5.25%.our portfolio companies. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect on our financial condition or results of operations.For the Years Ended September 30, Amount 2022 $ 84,000 2023 144,000 2024 144,000 2025 144,000 2026 144,000 Thereafter 24,000 684,000 Difference between undiscounted and discounted cash flows (70,466 ) $ 613,534 fee,fees, amendment fee,fees, prepayment penalty administrative agent fee, and other miscellaneous fees.fees which are non-recurring in nature, as well as administrative agent fees, which are recurring in nature. The following tables summarizetable summarizes the Company’s fee income for the years ended September 30, 2017, 20162021, 2020 and 20152019 (dollars in thousands): For the Years Ended September 30 2021 2020 2019 Administrative agent fee $ 414 $ 192 $ 316 Prepayment fee - 139 1,281 Amendment fee 94 171 306 Other fees 2,059 90 56 Origination fee - 101 345 Fee income $ 2,567 $ 693 $ 2,304 For the years ended September 30 2017 2016 2015 Origination fee $ 3,078 $ 1,381 $ 4,966 Amendment fee 1,323 2,563 2,637 Prepayment fee 804 2,551 2,306 Other fees 790 276 240 Administrative agent fee 625 684 587 Fee income $ 6,620 $ 7,455 $ 10,736 On December 7, 2016,board of directors approved an amendment to the compensation model pursuant to which theCompany’s independent directors earn feeseach receive an annual fee of $100,000. In addition, the lead independent director receives an annual retainer of $30,000; the chair of the Audit Committee receives an annual retainer of $25,000, and each of its other members receives an annual retainer of $12,500; and the chairs of the Nominating and Corporate Governance Committee and of the Compensation Committee each receive an annual retainer of $15,000 and each of the other members of these committees receive annual retainers of $8,000. The Company’s independent directors also receive a fee of $3,000 for their service on theeach board of directors.meeting and $2,500 for each committee meeting that they attend. Prior to calendar year 2021, the amendment, as compensation for serving on our board ofCompany’s independent directors each independent director received an annual fee of $55,000. Independent directors$90,000. They also received $7,500 ($1,500 for telephonic attendance)$3,000, plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting, and received $2,500, ($1,500 for telephonic attendance) plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committeeAudit Committee, Nominating and Corporate Governance Committee, Transition Committee and Compensation Committee meeting. In addition, the ChairmanThe chair of the Audit Committee received an annual fee of $25,000 and each chairpersonthe chair of any other committeethe Nominating and Corporate Governance Committee and the Compensation Committee received an annual fee of $10,000 andfor their additional services in these capacities. In addition, other members of the Audit Committee and any other standing committees received an annual fee of $12,500, and $6,000, respectively, for their additional services in these capacities.The compensation model approved byother members of the Nominating and Corporate Governance Committee and the Compensation Committee received an annual fee of $6,000.December 7, 2016, which was retroactively effective as of October 1, 2016, amended the prior model by increasing the annual fee received bySpecial Committee, each independent director from $55,000 to $90,000, but decreasingreceived a one-time retainer of $25,000 plus reimbursement of out-of-pocket expenses, consistent with the perCompany’s policies for reimbursement of members of the board meeting fee from $7,500 to $3,000.of directors. In addition, there willthe chairman of the Special Committee received a monthly fee of $15,000 and other members received a monthly fee of $10,000. The Special Committee as well as the Transition Committee have each been dissolved and are each no longer be a different fee for participating in operation.and/or committee meetings telephonically.Noservice compensation is paid to directors who are ‘‘interested persons’’“interested