UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20162019
OR
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 814-01094
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
(Exact name of registrant as specified in its charter) |
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| Delaware | | 47-2016837 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
50 Rockefeller Plaza,330 Madison Avenue, New York, New York | | 1002010017 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code (212) 492-1100739-0700
Securities registered pursuant to Section 12(b) of the Act:None
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| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| None | | N/A | | N/A |
Securities registered pursuant to Section 12(g) of the Act: Common Shares, Par Value $0.001 Per ShareIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitiondefinitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ¨ | | Accelerated filer | ¨ |
| Non-accelerated filer | ý Do not check if smaller reporting company | | Smaller reporting company | ¨ |
| Emerging growth company | ¨ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨Noý
The registrant has no active market for its common shares. As of June 30, 2016,2019, non-affiliates held 5,175,53817,357,414 of the outstanding common shares with an aggregate market value of $48.9$149.4 million based on a public offering pricenet asset value of $9.45$8.61 per common share, including sales load.share.
The number of the Registrant's common shares outstanding as of March 17, 20176, 2020 was 16,469,282.17,048,185.
Documents Incorporated by Reference
None.
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
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PART I. | | PAGE |
| PART I. |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 1B. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| PART II. |
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| Item 5. | | |
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| Item 6. | | |
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| Item 7. | | |
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| Item 7A. | | |
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| Item 8. | | |
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| Item 9. | | |
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| PART III. |
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| Item 10. | | |
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| Item 11. | | |
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| Item 12. | | |
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| Item 13. | | |
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| Item 14. | | |
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| PART IV. |
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| Item 16. | | |
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or this Report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, in Item 7 of Part II of this Report, contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements generally are characterized by the use of terms such as "may," "should," "plan," "anticipate," "estimate," "intend," "predict," "believe," "expect," "will," "will be," and "project" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: increased direct competition; changes in government regulations or accounting rules; changes in local, national, and global economic conditions and capital market conditions; availability of proceeds from our offering of common shares; and the performance of CareyGuggenheim Credit Income Fund (the "Master Fund") and its common shares that we own. Given these uncertainties, we caution you not to place undue reliance on such statements, which apply only as of the date hereof. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time unless otherwise required by law. The forward-looking statements should be read in light of the risk factors identified in Item 1A. Risk Factors of this Report. The forward-looking statements and projections contained in this Report are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act. CareyUnless otherwise noted, the terms “we,” “us,” “our,” and the "Company" refer to Guggenheim Credit Advisors, LLC is referred to as the "Advisor" or “W. P. Carey” in this Report. Guggenheim Partners Investment Management LLC is referred to as “Guggenheim” in this Report. Carey Credit Advisors, LLC and Guggenheim Partners Investment Management LLC are also referred to as the "Advisors."Income Fund 2019. Other capitalized terms used in this Report have the same meaning as in the accompanying financial statements presented in Part II. Item 8. Financial Statements and Supplementary Data, unless otherwise defined herein. Guggenheim Partners Investment Management, LLC is referred to as "Guggenheim" or the "Advisor" throughout this Report.
PART I
Item 1. Business.
Overview
We were formed on September 5, 2014 as a statutory trust under the laws of the State of Delaware and commenced our investment operations on October 8, 2015 concurrent with the commencement of subscription activity for our Common Shares.
We are a feeder fund and we are affiliated with the Master Fund, which is a specialty finance investment company. We and the Master Fund have elected to be treated as business development companies ("BDC") under the Investment Company Act of 1940, as amended (the “1940 Act”). TheWe were formed on September 5, 2014 as a statutory trust under the laws of the State of Delaware and commenced our investment operations on October 8, 2015 concurrent with the commencement of subscription activity for our Common Shares. From inception through September 10, 2017, the Master Fund iswas externally managed by Carey Credit Advisors, LLC ("CCA") and Guggenheim Partners Investment Management, LLC ("Guggenheim" or the Advisors,"Advisor"), which arewere responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments determiningand ongoing monitoring of the securitiesMaster Fund’s investment portfolio. On August 10, 2017, CCA resigned as the Master Fund's investment advisor and other assets that we will purchase, retain or sell,administrator, and monitoring our portfoliothe Master Fund's Board of Trustees ("Master Fund's Board") selected Guggenheim to perform the Master Fund's investment advisory and administrative responsibilities, both events concurrently effective on an ongoing basis.September 11, 2017. The Master Fund's management discussion and analysis of its financial condition and results of operations as presented in its annual report on Form 10-K, as filed at www.sec.gov, should be read in its entirety.
Investment Objectives and Investment Program
Our investment objectives are to provide our shareholders with current income, capital preservation and, to a lesser extent, long-term capital appreciation.
We intend to meet our investment objectives by investing substantially all of our equity capital in the Master Fund. The Master Fund's investment objectives are the same as our own. The Master Fund's investment strategy is focused on creating and growing an investment portfolio that generates superior risk-adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring its investment portfolio. When evaluating an investment and the related portfolio company, the Master Fund uses the resources of its Advisorsadvisor to develop an investment thesis and a proprietary view of a potential portfolio company’s intrinsic value. We believe the Master Fund's flexible approach to investing allows it to take advantage of opportunities that offer favorable risk/reward characteristics.
The Master Fund primarily focuses on the following range of investment types that may be available within the capital structure of portfolio companies:
Senior Debt. Senior debt investments generally take a security interest in the available assets of the portfolio company, including equity interests in any of its subsidiaries. The senior debt classification includes senior secured first lien loans, senior secured second lien loans, senior secured bonds and senior secured bonds.unsecured debt. In some circumstances, the secured lien could be subordinated to the claims of other creditors. While there is no specific collateral associated with senior unsecured debt, such positions are senior in payment and priority over subordinated debt investments.
Subordinated Debt. Subordinated debt investments are generally subordinated to senior debt investments and are generally unsecured. These investments are generally structured with interest-only payments throughout the life of the security with the principal due at maturity.
Equity Investments. Preferred and/or common equity investments may be acquired alongside senior and subordinated debt investment activities or through the exercising of warrants or options attached to debt investments. Income is generated primarily through regular or inconstantsporadic dividends and realized gains on dispositions of such investments.
The Master Fund's investment activities may vary substantially from period to period depending on many factors, including: the demand for capital from creditworthy privately owned U.S. companies, the level of merger, acquisition and refinancing activity involving private companies, the availability of credit to finance transactions, the general economic environment, the competitive investment environment for the types of investments the Master Fund currently seeks and intends to seek in the future, the amount of equity capital the Master Fund raises from the sale of its common shares to us and any other feeder funds and the amount and cost of capital that the Master Fund may borrow.
The Master Fund acquires its portfolio investments through the following investment access channels:
Direct Originations: Originations: This channel consists of investments that are directly originated through our Advisors'Guggenheim's relationship networks.network. Such investments are originated and/or structured for us or made by usGuggenheim and are not generally available to the broader investment market. These investments may include both debt and equity investment components.
Primary Issuances: Syndicated Transactions: This channel primarily includes theparticipationinvestments in private placement transactions that are made available to,broadly syndicated loans and become closely held by, a relatively small group of institutional investors. These transactions arehigh yield bonds, typically originated and arranged by investment intermediaries other than our Advisors.
Secondary Market Transactions: This channel primarily includesGuggenheim. These investments may be purchased at the original syndication or in broadly syndicated loans, high yield notes and bonds, and other investments that are generally owned by a wide range of investors and made availablethe secondary through various trading markets.
On July 15, 2015, the staff of the Securities and Exchange Commission (the "SEC") issued a no action letter to the Master Fund and CareyGuggenheim Credit Income Fund 2016 T (the “Initial Feeder Fund”), permitting the Master Fund, the Initial Feeder Fund and any other feeder fund that may be created in the future that invests all or substantially all its assets in the Master Fund (each, an “Additional Feeder Fund” and collectively with the Initial Feeder Fund, the “Feeder Funds”) to operate in a master/feeder fund structure. More specifically, the no action letter permits:
a Feeder Fund to operate as a BDC under the 1940 Act;
a Feeder Fund to look through the Master Fund and treat as its assets its proportionate ownership interest in the Master Fund’s assets; and
the Master Fund to repurchase its shares in connection with the planned liquidation of a Feeder Fund at the end of the Feeder Fund’s finite term.
Available Information
We will supply to any shareholder, upon written request and without charge, a copy of this Report as filed with the SEC. Our filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operationAll of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Ourour filings can also be obtained for free on the SEC’s website at http://www.sec.gov. For more information, please visit www.guggenheiminvestments.com/credit-income-fund.
Item 1A. Risk Factors.
Our business, results of operations, financial condition and ability to pay dividends could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list of risk factors to be exhaustive. New risk factors emerge periodically, and we cannot assure you that the factors described below list all risks that may become material to us at any later time. The list of risk factors presented below pertain to us, or the Master Fund or both us and the Master Fund.
RISKS RELATED TO OUR BUSINESS
We have no meaningful operating history, while the Master Fund has a limited operating history.
We and the Master Fund are relatively new companies and are subject to all of the business risks and uncertainties associated with any business with a relatively short operating history, including the risk that we and the Master Fund will not achieve or sustain our investment objectives and that the value of our Shares could decline substantially.
Our ability to achieve our investment objectives depends on the Advisors’Advisor's ability to manage and support our investment process. If the AdvisorsAdvisor were to lose a significant number of their respectiveits key professionals, or terminate the Investment Advisory and/or Investment Sub-Advisory Agreement, our ability to achieve our investment objectives could be significantly harmed.
We do not have employees. Additionally, we have no internal management capacity other than our appointed executive officers and are dependent upon the investment expertise, skill and network of business contacts of our AdvisorsAdvisor to achieve our investment objectives. Our Advisors evaluate, negotiate, structure, execute, monitor,Advisor evaluates, negotiates, structures, executes, monitors and serviceservices our investments. Our success will depend to a significant extent on the continued service and coordination of our Advisors,Advisor, including their respectiveits key professionals. The departure of a significant number of key professionals from W. P. Carey or Guggenheim could have a material adverse effect on our ability to achieve our investment objectives.
Our ability to achieve our investment objectives also depends on the ability of our AdvisorsAdvisor to identify, analyze, invest in, finance and monitor companies that meet our investment criteria. Our Advisors’Advisor's capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable terms depend on the involvement of investment professionals in an adequate number and of adequate sophistication to match the corresponding flow of transactions. To achieve our investment objectives, our AdvisorsAdvisor may need to retain, hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. Our AdvisorsAdvisor may not be able to find qualified investment professionals in a timely manner or at all. Any failure to do so could have a material adverse effect on our business, financial condition and results of operations.
In addition, both the Investment Advisory Agreement and the Investment Sub-Advisory Agreement havehas termination provisions that allow the agreementsagreement to be terminated by usthe Master Fund upon 60 days’ notice without penalty.if the Master Fund's Board of Trustees or holders of a majority of the Master Fund's outstanding common shares so direct. The Investment Advisory Agreement may be terminated at any time, without penalty, by W. P. CareyGuggenheim upon 120 days’ notice to the Master Fund. The Investment Sub-Advisory Agreement may be terminated at any time, without the paymenttermination of any penalty, by Guggenheim upon 120 days’ notice and may be terminated, without the payment of penalty, by W. P. Carey upon 60 days’ notice if the Master Fund’s Board of Trustees or holders of a majority of the Master Fund’s outstanding common shares so direct. In addition, W. P. Carey and Guggenheim have agreed that, in the event that one of them is removed (other than for cause), or either the Investment Advisory Agreement or the Investment Sub-Advisory Agreement is not renewed, the other will also terminate its agreement with the Master Fund. The termination of either agreement may adversely affect the quality of our investment opportunities. In addition, in the event either agreement were terminated,opportunities and it may be difficult for the Master Fund to replace W. P. Carey or for W. P. Carey to replace Guggenheim.
Because our business model depends to a significant extent upon relationships with corporations, financial institutions and investment firms, the inability of the AdvisorsAdvisor to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
We expect that W. P. Carey and Guggenheim will depend on theirits relationships with corporations, financial institutions and investment firms, and we rely indirectly to a significant extent upon these respective relationships to provide us with potential investment opportunities. If either W. P. Carey or Guggenheim fails to maintain its existing respective relationships, or develop new relationships or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom W. P. Carey and Guggenheim havehas relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.
We may face increasing competition for investment opportunities, which could delay further deployment of our capital, reduce returns and result in losses.