persons” of the Company (as such term is defined in the 1940 Act). For the years ended September 30, 2017, 2016,2021, 2020 and 2015,2019, we accrued $0.6$1.0 million, $0.5$1.5 million, and $0.6$1.3 million for directors’ fees expense, respectively.shareholdersstockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company does not have any potentially dilutive common shares as of September 30, 2017.2017, 2016,2021, 2020 and 20152019 (dollars in thousands, except share and per share amounts): For the years ended September 30 2017 2016 2015 Basic and diluted: Net increase/(decrease) in net assets from operations $ (15,077 ) $ (27,962 ) $ (14,758 ) Weighted average common shares outstanding 54,474,211 55,399,646 57,624,779 Earnings per common share-basic and diluted $ (0.28 ) $ (0.50 ) $ (0.26 ) For the Years Ended September 30 2021 2020 2019 Basic and diluted: Net increase (decrease) in net assets resulting from operations $ 1,278 $ (65,813 ) $ (96,575 ) Weighted average shares of common stock outstanding - basic and diluted 2,677,891 2,723,709 2,723,709 Earnings (loss) per share of common stock - basic and diluted $ 0.48 $ (24.16 ) $ (35.46 ) 2017, 2016, 2015, 20142021, 2020, 2019, 2018 and 2013: For the years ended September 30 2017 2016 2015 2014 2013 Per share data: Net asset value per share at beginning of year $ 9.49 $ 11.00 $ 12.43 $ 12.70 $ 12.52 0.67 0.97 1.27 1.58 1.53 Net realized gains/(losses) on investments (1.34 ) (0.71 ) (1.06 ) 0.01 0.01 Net unrealized appreciation/(depreciation) on investments 0.39 (0.76 ) (0.46 ) (0.46 ) (0.24 ) Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments 0.02 — (0.01 ) (0.03 ) — Loss on extinguishment of debt (0.02 ) — — — — Net increase/(decrease) in net assets (0.28 ) (0.50 ) (0.26 ) 1.10 1.30 Distributions from net investment income (0.76 ) (1.12 ) (1.27 ) (1.33 ) (1.34 ) Distributions from net realized gains — — 0.00 (0.02 ) (0.02 ) Distributions from tax return of capital — — — (0.13 ) (0.09 ) Issuance of common stock, net of underwriting costs — — — 0.09 0.28 Repurchase of common stock under stock repurchase program — 0.11 0.12 — — Offering costs — — — (0.01 ) (0.02 ) — — (0.02 ) 0.03 0.07 Net asset value at end of year $ 8.45 $ 9.49 $ 11.00 $ 12.43 $ 12.70 Net assets at end of year $ 460,429,317 $ 516,919,142 $ 619,920,384 $ 729,856,881 $ 509,834,455 Shares outstanding at end of year 54,474,211 54,474,211 56,337,152 58,733,284 40,152,904 Per share market value at end of year $ 5.97 $ 7.63 $ 7.44 $ 11.81 $ 13.79 (12.73 )% 19.37 % (27.56 )% (3.98 )% 9.01 % (0.68 )% 0.42 % 1.76 % 9.73 % 12.83 % Portfolio turnover rate 26.01 % 8.86 % 18.33 % 33.95 % 25.25 % For the Years Ended September 30 2021 2020 2019 2018 2017 Per share data Net Asset Value per share at Beginning of Period $ 55.30 $ 79.46 $ 117.92 $ 169.04 $ 189.78 Results of Operations: Net Investment Income/(Loss)(1) 6.92 (1.00 ) (7.66 ) 4.55 13.35 Net Realized Gain/(Loss) on Investments (15.86 ) (18.35 ) (41.18 ) (32.76 ) (26.83 ) Net Unrealized Gain/(Loss) on Investments 9.47 (3.90 ) 14.13 (11.82 ) 7.95 Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments - - - 0.17 0.40 Net loss on extinguishment of debt (0.05 ) (0.91 ) (0.75 ) (0.87 ) (0.40 ) Net Increase (Decrease) in Net Assets Resulting from Operations 0.48 (24.16 ) (35.46 ) (40.73 ) (5.53 ) Capital Share Transactions Distributions from net investment income - - (3.00 ) (10.40 ) (15.20 ) Repurchase of common stock under stock repurchase program 1.30 - - - - Other(4) - - - 0.01 (0.01 ) Net Increase (Decrease) Resulting from Capital Share Transactions 1.30 - (3.00 ) (10.39 ) (15.21 ) Net Asset Value per share at End of Period $ 57.08 $ 55.30 $ 79.46 $ 117.92 $ 169.04 Net Assets at End of Period 143,693,981 $ 150,619,517 $ 216,432,530 $ 321,178,727 $ 460,429,317 Shares Outstanding at End of Period 2,517,221 2,723,709 2,723,709 2,723,709 2,723,709 Per share market value at end of period $ 42.90 $ 17.83 $ 51.80 $ 76.40 $ 119.40 Total return based on market value(2) 140.61 % (65.58 %) (29.91 %) (27.82 %) (12.73 %) Total return based on net asset value(3) (4.60 %) (30.41 %) (29.47 %) (21.29 %) (0.68 %) Portfolio turnover rate 24.97 % 5.66 % 11.93 % 26.46 % 26.01 % 2017, 2016, 2015, 2014,2021, 2020, 2019, 2018 and 2013:2017: For the Years Ended September 30 2021 2020 2019 2018 2017 Ratios: Ratio of net investment/(loss) income to average net assets after waivers, discounts and reimbursements(5) 12.44 % (1.64 %) (7.96 %) 3.37 % 7.50 % Ratio of total expenses to average net assets after waivers, discounts and reimbursements(5) 9.26 % 14.64 % 25.62 % 14.77 % 12.35 % Ratio of incentive fees to average net assets after waivers(5) 0.00 % 0.00 % 0.00 % 0.00 % 0.18 % Supplemental Data: Ratio of net operating expenses and credit facility related expenses to average net assets(5)(12) 9.26 % 15.07 % 25.62 % 14.77 % 12.17 % Percentage of non-recurring fee income(6) 7.94 % 2.33 % 4.29 % 5.78 % 6.23 % Average debt outstanding(7) 82,930,098 189,038,998 347,991,878 451,590,779 514,726,703 Average debt outstanding per common share 30.97 69.40 127.76 165.80 188.98 Asset coverage ratio per unit(8) 2,856 1,992 1,842 2,126 2,327 Total Debt Outstanding(13) Revolving Credit Facility - - - - 68,000,000 Term Loan Facility - - - - 102,000,000 2021 Notes(11) - 74,012,825 74,012,825 74,012,825 74,012,825 2023 Notes 77,846,800 77,846,800 77,846,800 89,846,800 102,846,800 Israeli Notes(10) - - 105,136,927 121,275,690 - SBA Debentures - - - 135,000,000 150,000,000 Average market value per unit: 2019 Notes(9) N/A N/A N/A N/A 25.39 2021 Notes(11) N/A 23.61 24.82 25.48 25.80 2023 Notes 24.94 21.68 24.28 25.02 25.18 Israeli Notes(10) N/A N/A 254.43 273.95 N/A For the years ended September 30 2017 2016 2015 2014 2013 Ratios: 7.50 % 9.97 % 11.00 % 12.00 % 11.19 % 12.35 % 12.49 % 11.51 % 10.40 % 10.27 % 0.18 % 1.49 % 2.75 % 3.00 % 2.80 % Supplemental Data: 12.17 % 11.00 % 8.75 % 7.40 % 7.47 % 6.23 % 5.61 % 6.80 % 20.45 % 17.48 % $ 514,726,703 $ 553,012,824 $ 568,202,466 $ 357,547,464 $ 198,994,397 Average debt outstanding per common share $ 9.45 $ 9.98 $ 9.86 $ 7.55 $ 6.58 2,327 2,414 2,318 2,732 3,256 Average market value per unit: N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 25.39 $ 25.44 $ 25.26 $ 25.62 $ 25.61 Notes due 2021 $ 25.80 $ 25.48 N/A N/A N/A Notes due 2023 $ 25.18 $ 25.19 $ 24.79 $ 24.76 23.74 (1) (1)Net investment incomeincome/(loss) excluding management and incentive fee waivers, discounts and reimbursements based on total weighted average common stock outstanding equals $0.67$6.92, $(3.35), $(7.66), $4.41, and $0.90$13.32 per share for the years ended September 30, 2021, 2020, 2019, 2018, and 2017, respectively.(2) Total return is historical and 2016, respectively. Net investment income based on total weighted average common stock outstanding equals $1.27, $1.58,assumes changes in share price, reinvestments of all dividends and $1.53 per sharedistributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the years ended September 30, 2015, 2014, and 2013, respectively.period. (2)(3)Total return is historical and assumes changes in NAV, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period. (4) Represents the impact of the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date. (5) (3)Total return is historical and assumes changes in share price, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.(4)Total return is historical and assumes changes in NAV, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.(5)DuringFor the year ended September 30, 2017,2021, prior to the 2019 Notes were redeemed in fulleffect of Expense Support Agreement, the ratio of net investment income/(loss), total expenses, incentive fees, and ceased trading on February 17, 2017. Theoperating expenses and credit facility related expenses to average price fornet assets is 12.44%, 9.26%, 0.00%, and 9.26%, respectively.2017 reflects2020, excluding management and incentive fee waivers, the period from October 1, 2016 through February 17, 2017.(6)ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is (5.94)%, 18.94%, 0.00%, and 18.94%, respectively. income,income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is 7.48%, 12.37%, 0.18%, and 12.18%, respectively. For the year ended September 30, 2016, excluding management and incentive fee waivers, the ratio of net investment income, total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is 9.29%, 13.17%, 2.14%, and 11.03%, respectively.