We may compete for investments with other BDCs and investment funds (including registered investment companies, private equity funds and private credit funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, continue to increase their investment focus in our target market of privately-owned U.S. companies. Moreover, we have experienced, and may continue to experience, increased competition from banks and investment vehicles who may continue to lend to the middle market, including lending activity in our target market of privately-owned U.S. companies. Additionally, the Federal Reserve and other bank regulators may periodically provide incentives to U.S. commercial banks to originate more loans in the middle market for private companies. As a result of these new entrants and regulatory incentives, competition for investment opportunities in privately-owned U.S. companies may intensify. Many of our 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 capital 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 than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do.
We may lose investment opportunities if we do not match our competitors’ pricing, terms and investment structure criteria. If we are forced to match these competitors’ investment terms criteria, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source of income, asset diversification and distribution requirements we must satisfy to maintain our regulated investment company ("RIC" or "RICs") status under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The competitive pressures we face, and the manner in which we react or adjust to these competitive pressures, may have a material adverse effect on our business, financial condition, results of operations, effective yield on investments, investment returns, leverage ratio and cash flows. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time. Also, we may not be able to identify and make investments that are consistent with our investment objectives.
The amount of any distributions we may make is uncertain. We may not be able to pay distributions or be able to sustain distributions at any particular level, and our distributions per share may not grow over time or may decline. We have not established any limit on the extent to which we may use borrowings, if any, or offering proceeds to fund distributions (which may reduce the amount of capital we ultimately invest in portfolio companies).
Subject to our Board of Trustees’ discretion and applicable legal restrictions, we intend to authorize and declare ordinary cash distributions on a weekly, semi-monthly or monthly basis and intend to pay such distributions on a monthly basis. We expect to pay distributions out of assets legally available for distribution based on our investment performance. However, we cannot assure you that we will achieve investment results that will allow us to make a consistent targeted level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of the risks described in this Report. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC can limit our ability to pay distributions. Distributions from offering proceeds or from borrowings could also reduce the amount of capital we ultimately invest in interests of portfolio companies. We cannot assure you that we will pay distributions to our shareholders in the future.
Our distributions to shareholders may be funded from expense reimbursements or waivers of investment advisory fees, or expense reimbursements that are subject to repayment pursuant to our expense reimbursement agreement.
We expect that for a period of time following commencement of this offering, which time period may be significant, substantial portions of our distributions will be funded through the reimbursement of certain expenses by the Advisors,Advisor, that are subject to repayment by us within three years.years or waivers of investment advisory fees otherwise imposed by the Advisor. Any such distributions funded through expense reimbursements or waivers will not be based on our investment performance, and can only be sustained if we achieve positive investment performance in future periods and/or the Advisors continueAdvisor continues to make such reimbursements of certain expenses.expenses or waives such fees. Our future repayments of amounts reimbursed by the AdvisorsAdvisor will reduce the distributions that shareholders would otherwise receive in the future. There can be no assurance that we will achieve the performance necessary to be able to pay distributions at a specific rate or at all. The Advisors haveAdvisor has no obligation to reimburse expenses in future periods.
Our distributions may exceed our taxable earnings and profits, particularly during the period before we have substantially invested the net proceeds from our securities offering. Therefore, portions of the distributions that we pay may represent a return of capital to you, which will lower your tax basis in your Shares, which may cause you to experience increases in capital gains in subsequent sales of your Shares, and reduce the amount of funds we have for investment in portfolio companies.
In the event that we encounter delays in locating suitable investment opportunities, we may pay our distributions from offering proceeds or from borrowings in anticipation of future cash flow, which may constitute a return of your capital net of sales load and fund expenses previously paid and will lower your tax basis in your Shares, which may cause you to experience increases in capital gains in subsequent sales of your Shares. Distributions from offering proceeds or from borrowings also could reduce the amount of capital we ultimately have available to invest in interests of portfolio companies.
A significant portion of our investment portfolio will be recorded at fair value as determined in good faith in accordance with procedures established by our Board of Trustees and, as a result, there is and will be uncertainty as to the value of our portfolio investments.
As a BDC, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined in accordance with procedures established by our Board of Trustees. There is not a public market or active secondary market for many of the securities of the privately-held companies in which we intend to invest. The majority of our investments may not be publicly traded or actively traded on a secondary market but, instead, may be traded on a privately-negotiated, over-the-counter secondary market for institutional investors, if at all. As a result, we will value a significant portion of these securities at fair value as determined in good faith in accordance with procedures established by our Board of Trustees.
The determination of fair value, and thus the amount of unrealized gains or losses we may recognize in any year, is to a degree subjective, and our Advisors haveAdvisor has a conflict of interest in making recommendations of fair value. We will value these securities at fair value as determined in good faith in accordance with procedures established by our Board of Trustees and based on input from our AdvisorsAdvisor and our Audit Committee. Our Board of Trustees may utilize the services of independent third-party valuation firms to aid it in determining the fair value of any securities.securities and generally expects to do so with respect to Level 3 assets on a quarterly basis.. The types of factors that may be considered in determining the fair values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly-traded companies, discounted cash flow, current market interest rates and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value in accordance with procedures established by our Board of Trustees may differ materially from the values that would have been used if an active market and market quotations existed for these investments. Our net asset value could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments.
We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.
Our business is dependent on our 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. There could be:
sudden electrical or telecommunications outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
disease pandemics;
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 net asset value of our Shares and our ability to pay dividends to our shareholders.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, results of operations or financial condition.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen information, misappropriation of assets, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships. Any such attack could result in significant losses, reputational
damage, litigation, regulatory fines or penalties, or otherwise adversely affect our business, financial condition or results of operations. 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 face risks posed to our information systems, both internal and those provided to us by third-party service providers. We, our AdvisorsAdvisor and theirits affiliates have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, may be ineffective and do not guarantee that a cyber incident will not occur or that our financial results, operations or confidential information will not be negatively impacted by such an incident.
Third parties with which we do business (including those that provide services to us) may also be sources or targets of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information and assets, as well as certain investor, counterparty, employee and borrower information. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. Privacy and information security laws and regulation changes, and compliance with those changes, may also result in cost increases due to system changes and the development of new administrative processes.
Any unrealized losses we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith in accordance with procedures established by our Board of Trustees. Decreases in the market values or fair values of our investments relative to amortized cost will be recorded as unrealized depreciation. Any unrealized losses in our loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods. In addition, decreases in the market value or fair value of our investments will reduce our net asset value.
We are exposed to risks resulting from the current low interest rate environment.
Since we will borrow money to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. The current historically low interest rate environment can, depending on our cost of capital, depress our net investment income, even though the terms of our investments generally will include a minimum interest rate. In addition, any reduction in the level of interest rates on new investments relative to interest rates on our current investments could adversely impact our net investment income, reducing our ability to service the interest obligations on, and to repay the principal of, our indebtedness, as well as our capacity to pay distributions. Any such developments would result in a decline in our net asset value and in net asset value per share. Not all investments perform alike under different interest rate scenarios. Generally, our variable interest rate debt investments provide for interest payments based on either one-month LIBOR or three-month LIBOR (the base interest rate) and typically, every month or every three months, the base interest rates are reset to then prevailing one-month LIBOR or three-month LIBOR. LIBOR, respectively. 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 U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements backed by Treasury securities. A transition from LIBOR to an alternative reference rate is complex and could have a range of adverse impacts on our investment program, financial condition and operating results. Among other negative consequences, this transition could:
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| – | Adversely impact the pricing, liquidity, value of, return on and trading for a broad array of financial products, including any LIBOR-linked securities, loan and/or derivatives in which we may invest; |
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| – | Require extensive negotiations of and/or amendments to agreements and other documentation governing LIBOR-linked investment products; |
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| – | Lead to disputes, litigation or other actions with counterparties or portfolio companies regarding the interpretation and enforceability of "fall back" provisions that provide for an alternative reference rate in the event of LIBOR's unavailability; and/or |
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| – | Cause us to incur additional costs in connection with the above. |
We may be subject to a greater risk of rising interest rates due to the current period of historically low rates. Increases in interest rates may cause the value of our investments to decline and this decrease in value may not be offset by higher income from new investments. A general rise in interest rates may cause investors to move out of fixed-income securities on a large scale, which could adversely affect the price and liquidity of fixed-income securities.
Our Board of Trustees may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse to our shareholders.
Our Board of Trustees has the authority to modify or waive our current operating policies, investment criteria, and strategies without prior notice and without shareholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and the value of our Shares. However, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose all or part of your investment. Moreover, we will have significant flexibility in investing the net proceeds of this offering and may use the net proceeds from this offering in ways that our investors may not agree with.
Certain investment analysis and decisions by the AdvisorsAdvisor may be undertaken with limited information.
Given the nature of our investments, the same level of information that would exist for a publicly-traded company may not be available to the Advisors.Advisor. Therefore, at times, the AdvisorsAdvisor may be forced to make investment decisions with limited information regarding factors that may adversely affect an investment.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
We and our portfolio companies are subject to regulation at the local, state and federal levels. Changes to the laws and regulations governing our permitted investments may require a change to our investment strategy. Most recently, the current federal administration has called for significant changes in U.S. trade, healthcare, individual and corporate taxation, immigration, foreign and government regulatory policies. In this regard, there is significant uncertainty with respect to legislation, regulation and government policies at the federal level, as well as at the state and local government levels. Such changes could differ materially from our strategies and plans as set forth in this Report and may shift our investment focus from the areas of expertise of our Advisors.Advisor. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
We may experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable and default rates on the debt securities we acquire, the level of our expenses, 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. These occurrences could have a material adverse effect on our results of operations, the value of your investment in us and our ability to pay distributions to you and our other shareholders.
RISKS RELATED TO OUR 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.
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. To the extent that we hold large positions in the securities of a small number of issuers, or within a particular industry, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the issuer’s 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. However, we will be subject to the diversification requirements applicable to RICs under Subchapter M of the Code.
Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and could again materially and adversely affect debt and equity capital markets in the United States and around the world and could negatively impact our business, financial condition and results of operations.
Market and macro-economic disruptions may, in the future, affect the U.S. capital markets, which could adversely affect our business and that of our portfolio companies. These market disruptions may also affect the broader financial and credit markets and may reduce the availability of debt and equity capital for the market as a whole and to financial firms, in particular. At various times, these macro-disruptions have resulted in, and may in the future result in, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk. These conditions may reoccur for a prolonged period of time again or materially worsen in the future, including as a result of further downgrades to the U.S. government’s sovereign credit rating or the perceived credit worthiness of the United States or other large global economies. Unfavorable macro-economic conditions, including future recessions, 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. We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of loans we originate and/or fund, adversely affect the value of our portfolio investments or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows. There has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. The current U.S. presidential administration, along with the U.S. Congress, has created significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. The spread of an endemic or pandemic and efforts to contain it may result in severe disruptions to financial markets, supply chains, availability of raw materials, goods, and services. In addition, uncertainty arising from the United Kingdom's decision to leave the European Union ("Brexit") could lead to further market disruptions and currency volatility, potentially weakening consumer, corporate and financial confidence and resulting in lower economic growth for companies that rely significantly on Europe for their business activities and revenues. Any of these factors could depress economic activity and restrict our portfolio companies' access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.
Our investments in portfolio companies may be risky and we could lose all or part of our investment.
We intend to pursue a strategy focused on investing primarily in the debt of privately-owned U.S. companies, with a focus on originated transactions sourced through the networks of our Advisors.Advisor. The following are risks associated with our investments:
Senior Secured Loans, Senior Unsecured Loans and Second Lien Loans. Senior loans hold the most senior position in the capital structure of a business entity and are typically secured with specific collateral. When we invest in senior secured term loans and second lien loans, we generally seek to take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries. We expect this security interest to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time or lose its entire value, 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. Also, in some circumstances, with respect to our second lien loans, our security interest 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.
Senior unsecured loans are structured as loans that are not subordinate in right of payment to any other debt incurred by the borrower under such loan, but are not secured with any collateral that could help ensure repayment of the loan. In the event of non-payment by a borrower of a senior unsecured loan, the lender may be unable to collect the unpaid balance because there is no specific collateral on which the lender can foreclose. In particular, if there are also any outstanding secured loans, the lender of such loans may be able to foreclose on the collateral securing such loans, and such proceeds may be applied towards the repayment of such secured loans before any remaining proceeds may be applied towards repayment of senior unsecured loans. Consequently, senior unsecured loans may be subject to a greater risk of non-payment in the event of default than secured loans, particularly during periods of deteriorating economic conditions.
Subordinated Debt. Our subordinated, or mezzanine, debt investments will rank junior in priority of payment to senior loans and will generally be unsecured. These characteristics may result in a heightened level of risk and volatility or a loss of principal, which could lead to the loss of the entire investment. These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our shareholders to non-cash income, including payment-in-kind ("PIK") interest, which represents contractual interest added to the loan balance and due at the end of the loan term, and original issue discount ("OID"). Loans
structured with these features may represent a higher level of credit risk than loans that require interest to be paid in cash at regular intervals during the term of the loan. Since we generally will not receive any principal repayments prior to the maturity of some of our subordinated debt investments, such investments will have greater risk than amortizing loans.
Structured Products. We may also invest, to a limited extent, in structured products, which may include CDOs, CLOs, structured notes and credit-linked notes. These investment entities may be structured as trusts or other types of pooled investment vehicles. They may also involve the deposit with or purchase by an entity of the underlying investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments. CDOs and CLOs are types of asset-backed securities issued by special purpose vehicles created to reapportion the risk and return characteristics of a pool of assets. The underlying pool for a CLO, for example, may include domestic and foreign senior loans, senior unsecured loans and subordinate corporate loans. Generally, these are not qualified as eligible portfolio companies (“EPCs”). Investments in the equity tranche or any similarly situated tranche of a structured product involve a greater degree of risk than investments in other tranches, and such investments will be the first to bear losses incurred by a structured product.
Equity Investments. We expect to make selected equity investments in the common or preferred stock of a company. In addition, when we invest in senior and subordinated debt, we may acquire warrants or options to purchase equity securities or benefit from other types of equity participation. Our goal is ultimately to dispose of these 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.
Investments in Private Investment Funds. We may invest in private investment funds, including hedge funds, private equity funds, limited liability companies and other business entities. In valuing our investments in private investment funds, we rely primarily on information provided by managers of such funds. Valuations of illiquid securities, such as interests in certain private investment funds, involve various judgments and consideration of factors that may be subjective. There is a risk that inaccurate valuations provided by managers of private investment funds could adversely affect the value of our Shares. We may not be able to withdraw our investment in certain private investment funds promptly after we have made a decision to do so, which may result in a loss to us and adversely affect our investment returns.
Derivatives. We may invest in derivative investments, which have risks, including: the imperfect correlation between the value of such instruments and the underlying assets of the Company, which creates the possibility that the loss on such instruments may be greater than the gain in the value of the underlying assets in our portfolio; the loss of principal; the possible default of the other party to the transaction; and illiquidity of the derivative investments. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding, or may not recover at all. In addition, in the event of the insolvency of a counterparty to a derivative transaction, the derivative contract would typically be terminated at its fair value. If we are owed this fair value in the termination of the derivative contract and its claim is unsecured, we will be treated as a general creditor of such counterparty and will not have any claim with respect to the underlying security. Certain of the derivative investments in which we may invest may, in certain circumstances, give rise to a form of financial leverage, which may magnify the risk of owning such instruments. The ability to successfully use derivative investments depends on the ability of the AdvisorsAdvisor to predict pertinent market movements, which cannot be assured. In addition, amounts paid by us as premiums and cash or other assets held in margin accounts with respect to our derivative investments would not be available to us for other investment purposes, which may result in lost opportunities for gain.
Most debt securities in which we intend to invest will not be rated by any rating agency and, if they were rated, would be rated as below investment grade quality. Debt securities rated below investment grade quality (e.g., junk bonds) are generally regarded as having predominantly speculative characteristics and may carry a greater risk with respect to a borrower’s capacity to pay interest and repay principal.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
We intend to pursue a strategy focused on investing primarily in the debt of privately-owned U.S. companies with a focus on originated transactions sourced through the networks of our Advisors.Advisor. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, 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. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Subordinated liens on collateral securing debt investments that we will make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay both the first priority creditors and us in full.
Certain debt investments that we will make in portfolio companies will be secured on a second priority basis by the same collateral securing senior 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 debt. 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 debt 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 debt 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.
We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit from any interest in collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio companies' obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such 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 sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more inter-creditor agreements that we enter into with the holders of senior debt. Under such an inter-creditor agreement, at any time that obligations having 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: the ability to cause the commencement of enforcement proceedings against the collateral, the ability to control the conduct of such proceedings, the approval of amendments to collateral documents, releases of liens on the collateral, and 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.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
Although we intend to generally structure certain of our investments as senior debt, if one of our portfolio companies were to go bankrupt,file for bankruptcy proceedings, depending on the facts and circumstances, including the extent to which we provided managerial assistance to that portfolio company or a representative of us or the AdvisorsAdvisor sat on the Boardboard of Trusteestrustees of such portfolio company, a bankruptcy court might re-characterize our debt investment and subordinate all or a portion of our claim to that of other creditors.
In addition, a number of U.S. judicial decisions have upheld judgments obtained by borrowers against lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has violated a duty (whether implied or contractual) of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the borrower, or has assumed an excessive degree of control over the borrower, resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Because of the nature of our investments in portfolio companies (including that, as a BDC, we may be required to provide managerial assistance to those portfolio companies), we may be subject to allegations of lender liability.
We generally will not control the business operations of our portfolio companies and, due to the illiquid nature of our holdings in our portfolio companies, may not be able to dispose of our interest in our portfolio companies.
We do not expect to control most of our portfolio companies, although we may have board representation or board observation rights, and our debt agreements may impose certain restrictive covenants on our borrowers. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not
serve our interests as debt investors. Due to the lack of liquidity for our investments in private companies, we may not be able to readily dispose of our portfolio company holdings or to sell our holdings at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.
We will be exposed to risks associated with changes in interest rates.
We are subject to financial market risks, including changes in interest rates. Because we may borrow money to finance a portion of our 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 periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income.
In addition, interest rates have recently been at or near historic lows. In the event of a significant rising interest rate environment, our portfolio companies with adjustable-rate loans could see their interest payments increase and there may be a significant increase in the number of our portfolio companies who are unable or unwilling to pay interest and repay their loans. Our investment portfolio of adjustable-rate loans may also decline in value in response to rising interest rates if the adjustable interest rates do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, our investments with fixed interest will likely decline in value.
In periods of market volatility, the market values of fixed income securities, and portfolio companies with adjustable-rate loans, may be more sensitive to changes in interest rates. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent such activities are not prohibited by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.
General interest rate fluctuations may have a substantial negative impact on our investments, our incentive fee, the value of our Shares and our rate of return on invested capital. During periods of declining interest rates, borrowers or issuers may exercise their option to prepay principal earlier than scheduled. For fixed-rate securities, such payments often occur during periods of declining interest rates, forcing the Company to reinvest in lower yielding securities, resulting in a possible decline in the Company’s income and distributions to shareholders.
An increase or decrease in commodity supply or demand may adversely affect our business.
While we intend to be diversified across industry sectors, a decrease in the production of natural gas, natural gas liquids, crude oil, coal or other energy commodities, a decrease in the volume of such commodities available for transportation, mining, processing, storage or distribution, or a sustained decline in demand for such commodities may adversely impact the financial performance or prospects of energy or other commodity focused companies in which we may invest. Energy and other commodity focused companies are subject to supply and demand fluctuations in the markets they serve which will be impacted by a wide range of factors, including fluctuating commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion of natural gas, natural gas liquids, crude oil or coal production, rising interest rates, declines in domestic or foreign production of natural gas, natural gas liquids and crude oil, accidents or catastrophic events and economic conditions, among others.
An increase or decrease in commodity pricing may adversely affect our business.
The return on our prospective investments in energy and other commodity sensitive companies will be dependent on the margins received by those companies for the exploration, development, production, gathering, transportation, processing, storing, refining, distribution, mining, generation or marketing of natural gas, natural gas liquids, crude oil, refined products, coal or power. These margins may fluctuate widely in response to a variety of factors including global and domestic economic conditions, weather conditions, natural disasters, the supply and price of imported energy commodities, the production and storage levels of energy commodities in certain regions or in the world, political instability, terrorist activities, transportation facilities, energy conservation, domestic and foreign governmental regulation and taxation and the availability of local, intrastate and interstate transportation systems. Volatility of commodity prices may also make it more difficult for energy companies in which we may invest to raise capital to the extent the market perceives that their performance may be directly or indirectly tied to commodity prices.
We may continue to be subject to certain contingent liabilities arising from the sale or other disposition of our investments.
A significant portion of our investments involve private securities. In connection with the sale or other 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 are determined to be inaccurate with respect to potential liabilities. These arrangements may constitute contingent liabilities that ultimately could result in funding obligations that we must satisfy through our return of distributions previously made to us on such investment. If this occurs, we could incur losses associated with the payments of amounts in satisfaction of such liabilities. Consequently, the value of our Shares may decline and our future
distributions to shareholders may be reduced, although in no event would shareholders be required to return distributions previously paid by us to them on account of such liabilities.
International investments create additional risks.
We expect to make investments in portfolio companies that are domiciled outside of the United States. We anticipate that up to 30% of our investments may be in these types of assets. Our investments in foreign portfolio companies will be deemed “non-qualifying assets,” which means, as required by the 1940 Act, they may not constitute more than 30% of our total assets at the time of our acquisition of any asset, after giving effect to the acquisition. Notwithstanding the limitation on our ownership of foreign portfolio companies, such investments may subject us to many of the same risks as our domestic investments, as well as certain additional risks, including the following:
foreign governmental laws, rules and policies, including those restricting the ownership of assets in the foreign country or the repatriation of profits from the foreign country to the United States;
foreign currency devaluations that reduce the value of and returns on our foreign investments;
adverse changes in the availability, cost and terms of investments due to the varying economic policies of a foreign country in which we invest;
adverse changes in tax rates, the tax treatment of transaction structures and other changes in operating expenses of a particular foreign country in which we invest;
the assessment of foreign-country taxes (including withholding taxes, transfer taxes and value added taxes, any or all of which could be significant) on income or gains from our investments in the foreign country;
adverse changes in foreign-country laws, including those relating to taxation, bankruptcy and ownership of assets;
changes that adversely affect the social, political and/or economic stability of a foreign country in which we invest;
high inflation in the foreign countries in which we invest, which could increase the costs to us of investing in those countries;
deflationary periods in the foreign countries in which we invest, which could reduce demand for our assets in those countries and diminish the value of such investments and the related investment returns to us; and
legal and logistical barriers in the foreign countries in which we invest that materially and adversely limit our ability to enforce our contractual rights with respect to those investments.
In addition, we may make investments in countries whose governments or economies may prove unstable. Certain of the countries in which we may invest may have political, economic and legal systems that are unpredictable, unreliable or otherwise inadequate with respect to the implementation, interpretation and enforcement of laws protecting asset ownership and economic interests. In some of the countries in which we may invest, there may be a risk of nationalization, expropriation or confiscatory taxation, which may have an adverse effect on our portfolio companies in those countries and the rates of return we are able to achieve on such investments. We may also lose the total value of any investment that is nationalized, expropriated or confiscated. The financial results and investment opportunities available to us, particularly in developing countries and emerging markets, may be materially and adversely affected by any or all of these political, economic and legal risks.
To the extent OID and PIK interest income constitute a portion of our income, we will be exposed to risks associated with the deferred receipt of cash representing such income.
Our investments may include OID and PIK instruments. To the extent OID and PIK interest income constitute a portion of our income, we will be exposed to risks associated with such income being required to be included in an accounting income and taxable income prior to receipt of cash, including the following:
OID instruments may have unreliable valuations because the accretion of OID as interest income requires judgments about its collectability.
OID instruments may create heightened credit risks because the inducement to the borrower to accept higher interest rates in exchange for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower.
For accounting purposes, cash distributions to shareholders that include a component of accreted OID income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of accreted OID income may come from the cash invested by the shareholders, the 1940 Act does not require that shareholders be given notice of this fact.
The presence of accreted OID income and PIK interest income create the risk of non-refundable cash payments to the AdvisorsAdvisor in the form of subordinated incentive fees on income based on non-cash accreted OID income and PIK interest income accruals that may never be realized.
In the case of PIK “toggle” debt (debt for which the issuer may defer an interest payment by agreeing to pay an increased coupon in the future, provided that all deferred payments must be made by the instrument’s maturity), the
PIK interest election has the simultaneous effects of increasing the investment income, thus increasing the potential for realizing incentive fees.