(7)(6)Represents the impact of the non-recurring fees overas a percentage of total investment income.(7) (8)Based on daily weighted average carrying value of debt outstanding during the period. (8) (9)Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. AssetAs of September 30, 2021, the Company’s asset coverage ratio per unit does not include unfunded commitments.was 285.6% after giving effect to leverage and therefore the Company’s asset coverage was above 200%, the minimum asset coverage requirement under the 1940 Act.(9) During the year ended September 30, 2017, the 2019 Notes were redeemed in full and ceased trading on February 17, 2017. The inclusionaverage price for the year ended September 30, 2017 reflects the period from October 1, 2016 through February 17, 2017.(10) During the year ended September 30, 2020, the Israeli Notes were redeemed in full and ceased trading on the TASE on April 14, 2020. (11) During the year ended September 30, 2021, the 2021 Notes were redeemed in full and ceased trading on November 20, 2020. The average price for the year ended September 30, 2021 reflects the period from October 1, 2020 through November 20, 2020. (12) Excludes incentive fees. (13) Total amount of unfunded commitments ineach class of senior securities outstanding at the calculationend of the asset coverage ratio per unit would not cause us to be below the required amount of regulatory coverage.period excluding debt issuance costs.(10)The Facilities and SBA Debentures are not registered for public trading.following table summarizes the Company’s dividendCompany did not make any distributions during the years ended September 30, 20172021 and 2016: Date Declared Record Date Payment Date Amount Per Share During the year ended September 30, 2017 11/3/2016 11/23/2016 12/23/2016 $ 0.22 1/31/2017 2/22/2017 3/24/2017 0.22 5/5/2017 5/24/2017 6/23/2017 0.16 8/3/2017 8/23/2017 9/22/2017 0.16 $ 0.76 Date Declared Record Date Payment Date Amount Per Share During the year ended September 30, 2016 11/5/2015 11/25/2015 12/18/2015 $ 0.30 2/1/2016 2/24/2016 3/18/2016 0.30 5/5/2016 5/25/2016 6/24/2016 0.30 8/7/2016 8/24/2016 9/23/2016 0.22 $ 1.12 Stock Repurchase ProgramFebruary 5, 2015, ourJanuary 11, 2021, the Company announced that its board of directors approved a share repurchase program pursuant to which we could purchase up to an aggregate amountprogram. $30.0 million of our common stock between the period of the approval date and February 5, 2016. On December 4, 2015, the board of directors extended the duration of the share repurchase program through December 31, 2016, and increased the aggregate amount to $50.0 million. On December 7, 2016, the board of directors extended the duration of the share repurchase program through December 31, 2017. Any stock repurchases will be made through the open market at times, and in such amounts, as management deems appropriate. As of September 30, 2017, the Company has repurchased an aggregate of 4,259,073 shares of common stock repurchased by the Company at an average price of $8.00$33.94 per share with a total cost of approximately $34.1 million. under its share repurchase program from February 10, 2021 through September 30, 2021: Month Ended Shares Repurchased Repurchase Price Per Share Aggregate Consideration for Repurchased Shares February 2021 13,082 $30.25 - $30.96 $ 397,384 March 2021 12,241 $30.25 - $34.42 393,938 April 2021 14,390 $33.11 - $34.89 491,469 May 2021 25,075 $34.56 - $39.93 976,440 August 2021 141,700 $41.03 - $42.28 5,944,213 Total 206,488 $ 8,203,444 maximum dollar value of shares that may yet be purchased under the plan is $15.9 million. This program may be limited or terminated at any time without prior notice. Since the inception of the program, the Company'sCompany’s net asset value per share was increased by approximately $0.23$1.31 as a result of the share repurchases.The following table summarizes