The required recognition of OID and PIK interest for U.S. federal income tax purposes may have a negative impact on liquidity, as such amount represent non-cash income that may require cash distributions to shareholders in order to maintain our ability to be subject to tax as a RIC.
Our investments in private investment funds, including hedge funds, private equity funds, limited liability companies and other business entities, subject us indirectly to the underlying risks of such private investment funds and additional fees and expenses.
Our investments in private investment funds, including hedge funds, private equity funds, limited liability companies and other business entities, expose us to the risks associated with the businesses of such funds or entities. These private investment funds are not registered investment companies and, thus, are not subject to protections afforded by the 1940 Act covering, among other areas, liquidity requirements, governance by an independent board, affiliated transaction restrictions, leverage limitations, public disclosure requirements and custody requirements.
We rely primarily on information provided by managers of private investment funds in valuing our investments in such funds. There is a risk that inaccurate valuations provided by managers of private investment funds could adversely affect the value of our Shares. In addition, there can be no assurance that a manager of a private investment fund will provide advance notice of any material change in such private investment fund’s investment program or policies, therefore our investment portfolio may be subject to additional risks, which may not be promptly identified by our Advisors.Advisor.
Investments in the securities of private investment funds may also involve duplication of advisory fees and certain other expenses. By investing in private investment funds indirectly through us, you bear a pro rata portion of our advisory fees and other expenses, and also indirectly bear a pro rata portion of the advisory fees, performance-based allocations and other expenses borne by us as an investor in the private investment funds.
In addition, certain private investment funds may not provide us with the liquidity we require and would thus subject us to liquidity risk. Further, even if an investment in a private investment fund is deemed liquid at the time of investment, the private investment fund may, in the future, alter the nature of its investments and cease to be a liquid investment fund, subjecting us to liquidity risk.
We may acquire various structured financial instruments for purposes of “hedging” or reducing our risks, which may be costly and ineffective and could reduce our cash available for distribution to our shareholders.
We may seek to hedge against interest rate and currency exchange rate fluctuations and credit risk by using structured financial instruments such as futures, options, swaps and forward contracts, subject to the requirements of the 1940 Act. Use of structured financial instruments for hedging purposes may present significant risks, including the risk of loss of the amounts invested. Defaults by the other party to a hedging transaction can result in losses in the hedging transaction. Hedging activities also involve the risk of an imperfect correlation between the hedging instrument and the asset being hedged, which could result in losses both on the hedging transaction and on the instrument being hedged. Use of hedging activities may not prevent significant losses and could increase our losses. Further, hedging transactions may reduce cash available to pay distributions to our shareholders.
Defaults by our portfolio companies will harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its debt financing and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.
An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies.
We intend to invest primarily in privately-held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies, including that they:
have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress;
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 us realizing any guarantees we may have obtained in connection with our investment;
may 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 changing market conditions, as well as general economic downturns;
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; and
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, trustees and members of the Advisors’Advisor’s management may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.
Finally, little public information generally exists about private companies and these companies may not have third-party credit ratings or audited financial statements. We must therefore rely on the ability of our AdvisorsAdvisor to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. Additionally, these companies and their financial information will not generally be subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and other rules that govern public 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.
The lack of liquidity in our investments may adversely affect our business.
We may acquire a significant percentage of our portfolio company investments from privately-held companies in directly negotiated transactions. The securities of private companies are not publicly traded or actively traded on the secondary market and are, instead, traded on a privately-negotiated, over-the-counter secondary market for institutional investors, if at all. These over-the-counter secondary markets may be inactive during an economic downturn or a credit crisis. In addition, the securities in these companies will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. We typically would be unable to exit these investments unless and until the portfolio company has a liquidity event such as a sale, refinancing or initial public offering.
The illiquidity of our investments may make it difficult or impossible 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 have previously recorded our investments, which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, securities purchased by us that are liquid at the time of purchase may subsequently become illiquid due to events relating to the issuer of the securities, market events, economic conditions or investor perceptions.
We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, our Advisors,Advisor or any of their respectiveits affiliates have material nonpublic information regarding such portfolio company, or where the sale would be an impermissible joint transaction. The reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
We may not have the funds or ability to make additional investments in our portfolio companies or to fund our unfunded commitments.
After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant or other right to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, we prefer other opportunities, we are limited in our ability to do so by compliance with BDC requirements or we desire to maintain our RIC status. Our ability to make follow-on investments may also be limited by our Advisors’Advisor's allocation policies. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation, or may reduce the expected return on the investment.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.
To the extent that we borrow money at the Master Fund, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us. Borrowed money may also adversely affect the return on our assets, reduce cash available to service our debt or for distribution to our shareholders and result in losses.
The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. If we use leverage to partially finance our investments, through borrowing from banks and other lenders, you will experience increased risks of investing in our Shares. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would if we had not borrowed and employed leverage. Similarly, any decrease in our income would cause net income to decline more sharply than it would have if we had not borrowed and employed leverage. Such a decline could negatively affect our ability to make distributions to our shareholders. In addition, our shareholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the management or incentive fees payable to the Advisors.Advisor.
The amount of leverage that we employ will depend on our assessment of market and other factors at the time of any proposed borrowing. There can be no assurance that leveraged financing will be available to us on favorable terms or at all. However, to the extent that we use leverage to finance our assets, our financing costs will reduce cash available for distributions to shareholders. Moreover, we may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations. In such an event, we may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses.
As a BDC, we are required to maintain a minimum coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue in the future, subject to any then-current asset coverage requirements. We cannot incur additional debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so, if any then-current asset coverage requirements are not met. This could have a material adverse effect on our operations and we may not be able to make distributions.
Illustration. The following table illustrates the effect of leverage on returns from an investment in the Master Fund common shares assuming a range of annual returns, net of expenses. The calculated results presented in the table below are hypothetical and actual returns may be higher or lower than those presented. The calculated results are based on the following assumptions:
$275.1372.2 million in income earning total assets at the beginning of 2017;2020;
$126.0172.0 million in senior securities outstanding at the beginning of 2017;2020;
$178.1211.2 million in net assets attributable to Master Fund shareholders; and
a current effective interest rate of 3.64%4.40% for 2017; the2020 (the stated interest rate is 3 month LIBOR+2.65%3-month LIBOR +2.50%).
In order to compute the “corresponding return to shareholders,” the “assumed return on our portfolio (net of expenses)” is multiplied by the total assets to obtain an assumed return to us. The interest expense is calculated as the product of the current effective interest rate and the amount of senior securities outstanding. The accrued interest expense as so calculated is then subtracted from the assumed return to us to determine the return available to shareholders. The return available to shareholders is then divided by the total amount of net assets attributable to Master Fund common shareholders to determine the “corresponding return to shareholders.” The amortization of deferred credit facility financing costs and future conditional unused commitment fees are not included in interest expense; actual interest expense may be different.
| | | | | Breakeven | | | | | | | | | | | | Breakeven |
| Assumed return on our portfolio (net of expenses) | | -10.00% | | -5.00% | | 0.00% | | 5.00% | | 10.00% | | 1.67% | | (10.00 | )% | | (5.00 | )% | | — | % | | 5.00 | % | | 10.00 | % | | 2.03 | % |
| Corresponding return to shareholders | | -18.02% | | -10.30% | | -2.58% | | 5.15% | | 12.87% | | 0.00% | | (21.21 | )% | | (12.40 | )% | | (3.58 | )% | | 5.23 | % | | 14.04 | % | | — | % |
The illustrative results in the table above indicate that an assumed -5.00%(5.00)% annual return on our earning assets in 20172020 would hypothetically result in a -10.30%(12.40)% return to our shareholders. Likewise, an assumed 5.00% annual return on our earning assets in 20172020 would hypothetically result in a 5.15%5.23% return to Master Fund shareholders. Finally, the Master Fund portfolio must hypothetically earn an annual return of 1.67%2.03% in 20172020 to cover the annual interest expense on the assumed amount of senior securities outstanding in 2017.2020.
The agreements governing our financing arrangements contain various covenants which, if not complied with, could accelerate repayment under the applicable arrangement, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our shareholders.
Hamilton Finance LLC ("Hamilton"), a wholly-owned financing subsidiary of the Master Fund, has entered into a financing arrangement with a national commercial bank. The agreement governing this financing arrangement contains various default provisions and operational covenants which, if triggered, could result in the termination of the respective financing arrangement and the acceleration of any amounts outstanding thereunder, which could require the Master Fund or its subsidiary to liquidate positions at a time and/or at a price which is disadvantageous to us. This could result in losses and impact our ability to meet our investment objectives and pay distributions to shareholders.
PendingRecent legislation may allow us to incur additional leverage.
As aPreviously, under Section 61 of the 1940 act and as an existing non-traded BDC, we arewere generally not permitted to incur indebtedness unless immediately after such borrowing we havehad an asset coverage ratio for total borrowings of at least 200% (i.e.(i.e., the amount of debt may not exceed 50% of the value of our assets). Legislation expected to be introduced in the U.S. House of Representatives, if passed, would modifyRecent legislation that has become law has modified this section of the 1940 Act and increaseincreased the amount of debt that business development companiesnew BDCs and certain publicly traded BDCs may incur by modifying the percentage from 200% to 150%. Even ifHowever, it is still uncertain as to how this legislation doesmodification affects existing BDCs who are not pass, similar legislationpublicly traded. Currently, we are still held to an asset coverage ratio of at least 200% but clarity in this law as to how it affects existing non-traded BDCs may pass that permitsallow us, to incur additional leverage underin the 1940 Act. As a result, we may be ablefuture, to incur additional indebtedness in the future,similar to certain publicly traded BDCs, and, therefore, your risk of an investment in us may increase.
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. Therefore, our non-performing assets may increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our senior secured first or second lien 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 could also 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.
A return of recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. In addition, any future financial market uncertainty could lead to financial market disruptions and could further impact our 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.
The Advisor's decision to securitize loans may impact the Feeder Funds.
A decision by our Advisor to securitize loans may affect the Feeder Funds in the following ways: (i) the securitization vehicle may be required to have separate financial statements, (ii) the securitized loans and/or the investment in the securitization vehicle would be included in the Master Fund's 30% "bucket" of Qualifying Assets (i.e. not a Qualified Asset) and (iii) securitization involves added fees and costs.
RISKS RELATED TO OUR ADVISORSADVISOR AND THEIR RESPECTIVEITS AFFILIATES
The Advisors have limited experience managing a BDC.
Our Advisors have limited experience managing a vehicle regulated as a BDCAdvisor and may not be able to operate our business successfully or achieve our investment objectives. As a result, an investment in our Shares may entail more risk than the common shares of a comparable company with a substantial operating history.
The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles previously managed by the Advisors. For example, under the 1940 Act, BDCs are generally required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private or thinly-traded companies. Moreover, qualification for RIC tax treatment under Subchapter M of the Code requires satisfaction of source-of-income, asset diversification, and other requirements. The failure to comply with these provisions in a timely manner could prevent us from qualifying as a BDC or RIC or could force us to pay unexpected taxes and penalties, which could be material. The Advisors’ limited experience in managing a portfolio of assets under such constraints may hinder their ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objectives.
The Advisors and their respectiveits affiliates, including our officers and some of our Trustees, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking by us.
The AdvisorsAdvisor and their respectiveits affiliates will receive substantial fees from us in return for theirits services, including certain incentive fees based on the amount of appreciation of our investments. These fees could influence the advice provided to us. Generally, the more equity we sell in public offerings and the greater the risk assumed by us with respect to our investments, the greater the potential for growth in our assets and profits (and, correlatively, the fees payable by us to the Dealer Manager and the Advisors)Advisor). These compensation arrangements could affect our Advisors’Advisor or their respectiveits affiliates’ judgment with respect to public offerings of equity and investments made by us, which allow the Dealer Manager to earn additional Dealer Manager fees and the AdvisorsAdvisor to earn increased asset managementinvestment advisory fees.
The time and resources that individuals associated with the AdvisorsAdvisor devote to us may be diverted, and we may face additional competition due to the fact that neither W. P. Carey nor Guggenheim is not prohibited from raising money for or managing another entity that makes the same types of investments that we target.
The AdvisorsAdvisor currently managemanages other investment entities and areis not prohibited from raising money for and managing future investment entities that make the same types of investments as those we target. As a result, the time and resources that our Advisors devoteAdvisor devotes to us may be diverted, and during times of intense activity in other programs, theyit may devote less time and resources to our business than is necessary or appropriate. In addition, we may compete with any such investment entity for the same investors and investment opportunities.
The AdvisorsAdvisor will experience conflicts of interest in connection with the management of our business affairs.
Our AdvisorsAdvisor will experience conflicts of interest in connection with the management of our business affairs, including those relating to the allocation of investment opportunities by the AdvisorsAdvisor and their respectiveits affiliates; compensation to the Advisors;Advisor; services that may be provided by the AdvisorsAdvisor and their respectiveits affiliates to issuers in which we invest; investments by us and other clients of the Advisors,Advisor, subject to the limitations of the 1940 Act; the formation of additional investment funds by the Advisors;Advisor; differing recommendations given by the AdvisorsAdvisor to us versus other clients; the Advisors’Advisor's use of information gained from issuers in our portfolio for investments by other clients, subject to applicable law; and restrictions on the Advisors’Advisor's use of “inside information” with respect to potential investments by us.
Under certain circumstances, we may invest in a portfolio company that may lease property from one of our affiliates.
In certain circumstances, one of our affiliates may lease real property to portfolio companies that we do not control. We expect that any such negotiations between our affiliate and our portfolio companies would result in lease terms consistent with the terms that the portfolio companies would be likely to receive were they not one of our non-controlled portfolio companies. We may pursue such transactions only if the portfolio company is not controlled by us or any of our affiliates.
The AdvisorsAdvisor may face conflicts of interest with respect to services performed for issuers in which we invest.
The AdvisorsAdvisor and theirits affiliates may provide a broad range of financial services to companies in which we invest, in compliance with applicable law, and will generally be paid fees for such services. In addition, affiliates of the AdvisorsAdvisor may act as underwriters or placement agents in connection with an offering of securities by one of the companies in our portfolio. Any compensation received by the AdvisorsAdvisor for providing these services will not be shared with us and may be received before we realize a return on our investment. The AdvisorsAdvisor may face conflicts of interest with respect to services performed for these companies, on the one hand, and investments recommended to us, on the other hand.
The Advisors haveAdvisor has incentives to favor their respectiveits other accounts and clients over us, which may result in conflicts of interest that could be harmful to us.
Because our Advisors manageAdvisor manages assets for other investment companies, pooled investment vehicles and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), certain conflicts of interest are present. For instance, anthe Advisor may receive fees from certain accounts that are higher than the fees received by suchthe Advisor from us, or receive a more favorable performance-based fee on certain accounts. In those instances, a portfolio manager for suchthe Advisor has an incentive to favor the higher fee and/or higher performance-based fee accounts over us. In addition, a conflict of interest exists to the extent anthe Advisor has proprietary investments in certain accounts, where its portfolio managers or other employees have personal investments in certain accounts, or when certain accounts are investment options in suchthe Advisor’s employee benefit plans. SuchThe Advisor has an incentive to favor these accounts over us. Our Board of Trustees will be responsible for monitoring these conflicts.
The Advisors areAdvisor is not restricted from entering into other investment advisory relationships; anthe Advisor’s actions on behalf of its other accounts and clients may be adverse to us and our investments.
Each of our AdvisorsThe Advisor manages assets for accounts other than us, including private funds (for purposes of this section, “Advisor Funds”). Actions taken by anthe Advisor on behalf of its Advisor Funds may be adverse to us and our investments, which could harm our performance. For example, we may invest in the same credit obligations as other Advisor Funds, although,and, to the extent permitted under the 1940 Act, our investments may include different obligations of the same issuer. Decisions made with respect to the securities held by one Advisor Fund may cause (or have the potential to cause) harm to the different class of securities of the issuer held by other Advisor Funds (including us). As a further example, anthe Advisor may manage accounts that engage in short sales of (or otherwise take short positions in) securities or other instruments of the type in which we invest, which could harm our performance for the benefit of the accounts taking short positions, if such short positions cause the market value of the securities to fall.
Our AdvisorsAdvisor will face restrictions on theirits use of inside information about existing or potential investments that they acquireit acquires through theirits relationships with other advisory clients, and those restrictions may limit the freedom of our AdvisorsAdvisor to enter into or exit from investments for us, which could have an adverse effect on our results of operations.
In the course of their respectiveperforming its duties, the members, officers, directors, employees, principals or affiliates of our AdvisorsAdvisor may come into possession of material, non-public information. The possession of such information may be detrimental to us, limiting the ability of our AdvisorsAdvisor to buy or sell a security or otherwise to participate in an investment opportunity for us. In
certain circumstances, employees of our AdvisorsAdvisor may serve as board members or in other capacities for portfolio or potential portfolio companies, which could restrict our ability to trade in the securities of such companies. For example, if personnel of anthe Advisor come into possession of material non-public information with respect to our investments, such personnel will be restricted by W. P. Carey’sGuggenheim’s information-sharing policies and procedures, or by law or contract from sharing such information with our management team, even where the disclosure of such information would be in our best interests or would otherwise influence decisions taken by the members of the management team with respect to that investment. This conflict and these procedures and practices may limit the freedom of our AdvisorsAdvisor to enter into or exit from potentially profitable investments for us, which could have an adverse effect on our results of operations. Accordingly, there can be no assurance that we will be able to fully leverage the resources and industry expertise of our Advisors’Advisor's other businesses. Additionally, there may be circumstances in which one or more individuals associated with anthe Advisor will be precluded from providing services to us because of certain confidential information available to those individuals or to other parts of suchthe Advisor.
We may be obligated to pay our AdvisorsAdvisor incentive fees even if we incur a net loss due to a decline in the value of our portfolio and even if our earned interest income is not payable in cash.
The Investment Advisory Agreement entitles W. P. CareyGuggenheim to receive an incentive fee based on our pre-incentive fee net investment income regardless of any capital losses. In such case, we may be required to pay W. P. CareyGuggenheim an incentive fee for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter. W. P. Carey will pay 50% of any such incentive fee to Guggenheim.
Any incentive fee payable by us that relates to our pre-incentive fee net investment income may be computed and paid on income that may include interest that has been accrued but not yet received or interest in the form of securities received rather than cash (i.e., PIK income). If a portfolio company defaults on a loan that is structured to provide accrued interest income, it is possible that accrued interest income previously included in the calculation of the incentive fee will become uncollectible. Our Advisors areAdvisor is not obligated to reimburse us for any part of the incentive fee theyit received that was based on accrued interest income that we never received as a result of a subsequent default, and such circumstances would result in our paying a subordinated incentive fee on income we never receive. PIK income will be counted toward the incentive fee that we are obligated to pay our Advisors,Advisor, even though we do not receive the income in the form of cash.
The quarterly incentive fee on income that we pay is recognized and paid without regard to: (i) the trend of pre-incentive fee net investment income on adjusted capital over multiple quarters in arrears, which may in fact be consistently less than the preference return, or (ii) the net income or net loss in the current calendar quarter, the current year or any combination of prior periods.
For federal income tax purposes, we may be required to recognize taxable income in some circumstances in which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC. Under such circumstances, we may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay a subordinated incentive fee on income with respect to such accrued income. As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
Our incentive fee may induce our AdvisorsAdvisor to make speculative investments.
The incentive fee payable by us to W. P. Carey (50% of which will be paid to Guggenheim by W. P. Carey) may create an incentive for our AdvisorsAdvisor to make investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangements. The way in which the incentive fee is determined may encourage our AdvisorsAdvisor to use leverage to increase the leveraged return on our investment portfolio.
In addition, the fact that our base management fee (a portion of which will be paid to Guggenheim) is payable based upon our gross assets (which includes any borrowings for investment purposes) may encourage our AdvisorsAdvisor to use leverage to make additional investments. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns. Under certain circumstances, the use of substantial leverage may increase the likelihood of our default on our borrowings, which would disfavor holders of our Shares.
Our ability to enter into transactions with our affiliates will be restricted.
We will be prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of the Independent Trustees and, in some cases, the US Securities and Exchange Commission ("SEC")SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we will generally be prohibited from buying or selling any securities from or to such affiliate on a principal basis, absent the prior approval of our Board of Trustees and, in some cases, the SEC. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which in certain circumstances could include investments in the same portfolio company (whether at the same or different times to the extent the transaction is considered a joint transaction), without prior
approval of our Board of Trustees and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers, trustees or their affiliates. The SEC has interpreted the BDC regulations governing transactions with affiliates to prohibit certain joint transactions involving entities that share a common investment adviser. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company that is controlled by a fund managed by either of our Advisorsthe Advisor or their respectiveits affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.
WeThe Master Fund received an exemptive order from the SEC on June 28, 2016 that permits usit to, among other things, co-invest within privately-negotiated transactions alongside other funds, including funds managed by Guggenheim and certain of its affiliates. OurThe exemptive order is subject to certain terms and conditions. Accordingly, we are permitted to co-investwhen the Master Fund co-invests in privately-negotiated transactions with other accounts or other entities managed by Guggenheim, those transactions will be subject to the various conditions contained in the SEC exemptive order pertaining to co-investment transactions. However, if the Master Fund co-invests in transactions with other accounts or other entities managed by Guggenheim which are not subject to the various conditions contained in our exemptive order. After our receipt oforder, then those transactions will be subject to the limited circumstances currently permitted by applicable SEC exemptive relief, we havestaff guidance and interpretations. The Master Fund has adopted Guggenheim’s allocation policy, which is designed to fairly and equitably distribute investment opportunities among funds or pools of capital managed by Guggenheim. Such allocation policy provides that once an investment has been approved and is deemed to be in ourthe Master Fund's best interest, wethen the Master Fund will receive a pro rata share of the investment. The adoption of this allocation policy will ensure that wethe Master Fund will be presented with all investment opportunities that fit within ourits investment strategy and that weit will have the ability to invest in those opportunities alongside other Guggenheim clients on equal terms.
In situations when co-investment with affiliates’ other clients is not permitted under the 1940 Act and related rules, existing or future staff guidance or the terms and conditions of exemptive relief granted to us by the SEC (as discussed above), our AdvisorsAdvisor will need to decide which client or clients will proceed with the investment. Generally, wethe Master Fund will not have an entitlement to make a co-investment in these circumstances and, to the extent that another client elects to proceed with the investment, wethen the Master Fund will not be permitted to participate. Moreover, except in certain circumstances, wethe Master Fund will be unable to invest in any issuer in which an affiliate's other client holds a controlling interest.
We may make investments that could give rise to a conflict of interest.
We do not expect to invest in, or hold securities of, companies that are controlled by our affiliates’ other clients. However, an affiliate’s other clients may invest in, and gain control over, one of our portfolio companies. If an affiliate’s other client, or clients, gains control over one of our portfolio companies, it may create conflicts of interest and may subject us to certain restrictions under the 1940 Act. As a result of these conflicts and restrictions, our AdvisorsAdvisor may be unable to implement our investment strategies as effectively as theyit could have in the absence of such conflicts or restrictions. For example, as a result of a conflict or restriction, our AdvisorsAdvisor may be unable to engage in certain transactions that theyit would otherwise pursue. In order to avoid these conflicts and restrictions, our AdvisorsAdvisor may choose to exit these investments prematurely and, as a result, we would forego any positive returns associated with such investments. In addition, to the extent that an affiliate’s other clients hold a different class of securities than us as a result of such transactions, our interests may not be aligned.
The recommendations given to us by the AdvisorsAdvisor may differ from those rendered to theirits other clients.
The AdvisorsAdvisor and theirits affiliates may give advice and recommend securities to other clients that may differ from advice given to, or securities recommended or bought for, us even though such other clients’ investment objectives may be similar to ours.
Our Advisors’Advisor's liability is limited under the Investment Advisory and Investment Sub-Advisory Agreements,Agreement, and we are required to indemnify our AdvisorsAdvisor against certain liabilities, which may lead our AdvisorsAdvisor to act in a riskier manner on our behalf than theyit would when acting for theirits own account.