our share repurchases under our stock repurchase program for the years ended September 30, 2017, 2016, and 2015 (dollars in thousands, except share and per share amounts): For the years ended September 30 2017 2016 2015 Dollar amount repurchased $ 12,870 $ 21,205 Shares Repurchased 1,862,941 2,396,132 Average price per share $ 6.91 $ 8.85 Weighted average discount to Net Asset Value 31.0 % 23.5 % (1)The Company did not repurchase any shares during the year ended September 30, 2017.2017, 2016,2021 and 20152020 (dollars in thousands, except per share amounts): September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 Consolidated Statement of Operations data: Total investment income $ 22,147 $ 23,696 $ 24,357 $ 26,056 Net investment income 8,624 9,569 8,042 10,135 Net realized and unrealized gain/(loss) (20,446 ) (7,353 ) (19,834 ) (3,809 ) Change in provision for deferred taxes on unrealized gain/(loss) on investments 309 783 — — Loss on extinguishment of debt (640 ) — (456 ) — Net increase/(decrease) in net assets resulting from operations (12,153 ) 2,999 (12,248 ) 6,326 Earnings per share (0.22 ) 0.06 (0.22 ) 0.12 Net asset value per common share at period end $ 8.45 $ 8.84 $ 8.94 $ 9.39 September 30,
2021 June 30,
2021 March 31,
2021 December 31,
2020 Consolidated Statement of Operations data: Total investment income $ 4,368 $ 8,684 $ 6,454 $ 12,801 Net investment income 1,076 5,430 3,687 8,330 Total realized and unrealized gains/(losses) (37,529 ) 1,539 4,100 14,768 Loss on extinguishment of debt - - - (122 ) Net increase/(decrease) in net assets resulting from operations (7,040 ) 6,969 7,787 (6,438 ) Earnings per share (2.63 ) 2.60 2.87 (2.36 ) Net asset value per common share at period end $ 57.08 $ 58.49 $ 55.91 $ 52.94 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 Consolidated Statement of Operations data: Total investment income $ 27,195 $ 28,412 $ 30,714 $ 34,427 Net investment income 12,396 10,954 14,575 15,666 Net realized and unrealized gain/(loss) (16,110 ) 3,109 (13,994 ) (54,646 ) Change in provision for deferred taxes on unrealized gain/(loss) on investments 486 (40 ) (133 ) (225 ) Net increase/(decrease) in net assets resulting from operations (3,228 ) 14,022 448 (39,204 ) Earnings per share (0.06 ) 0.26 0.01 (0.70 ) Net asset value per common share at period end $ 9.49 $ 9.76 $ 9.80 $ 10.01 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 Consolidated Statement of Operations data: Total investment income $ 36,607 $ 35,964 $ 36,776 $ 39,849 Net investment income 17,553 17,240 17,753 20,390 Net realized and unrealized gain/(loss) (34,868 ) (8,583 ) (5,265 ) (38,917 ) Change in provision for deferred taxes on unrealized gain/(loss) on investments 717 (284 ) (705 ) 211 Net increase/(decrease) in net assets resulting from operations (16,598 ) 8,373 11,783 (18,316 ) Earnings per share (0.29 ) 0.14 0.20 (0.31 ) Net asset value per common share at period end $ 11.00 $ 11.53 $ 11.68 $ 11.74 September 30,
2020 June 30,
2020 March 31,
2020 December 31,
2019 Consolidated Statement of Operations data: Total investment income $ 4,420 $ 4,309 $ 5,301 $ 7,491 Net investment income/(loss) (858 ) (719 ) (4,216 ) 3,073 Net realized and unrealized gain/(loss) 2,082 8,984 (73,663 ) 1,986 Change in provision for deferred taxes on unrealized gain/(loss) on investments 50 36 (86 ) — Loss on extinguishment of debt — (697 ) (895 ) (889 ) Net increase/(decrease) in net assets resulting from operations 1,274 7,604 (78,860 ) 4,170 Earnings per share 0.47 2.79 (28.95 ) 1.53 Net asset value per common share at period end $ 55.30 $ 54.83 $ 52.04 $ 80.99 ThereOther than the items disclosed herein, there have been no subsequent events that occurred during such period that would require disclosure in this Form 10-K or would be required to be recognized in the Consolidated Financial Statements as of and for the year ended September 30, 2017, except2021.disclosed below.On October 31, 2017,representative of the several underwriters, in connection with the issuance and sale (the “Offering”) of $57,500,000 (including the underwriters’ option to purchase up to $7,500,000 aggregate principal amount) in aggregate principal amount of its 5.25% Notes due 2028 (the “2028 Notes”). The Offering occurred on November 15, 2021, pursuant to the Company’s Board of Directors declaredeffective shelf registration statement on Form N-2 previously filed with the SEC, as supplemented by a quarterly dividend of $0.16 per share payablepreliminary prospectus supplement dated November 8, 2021, the pricing term sheet dated November 9, 2021 and a final prospectus supplement dated November 9, 2021. Effective November 16, 2021, the 2028 Notes began trading on December 22, 2017, to stockholders of record at the close of business on November 22, 2017.2017, Velocity Pooling Vehicle, LLC (“Velocity”), a portfolio company in which2021, the Company holds first and second lien with an aggregate fair value of approximately $5.2 million at September 30, 2017, filedU.S. Bank National Association, as trustee entered into a voluntary petition for relief under Chapter 11Fourth Supplemental Indenture to its base Indenture, dated February 7, 2012, between the Company and the Trustee. The Fourth Supplemental Indenture relates to the Offering of the U.S. Bankruptcy Code in2028 Notes.United States Bankruptcy Court inCompany caused notices to be issued to the District of Delaware. Velocity will continue to operate its business as “debtors‐in‐possession” under the jurisdictionholders of the Bankruptcy Court and2023 Notes regarding the Company’s exercise of its option to redeem $55,325,000 in accordance with the applicable provisionaggregate principal amount of the Bankruptcy Codeissued and orders of the Bankruptcy Court. To support operations through this process, Velocity secured debtor-in-possession (DIP) financing. The Company will continue to assess the investment in Velocity resulting from the bankruptcy as additional information becomes available.2017.2021. The term “disclosure controls and procedures” is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017,2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.2017.2021. Audit Report of the Registered Public Accounting FirmOur internal controls over financial reporting as of September 30, 2017 have been audited by our independent registered public accounting firm, Ernst & Young LLP, as stated in its report titled "Report of Independent Registered Public Accounting Firm" on page F-2.(d) Changes in Internal Controls Over Financial ReportingThere has not been any change13a-15 (f)13a-15(f) under the Exchange Act) that occurred during the period covered by this report that hashave materially affected, or isare reasonably likely to materially affect, our internal controls over financial reporting.None.20182022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.20182022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.20182022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.20182022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.20182022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC10.2210.2310.2410.2510.2610.2710.2810.2910.3010.3110.3210.3310.3410.35 14.1 14.2 21.1 24.0Power of attorney (included on the signature page hereto). 31.1 31.2 32.1 * Filed herewith. Dated:December 7, 2017Medley CapitalPhenixFIN Corporation By /s/ Brook TaubeDavid Lorber Brook TaubeDavid Lorber Chief Executive Officer (Principal Executive Officer) By /s/ Richard T. Allorto, Jr.Ellida McMillan Richard T. Allorto, Jr.Ellida McMillan Chief Financial Officer (Principal Accounting and Financial Officer) 7, 2017./s/ Brook TaubeDavid Lorber Chief Executive Officer and Chairman of the Brook TaubeDavid Lorber Board of Directors (Principal Executive Officer) /s/ Richard T. Allorto, Jr.Ellida McMillan Chief Financial Officer Richard T. Allorto, Jr.Ellida McMillan (Principal FinancialAccounting and AccountingFinancial Officer)/s/ Seth TaubeDirectorSeth Taube/s/ Jeff TonkelDirectorJeff Tonkel /s/ Arthur S. Ainsberg Director Arthur S. Ainsberg /s/ Karin Hirtler-Garvey Director Karin Hirtler-Garvey /s/ John E. MackLowell Robinson Director John E. MackLowell Robinson /s/ Mark LerdalHoward Amster Director Mark LerdalHoward Amster 74