Our Advisors haveAdvisor has not assumed any responsibility to us other than to render the services described in the Investment Advisory Agreement, and Investment Sub-Advisory Agreements, and theirits assets will not be available to satisfy our debts and obligations. The AdvisorsAdvisor will not be responsible for any action of our Board of Trustees in declining to follow our Advisors’Advisor's advice or recommendations. Pursuant to the Investment Advisory Agreement, our Advisor and Investment Sub-Advisory Agreements, our Advisors and their respectiveits directors, officers, shareholders, members, agents, employees, controlling persons and any other person or entity affiliated with, or acting on behalf of, the AdvisorsAdvisor will not be liable to us for their acts under the Investment Advisory and Investment Sub-Advisory AgreementsAgreement (absent willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties). We have also agreed to indemnify, defend and protect our AdvisorsAdvisor and their respectiveits directors, officers, shareholders, members, agents, employees, controlling persons and any other person or entity affiliated with, or acting on behalf of, the AdvisorsAdvisor with respect to all damages, liabilities, costs and expenses resulting from acts of our AdvisorsAdvisor (not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties). These protections may lead our AdvisorsAdvisor to act in a riskier manner when acting on our behalf than theyit would when acting for theirits own account.
Our Sub-AdvisorAdvisor is party to a settlement agreement with the SEC and is subject to remedial sanctions and a cease-and-desist order.
In August 2015, our Sub-AdvisorAdvisor settled all matters relating to an investigation by the SEC, including matters relating to a failure to disclose a potential conflict of interest in connection with a $50 million loan that a senior executive received from an advisory client and inadvertently billing management fees of $6.5 million to non-managed assets of one client. Our Sub-AdvisorAdvisor neither admitted nor denied the findings contained in the SEC order. In connection with implementing the settlement agreement, remedial sanctions and a cease-and-desist order have been entered against our Sub-Advisor.Advisor. Additionally, the SEC censured our Sub-AdvisorAdvisor and ordered it to pay a $20 million civil penalty. This settlement does not impose any restrictions on our Sub-Advisor’sAdvisor’s future business activities.
RISKS GENERALLY RELATED TO BUSINESS DEVELOPMENT COMPANIES
The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC.
As a BDC, the 1940 Act prohibits us from acquiring any assets other than certain qualifying assets, unless at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Conversely, if we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition and result of operations. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments.
Failure to maintain our status as a BDC would reduce our operating flexibility.
If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions and correspondingly decrease our operating flexibility.
Regulations governing our operation as a BDC and RIC will affect our ability to raise capital and the way in which we raise additional capital or borrow for investment purposes, which may have a negative effect on our growth. As a BDC, the necessity of raising additional capital may expose us to risks, including risks associated with leverage.
As a result of our need to satisfy the annual distribution requirement in order to be subject to tax as a RIC, we may need to access the capital markets periodically to raise cash to fund new investments in portfolio companies. The Master Fund may issue "senior securities," including borrowing money from banks or other financial institutions, only in amounts such that the Master Fund's asset coverage is at least equal to any then-current asset coverage requirements under the 1940 Act. PendingRecent legislation could reducehas reduced the asset coverage requirements for BDCs, subject to certain approvals and if this occurs,conditions. If the Master Fund obtains the necessary approvals and meets the applicable conditions, it may incur increased leverage and be subject to additional risk. If the Master Fund issues senior securities, we will be exposed to risks associated with leverage, including an increased risk of loss. Our ability to issue different types of securities is also limited. Compliance with these distribution requirements may unfavorably limit the Master Fund's investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend.
The Master Fund may borrow for investment purposes. If the value of the Master Fund's assets declines, it may be unable to satisfy the asset coverage test, which would prohibit us from paying distributions and could prevent us from being subject to tax as a RIC, which would generally result in a corporate-level tax on any income and net gains. If the Master Fund cannot satisfy the asset coverage test, it may be required to sell a portion of its investments and, depending on the nature of its debt financing, repay a portion of its indebtedness at a time when such sales may be disadvantageous. Also, any amounts that the Master Fund uses to service its indebtedness would not be available for distributions to our common shareholders.
In addition, we anticipate that as market conditions permit, the Master Fund may securitize its loans to generate cash for funding new investments. To securitize loans, the Master Fund may create a wholly owned subsidiary, contribute a pool of loans to the subsidiary, and have the subsidiary issue primarily investment grade debt securities to purchasers who we would expect to be willing to accept a substantially lower interest rate than the loans earn. The Master Fund would retain all or a portion of the equity in the securitized pool of loans. The Master Fund's retained equity would be exposed to any losses on the portfolio of loans before any of the debt securities would be exposed to such losses. Accordingly, if the pool of loans experienced a low level of losses due to defaults, the Master Fund would earn an incremental amount of income on its retained equity but it would be exposed, up to the amount of equity it retained, to that proportion of any losses it would have experienced if it had continued to hold the loans in its portfolio.
If we cannot obtain debt financing or equity capital on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.
The net proceeds from the sale of Shares will be used for our investment opportunities, and, if necessary, the payment of operating expenses and the payment of various fees and expenses, such as management fees, incentive fees and other fees and distributions. Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require additional debt financing or equity capital to operate. Pursuant to tax rules that apply to us, we will be required to distribute dividends for U.S. federal income tax purposes each taxable year generally of an amount at least equal to 90% of the sum of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our shareholders in order to maintain our RIC status.ability to be subject to tax as a RIC. Accordingly, in the event that we need additional capital in the future for investments or for any other reason, we may need to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. These sources of funding may not be available to us due to unfavorable economic conditions, which 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. Consequently, if we cannot obtain further debt or equity financing on acceptable terms, our ability to acquire additional investments and to expand our operations will be adversely affected. As a result, we would be less able to achieve portfolio diversification and our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our shareholders.
RISKS RELATED TO AN INVESTMENT IN OUR SHARES
Investing in our Shares involves a high degree of risk.
The investments we make in accordance with our investment objectives may result in a higher amount of risk than alternative investment options and includes volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive and, therefore, an investment in our Shares may not be suitable for someone with lower risk tolerance.
If we are unable to raise substantial funds in our ongoing, continuous “best efforts” public offering, we will be limited in the number and type of investments we may make, and the value of your investment in us may be reduced in the event our assets under-perform.
Our continuous public offering is being made on a best efforts basis, whereby our Dealer Manager and selected dealers are only required to use their best efforts to sell our Shares and have no firm commitment or obligation to purchase any of the Shares. To the extent that less than the maximum number of Shares is subscribed for, the opportunity for diversification of our investments may be decreased and the returns achieved on those investments may be reduced as a result of allocating all of our expenses among a smaller capital base.
Our ability to conduct our continuous public offering successfully is dependent, in part, on the ability of our Dealer Manager to successfully establish, operate and maintain relationships with a network of selected dealers.
The success of our public offering, and correspondingly our ability to implement our business strategy, is dependent upon the ability of our Dealer Manager to establish and maintain relationships with a network of licensed securities selected dealers and other agents to sell our Shares. If our Dealer Manager fails to perform, we may not be able to raise adequate proceeds through our public offering to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, you could lose all or a part of your investment.
We intend, but are not required, to offer to repurchase your Shares on a quarterly basis. As a result, you will have limited opportunities to sell your Shares.
Subject to our Board of Trustees' discretion, we intend to offer to repurchase approximately 10% of our weighted average number of outstanding Shares in any 12-month period, in order to allow you to tender your Shares to us on a quarterly basis at a price that is estimated to be equal to our net asset value per share as of the endexpiration date of the preceding calendar quarter.tender offer. The share repurchase program, if implemented, will include numerous restrictions that limit your ability to sell your Shares. At the discretion of our Board of Trustees, we intend to limit the number of Shares to be repurchased during any calendar year to the number of Shares we can repurchase with cash on hand, cash available from borrowings and cash from the sale of our investments as of the end of the applicable period to repurchase Shares. We will limit repurchases in each quarter to 2.5% of the weighted average number of Shares outstanding in the prior four calendar quarters. To the extent that the number of Shares put to us for repurchase exceeds the number of Shares that we are able to purchase, we will repurchase Shares on a pro rata basis, not on a first-come, first-served basis. Further, we will have no obligation to repurchase Shares if the repurchase would violate the restrictions on distributions under federal law or Delaware law, which prohibits distributions that would cause a trust to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all repurchase requests made in any year. Our Board of Trustees may amend, suspend or terminate the share repurchase program at any time. We will notify our shareholders of such developments: (i) in our quarterly reports or (ii) by means of a separate mailing to you, accompanied by disclosure in a current or periodic report under the Exchange Act. In addition, under the quarterly share repurchase program, if implemented, we will have discretion to not repurchase Shares, to suspend the program and to cease repurchases. Further, the program will have many limitations and should not be relied upon as a method to sell Shares promptly and at a desired price.
Our Shares willare not be listed on ana securities exchange and our shareholders will have limited liquidity. In addition, the timing of our repurchase offers pursuant to our share repurchase program may be at a time that is disadvantageous to our shareholders, and to the extent you are able to sell your Shares under the share repurchase program, you may not be able to recover the amount of your investment in our Shares.
Our Shares are illiquid investments for which there is not and will likely not be a secondary market. Liquidity for your Shares will be limited to participation in our share repurchase program, which we have no obligation to maintain.
When we make quarterly repurchase offers pursuant to the share repurchase program, we will offer to repurchase Shares at a price that is estimated to be equal to our net asset value per share as of the endexpiration date of the preceding calendar quarter,tender offer, which may be lower than the price that you paid for our Shares. As a result, to the extent you paid a price that includes the related sales load and to the extent you have the ability to sell your Shares pursuant to our share repurchase program, the price at which you may sell Shares may be lower than the amount you paid in connection with the purchase of Shares in this offering.
We have a finite term and the timing of our liquidation may be at a time that is disadvantageous to our shareholders and the proceeds you receive may be less than your investment in our Shares.
We will have a finite term and we intend to liquidate our interest in the Master Fund and distribute all proceeds to shareholders on or before December 31, 2021. If market conditions are unfavorable at the time of our liquidation, you may receive liquidation proceeds that are less than your investment in our Shares.
We may be unable to invest a significant portion of the net proceeds of this offering on acceptable terms in an acceptable timeframe.timeframe
Delays in investing the net proceeds of this offering may impair our performance. We cannot assure you that we will be able to identify investments that meet our investment objectives or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of our offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.
Before making investments, we will invest the net proceeds of our offering primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and/or other high-quality debt instruments maturing in one year or less from the time of investment. This will produce returns that are significantly lower than the returns we expect to achieve when our portfolio is fully invested in securities meeting our investment objectives. As a result, any distributions that we pay while our portfolio is not fully invested in securities meeting our investment objectives may be lower than the distributions that we may be able to pay when our portfolio is fully invested in securities meeting our investment objectives.
Your interest in us may be diluted if we issue additional Shares, which could reduce the overall value of an investment in us.
You do not have preemptive rights to any Shares we issue in the future. Our Declaration of Trust authorizes us to issue up to 1,000,000,000 Shares. Pursuant to our Declaration of Trust, a majority of our entire Board of Trustees may amend our Declaration of Trust to increase our authorized Shares without shareholder approval. Our Board of Trustees may elect to sell additional Shares in the future. To the extent we issue additional equity interests at or below net asset value, your percentage ownership interest in us may be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, you may also experience dilution in the book value and fair value of your Shares.
Under the 1940 Act, we generally are prohibited from issuing or selling our Shares at a price below net asset value per share, which may be a disadvantage as compared with certain public companies. We may, however, sell our Shares or warrants, options or rights to acquire our Shares, at a price below the current net asset value of our Shares if our Board of Trustees and Independent Trustees determine that such sale is in our best interests and the best interests of our shareholders, and our shareholders, including a majority of those shareholders that are not affiliated with us, approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Trustees, closely approximates the fair value of such securities. If we raise additional funds by issuing Shares or senior securities convertible into, or exchangeable for, our Shares, then the percentage ownership of our shareholders at that time will decrease and you will experience dilution.
If a Liquidity Event were to be in the form of listing of the Master Fund’s shares on a national securities exchange, the price at which the shares of the Master Fund trade from time to time may be below the Master Fund’s then current Net Asset value.
One of the options that our Board of Trustees may recommend to pursue a Liquidity Event may be a listing of the Master Fund’s shares on a national securities exchange. Such a listing would require the approval of the shareholders of the Feeder Funds voting together as a single class, and, if approved, would result in the liquidation and dissolution of each feeder fund, including us, at which point all shareholders of each feeder fund would become direct shareholders of the Master Fund. We cannot assure you that a trading market will develop for the Master Fund’s shares after the listing or, if one develops, that such trading market will be sustained. In addition, we cannot predict the prices at which the shares of the Master Fund will trade, whether at, above or below NAV. Shares of publicly traded BDCs often trade at a discount to the initial offering price due to initial front end load cost and other related offering expenses. Also, shares of publicly traded BDCs frequently trade at a discount to NAV, and the shares of the Master Fund may also be discounted in the market. This characteristic of publicly traded BDCs is separate and distinct from the risk that our NAV per share may decline and may be greater for investors expecting to sell shares after the Master Fund listing occurs. In addition, if shares of the Master Fund trade below its then current NAV, the Master Fund will generally not be able to sell additional shares of common stock to the public without, among other things, the requisite shareholder approval.
Certain provisions of our Declaration of Trust and actions of the Board of Trustees could deter takeover attempts and have an adverse impact on the value of our Shares.
Our Declaration of Trust, as well as certain statutory and regulatory requirements, contains certain provisions that may have the effect of discouraging a third party from attempting to acquire us. Our Board of Trustees may, without shareholder action, authorize the issuance of shares in one or more classes or series;series if the required approval is obtained from SEC; and our Board of Trustees may, without shareholder action, amend our Declaration of Trust to increase the number of our Shares, of any class or series, that we will have authority to issue. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our Shares the opportunity to realize a premium over the value of our Shares.
The net asset value of our Shares may fluctuate significantly.
The net asset value and liquidity, if any, of the market for our Shares 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:
changes in the value of our portfolio of investments and derivative instruments;
changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;
loss of RIC or BDC status;
distributions that exceed our net investment income and net income as reported according to GAAP;
changes in earnings or variations in operating results;
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;
departure of either of our AdvisorsAdvisor or certain of their respectiveits key personnel;
general economic trends and other external factors; and
loss of a major funding source.
The net asset value of our Shares may be adversely affected by a change in the way that we account for our distribution and shareholder servicing fees.
Beginning in the first calendar quarter after the close of our public offering of Shares, shareholders will begin incurring a distribution and shareholders servicing fee relating to their investment in us. We will commence accruing this fee at an annual rate of 0.90% of average net purchase price per share sold in the public offering to reimburse the Dealer Manager for costs incurred by participating broker-dealers and investment representatives for (i) distributing of the Company's Shares and (ii) providing ongoing shareholder services. We will then begin paying the distribution and shareholder servicing fee in the second calendar quarter after the close of our public offering.
We intend to account for the shareholder servicing component as an expense on our statement of operations as the services are provided and the expense is incurred. We have allocated 0.25% of average net purchase price per share sold in the public offering to this component. We have determined that the distribution component, which pertains to the sale of the Shares, will be estimated using the present value of all future payments for the distribution and shareholder servicing fee in excess of the 0.25% allocated to the shareholder services component. We have used a discount rate equal to the risk free interest rate for a time period that is comparable to the estimated distribution and shareholder servicing fee cash flow payments (i.e., five years) to calculate the present value of these future payments. We have recorded a liability based on the estimated present value of the distribution component, recorded as "Due to Dealer Manager," with an offsetting charge to “Paid-in-capital in excess of par value” on the statements of assets and liabilities and recorded as a "Distribution Services Charge" on the statements of changes in net assets.
The way we account for the distribution and shareholder servicing fee has a direct impact on the calculation of net asset value of our Shares. If we determine that our current accounting for the distribution and shareholder servicing fee needs to be revised, the net asset value of our Shares may be adversely affected. A change in the way we account for our distribution and shareholder servicing fees also may have an impact on our Share pricing policy, our distribution reinvestment plan, our share repurchase program and our financial results, including on a retroactive basis.
There are special considerations for pension or profit-sharing trusts, Keoghs or IRAs.
If you are investing the assets of a pension, profit sharing, 401(k), Keogh or other retirement plan, or IRA or any other employee benefit plan subject to ERISA or Section 4975 of the Code in us, you should consider:
whether your investment is consistent with the applicable provisions of ERISA and the Code;
whether your investment will produce unrelated business taxable income to the benefit plan; and
your need to value the assets of the benefit plan annually.
We believe that, under current ERISA law and regulations, our assets will not be treated as “plan assets” of a benefit plan subject to ERISA and/or Section 4975 of the Code that purchases Shares, if the facts and assumptions described in this prospectus arise as expected, and based on our related representations. Our view is not binding on the IRS or the Department of Labor. If our assets were considered to be plan assets, our assets would be subject to ERISA and/or Section 4975 of the Code, and some of the transactions we will enter into with our AdvisorsAdvisor and theirits affiliates could be considered “prohibited transactions,” which could cause us, our Advisors,Advisor and theirits affiliates to be subject to liabilities and excise taxes. In addition, W. P. CareyGuggenheim could be deemed to be a fiduciary under ERISA and subject to other conditions, restrictions and prohibitions under Part 4 of Title I of ERISA. Even if our assets will not be considered to be plan assets, a prohibited transaction could occur if we, our Advisors,Advisor, any selected dealer, the transfer agent or any of their affiliates is a fiduciary (within the meaning of ERISA) with respect to a purchase by a benefit plan and, therefore, unless an administrative or statutory exemption applies in the event such persons are fiduciaries (within the meaning of ERISA) with respect to your purchase, Shares should not be purchased.
FEDERAL INCOME TAX RISKS
We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code, if the Master Fund is unable to maintain its qualification as a RIC under Subchapter M of the Code or if we make investments through taxable subsidiaries.
To maintain RIC tax treatment under the Code, we must maintain our BDC election as well as meet the following minimum annual distribution, income source and asset diversification requirements.
The minimum annual distribution requirement for a RIC will be satisfied if we distribute dividends for U.S. federal income tax purposes to our shareholders each taxable year an amount generally at least equal to 90% of the sum of our net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In addition, a RIC may, in certain cases, satisfy thisthe 90% distribution requirement by distributing dividends relating to a taxable year after the close of such taxable year under the “spillover dividend” provisions of Subchapter M of the Code. WeUpon satisfying this requirement, we would be subject to taxtaxed on any retained income and/or gains, including any short-term capital gains or long-term capital gains. We must also satisfy an additional annual distribution requirement in respect of each calendar year in order to avoid the imposition of a 4% excise tax on the amount of any under-distribution. Because we may use debt financing, we are subject to (i) an asset coverage ratio requirement under the 1940 Act and may, in the future, be subject to (ii) certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment, or could be required to retain a portion of our income or gains, and thus become subject to corporate-level income or excise tax.
The income source requirement will be satisfied if we obtain at least 90% of our gross income each taxable year from dividends, interest, gains from the sale of stock or securities or other income derived from the business of investing in stock or securities.
The asset diversification requirement will be 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 (including receivables), U.S. government securities, securities of other RICs and other acceptable securities; and 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, of one issuer, of two or more issuers that are controlled (as determined under applicable Code rules) by us and that are engaged in the same or similar or related trades or businesses, or of certain “qualified publicly-traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions. Such a failure would have a material adverse effect on us, the net asset value of our Shares and the total return, if any, earned from an investment in our Shares.
We invest all or substantially all of our assets in the Master Fund, which intends to qualify as a RIC. Failure of the Master Fund to so qualify will have an adverse effect on our qualification as a RIC.
We may invest in certain debt and equity investments through taxable subsidiaries and the net taxable income of these taxable subsidiaries will be subject to federal and state corporate income taxes.
We may invest in certain debt instruments and equity securities through taxable subsidiaries, and the taxable income of these taxable subsidiaries will be subject to federal and state corporate income taxes. We may invest in certain foreign debt instruments and equity securities which could be subject to foreign taxes (such as income tax, withholding and value added taxes.taxes).
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, since we will likely hold debt instruments that are treated under applicable tax rules as having OID (such as debt instruments with PIK interest provisions, secondary market purchase of debt securities at discount to par, interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), each taxable year we must include in income each year a portion of the OID that accrues over the life of such debt instruments in our taxable income, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in our taxable income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of thea loan or are paid in non-cash compensation such as warrants or stock. Furthermore, we may invest in non-U.S. corporations (or other non-U.S. entities treated as corporations for U.S. federal income tax purposes) that could be treated under the Code and U.S. Treasury regulations as “passive foreign investment companies” and/or “controlled foreign corporations.” The rules relating to investment in these types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in effect, subject to tax currently (or on an accelerated basis with respect to corporate level events) or taxed at increased tax rates at distribution or disposition. In certain circumstances these rules could require us to recognize income where we do not receive a corresponding payment in cash.
We anticipate that a portion of our income may constitute OID or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discount with respect to debt instruments acquired in the secondary market and include such amounts in our taxable income in the current taxable year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expense for tax purposes. Because any OID or other amounts accrued will be included in our investment company taxable income for the taxable year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the annual distribution requirement, even if we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, make a partial share distribution or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, and choose not to make a partialqualifying share distribution, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. The resulting corporate-level taxes could substantially reduce our net assets, the amount of income available for distribution, as well as the amount of our distributions and, as such, could have a material adverse effect on us, the net asset value of our Shares and the total return, if any, earned from an investment in our Shares.
Portfolio investments held by the Master Fund may present special tax issues.
Investments in below-investment grade debt instruments and certain equity securities may present special tax issues for the Master Fund. U.S. federal income tax rules are not entirely clear about issues such as when a taxpayer may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless debt instruments or equity securities, how payments received on debt instruments in default should be allocated between principal and interest income, as well as whether exchanges of debt instruments in a bankruptcy or workout context are taxable. Such matters could cause the Master Fund to recognize taxable income for U.S. federal income tax purposes, even in the absence of cash or economic gain, and require the Master Fund to make taxable distributions to us in connection with maintaining its RIC tax status or precludeprecluding the imposition of either U.S. federal corporate income or excise taxation. Additionally, because such taxable income may not be matched by corresponding cash received by the Master Fund, the Master Fund may be required to borrow money or dispose of other investments to be able to make distributions to us.
Master Feeder Structure.
As we invest in the Master Fund, our realized losses on sales of shares of the Master Fund may be indefinitely or permanently deferred as "wash sales." Distributions of short-term capital gains by the Master Fund will be recognized as ordinary income by us and would not be offset by our capital loss carry-forwards, if any. Capital loss carry-forwards of the Master Fund, if any, would not offset our net capital gains.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We do not own any real estate or other physical properties materially important to our operation. We believe that the Advisor's office facilities are suitable and adequate for our business.
Item 3. Legal Proceedings.
At April 17, 2017,March 10, 2020, we were not subject to any material legal proceedings, and, to our knowledge, there were no material legal proceedings threatened against us.
From time to time, we, or our administrator, may be a party to certain legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including legal proceedings related to the enforcement of our rights under contracts with our portfolio companies. While legal proceedings, lawsuits, claims and regulatory proceedings are subject to many uncertainties and their ultimate outcomes are not predictable with assurance, the results of these proceedings are not expected to have a material adverse effect on our financial position or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is currently no established public trading market for our common stock ("Shares" or "Common Shares").
Holders
As of March 17, 2017,6, 2020, we had 3,3993,330 record holders of our Shares.
Continuous Public Offering Wrap-Up
Our Public Offering commenced on July 24, 2015 and closed on April 28, 2017. Over the course of Common Sharesthe 21-month Public Offering period, we raised $164.2 million in gross proceeds, resulting in net proceeds of $154.8 million for investment in the Master Fund.
We are selling our Shares on a continuous basis at a currentAt the commencement of the Public Offering, the initial public offeringoffer price ("POP") was $9.55 per Share ($9.00 net price per Share after sales load); at the last subscription closing of the Public Offering, the POP was $9.95 per Share under Securities Act File No. 333-198882 ("Registration Statement") that($9.38 net price per Share after sale load). The average POP was initially declared effective$9.68 per Common Share and the average net proceeds per Common Share was $9.12 as of July 24, 2015 (the "Public Offering"December 31, 2017, including proceeds from our distribution reinvestment plan.
We reimbursed CCA and Guggenheim for organization and offering expenses equivalent to 1.3% of gross proceeds of $164.2 million, or $2.1 million, throughout the life of the Public Offering.
With the completion of the Public Offering, we commenced payments of the distribution and shareholder servicing fee ("DSS Fee"). It is anticipated that in the fourth quarter of 2017 as follows: over each twelve month period the DSS Fee payment may not exceed $1.4 million, or 0.9% of $154.8 million in net proceeds from our Public OfferingOffering. The total of all DSS Fee payments over our life will terminate between March 31, 2017 and June 30, 2017.
Tonot exceed $5.8 million, or 3.6% of the extent that our net asset value (“NAV”) per Share increases, we will ensure that our Shares are not sold at a price, after deduction of selling commissions and Dealer Manager fees, that is below our NAV per Share. In connection with each weekly closing on the sale of Shares pursuant togross proceeds from our Public Offering and periodic reinvestment of distributions in our Shares, we make the determination that we are not selling Shares at a price, after deduction of selling commissions and Dealer Manager fees, below our then current NAV per Share within 48 hours before the time that we issue Shares. In addition, if the NAV per Share were to decline below 97.5% of the public offering price, net of sales load, then we will voluntarily delay the acceptance of subscriptions for our Shares until the NAV per share is greater than 97.5% of the POP, net of sales load.Offering.
The following table lists the NAV per share, the POP and Net POP for Shares sold in our Public Offering, including and excluding sales load, the netNet POP premium expressed as a percentage of NAV, and quarterly declared distributions per Share as of December 31, 2016 and December 31, 2015.throughout the Public Offering period.
| | | | End of Quarter | End of Quarter |
| | End of Period NAV | | POP | | Net POP | | Net POP Premium to NAV | | Declared Distributions per Share | NAV | | POP | | Net POP | | Net POP Premium to NAV | | Declared Distributions per Share |
| Year Ended December 31, 2017 | | | | | | | | | | |
Second Quarter (1) | | $ | 9.13 |
| | $ | 9.95 |
| | $ | 9.38 |
| | 2.7 | % | | $ | 0.16 |
|
| First Quarter | | $ | 9.17 |
| | $ | 9.95 |
| | $ | 9.38 |
| | 2.3 | % | | $ | 0.16 |
|
| Year Ended December 31, 2016 | | | | | | | | | | | | | | | | | | |
| Fourth Quarter | $ | 9.11 |
| | $ | 9.90 |
| | $ | 9.33 |
| | 2.4 | % | | $ | 0.16 |
| $ | 9.11 |
| | $ | 9.90 |
| | $ | 9.33 |
| | 2.4 | % | | $ | 0.16 |
|
| Third Quarter | $ | 9.13 |
| | $ | 9.80 |
| | $ | 9.24 |
| | 1.2 | % | | $ | 0.16 |
| $ | 9.13 |
| | $ | 9.80 |
| | $ | 9.24 |
| | 1.2 | % | | $ | 0.16 |
|
| Second Quarter | $ | 8.89 |
| | $ | 9.45 |
| | $ | 8.91 |
| | 0.2 | % | | $ | 0.16 |
| $ | 8.89 |
| | $ | 9.45 |
| | $ | 8.91 |
| | 0.2 | % | | $ | 0.16 |
|
| First Quarter | $ | 8.66 |
| | $ | 9.25 |
| | $ | 8.72 |
| | 0.7 | % | | $ | 0.17 |
| $ | 8.66 |
| | $ | 9.25 |
| | $ | 8.72 |
| | 0.7 | % | | $ | 0.17 |
|
| Year Ended December 31, 2015 | | | | | | | | | | | | | | | | | | |
Fourth Quarter (1) | $ | 8.68 |
| | $ | 9.55 |
| | $ | 9.00 |
| | 3.7 | % | | $ | 0.15 |
| |
Fourth Quarter (2) | | $ | 8.68 |
| | $ | 9.55 |
| | $ | 9.00 |
| | 3.7 | % | | $ | 0.15 |
|
_________________________
| |
| (1) | The Public Offering was terminated on April 28, 2017. |
| |
| (2) | No Shares were sold in the fourth quarter of 2015 during a period of time when NAV was less than 97.5% of net POP. |
The following table summarizes the total Common Shares issued and proceeds received in connection with our Public Offering (in thousands, except share and per share amounts):distribution reinvestment program for the period commencing on July 24, 2015 (inception) through December 31, 2019:
| | | | | Inception through December 31, 2016 | | Inception through December 31, 2019 |
| | | Shares | | Amount | | Shares | | Amount (in thousands) |
| Gross proceeds from offering | | 12,018,644 |
| | $ | 114,997 |
| |
| Gross proceeds from Public Offering | | | 16,970,408 |
| | $ | 164,194 |
|
| Commissions paid outside of escrow | | — |
| | (1,428 | ) | | — |
| | (1,924 | ) |
| Dealer Manager fees and commissions | | — |
| | (5,151 | ) | | — |
| | (7,462 | ) |
| Net proceeds to the Company | | 12,018,644 |
| | 108,418 |
| |
| Net proceeds to the Company from Public Offering | | | 16,970,408 |
| | 154,808 |
|
| Reinvestment of distributions | | 187,739 |
| | 1,718 |
| | 1,966,602 |
| | 17,532 |
|
| Net proceeds from offering | | 12,206,383 |
| | $ | 110,136 |
| |
| Net proceeds from issuance of Shares | | | 18,937,010 |
| | $ | 172,340 |
|
| Average net proceeds per Common Share | | $9.02 | | $9.10 |
Registrant's Purchase of Equity Securities
We commenced our share repurchase program in July 2016 and the firstinitial repurchase of sharesCommon Shares occurred in September 2016. We limit repurchases in each quarter to 2.5% of the weighted average number of Common Shares outstanding in the prior
four calendar quarters. Our Board of Trustees may amend, suspend or terminate the share repurchase program upon 30 days’ notice. All Shares purchased by us pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued shares. We
did not repurchase any of our equity securitiesrepurchased 690,682 Common Shares during the three months ended December 31,
2016.2019. See Note 5. Common Shares for the history of our periodic share repurchase programs.
The following table provides information concerning our repurchases of Common Shares pursuant to our share repurchase program during the three months ended December 31, 2019:
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2) |
| October 1, 2019 to October 31, 2019 | | 396,895 |
| | $ | 8.37 |
| | 396,895 |
| | — |
|
| November 1, 2019 to November 30, 2019 | | — |
| | — |
| | — |
| | — |
|
| December 1, 2019 to December 31, 2019 | | 293,787 |
| | 8.31 |
| | 293,787 |
| | — |
|
| Total | | 690,682 |
| | | | 690,682 |
| | — |
|
______________________
| |
| (1) | The maximum number of Shares available for repurchase on October 11, 2019 was 439,656. A description of the maximum number of Shares that may be repurchased under our share repurchase program is set forth in Note 5. Common Shares to our audited financial statements included herein. |
| |
| (2) | The maximum number of Shares available for repurchase on December 6, 2019 was 438,630. A description of the maximum number of Shares that may be repurchased under our share repurchase program is set forth in Note 5. Common Shares to our audited financial statements included herein. |
Unregistered Sale of Equity Securities
None.
Distributions
Distributions to our shareholders are governed by our declaration of trust. The timing and amount of our monthly distributions, if any, is determined by our Board of Trustees. Any distributions to our shareholders are declared out of assets legally available for distribution. The following table presents the total cash distributions declared per Common Share outstanding during the years ended December 31, 20162019, December 31, 2018 and December 31, 2015:2017:
|
| | | | | | | | |
| | | Cash Distributions Declared Per Share |
| Quarter | | 2016 | | 2015 |
| First | | $ | 0.16518 |
| | $ | — |
|
| Second | | 0.16380 |
| | — |
|
| Third | | 0.16380 |
| | — |
|
| Fourth | | 0.16300 |
| | 0.15432 |
|
| Total | | $ | 0.65578 |
| | $ | 0.15432 |
|
We also declared forward weekly distributions of $0.01240 per Share per week for shareholders of record between January 3, 2017 and March 28, 2017. |
| | | | | | | | | | | | |
| | | Cash Distributions Declared Per Share |
| Quarter | | 2019 | | 2018 | | 2017 |
| First | | $ | 0.15096 |
| | $ | 0.16359 |
| | $ | 0.16120 |
|
| Second | | 0.16354 |
| | 0.16359 |
| | 0.15817 |
|
| Third | | 0.17612 |
| | 0.15938 |
| | 0.15769 |
|
| Fourth | | 0.16354 |
| | 0.25026 |
| | 0.16359 |
|
| Total | | $ | 0.65416 |
| | $ | 0.73682 |
| | $ | 0.64065 |
|
Because we intend to establish and maintain our ability to be subject to tax as a regulated investment company ("RIC"), we intend to distribute at least 90% of our annual taxable income to our shareholders. To the extent our taxable earnings fall below the total amount of our paid distributions for any given fiscal year, a portion of those paid distributions may be deemed to be a tax return of capital to our shareholders. For the year ended December 31, 2016,2019, 100% of the distributions paid to shareholders were deemedestimated to be comprised of taxable income (ordinary income and capital gains) for federal income tax purposes, and none of the paid distributions were determined to be a return of capital. In January 2017,2020, a Form 1099-DIV was sent to our non-corporate shareholders which reported the amount and source allocations of our fiscal 2016 paid2019 declared distributions.
Item 6. Selected Financial Data.
The following selected financial data (i) as of and for the year ended December 31, 2016 and2019, (ii) as of and for the year ended December 31, 20152018, (iii) as of and for the year ended December 31, 2017, (iv) as of and for the year ended December 31, 2016 and (v) for the period from July 24, 2015 (inception) to December 31, 2015 is derived from our financial statements. The following selected financial data should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data included in this Report (in thousands, except per share amounts):Report: |
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Inception Through December 31, 2015 |
| Statements of Operations data: | | | | | | | | | |
| Dividends from investment in GCIF | $ | 10,389 |
| | $ | 13,636 |
| | $ | 10,604 |
| | $ | 1,987 |
| | $ | 33 |
|
| Operating expenses | | | | | | | | | |
| Total operating expenses | 1,098 |
| | 1,202 |
| | 2,509 |
| | 1,077 |
| | 142 |
|
| Reimbursement of expense support | 246 |
| | 404 |
| | 1,045 |
| | — |
| | — |
|
| — |
| | (57 | ) | | (1,781 | ) | | (2,078 | ) | | (117 | ) |
| Net expenses | 1,344 |
| | 1,549 |
| | 1,773 |
| | (1,001 | ) | | 25 |
|
| Net investment income | 9,045 |
| | 12,087 |
| | 8,831 |
| | 2,988 |
| | 8 |
|
| Net realized gain from redemption of investment in GCIF | 23 |
| | — |
| | 46 |
| | — |
| | — |
|
| Long term gain distributions from investment in GCIF | 849 |
| | 2,233 |
| | 231 |
| | — |
| | — |
|
| Net change in unrealized appreciation (depreciation) from investment in GCIF | (5,894 | ) | | (8,144 | ) | | 616 |
| | 3,924 |
| | (78 | ) |
| Net increase (decrease) in net assets resulting from operations | $ | 4,023 |
| | $ | 6,176 |
| | $ | 9,724 |
| | $ | 6,912 |
| | $ | (70 | ) |
| Per Share data: | | | | | | | | | |
| Net Asset Value per Common Share | $ | 8.24 |
| | $ | 8.65 |
| | $ | 9.05 |
| | $ | 9.11 |
| | $ | 8.68 |
|
| Net investment income per Common Share outstanding - basic and diluted | $ | 0.52 |
| | $ | 0.69 |
| | $ | 0.53 |
| | $ | 0.55 |
| | $ | 0.26 |
|
| Earnings (loss) per Common Share - basic and diluted | $ | 0.23 |
| | $ | 0.35 |
| | $ | 0.58 |
| | $ | 1.27 |
| | $ | (2.29 | ) |
| Distributions per Common Share | $ | 0.65 |
| | $ | 0.74 |
| | $ | 0.64 |
| | $ | 0.66 |
| | $ | 0.15 |
|
| Other data: | | | | | | | | | |
Total investment return-net price (1) | N/A |
| | N/A |
| | 3.95 | % | | 12.33 | % | | (1.85 | )% |
Total investment return-net asset value (2) | 2.76 | % | | 3.78 | % | | 6.52 | % | | 12.77 | % | | (1.85 | )% |
| Total investment activity for the period | $ | 5,605 |
| | $ | — |
| | $ | 48,861 |
| | $ | 104,949 |
| | $ | 2,235 |
|
| Statements of Assets and Liabilities data: | | | | | | | | | |
| Total assets | $ | 141,741 |
| | $ | 156,327 |
| | $ | 161,840 |
| | $ | 113,799 |
| | $ | 2,231 |
|
| Total net assets | $ | 139,688 |
| | $ | 151,709 |
| | $ | 157,456 |
| | $ | 111,153 |
| | $ | 2,161 |
|
|
| | | | | | | |
| | | | Period from |
| | | | July 24, 2015 |
| | Year Ended | | (inception) to |
| | December 31, 2016 | | December 31, 2015 |
| Statements of operations data: | | | |
| Dividends from investment in Carey Credit Income Fund | $ | 1,987 |
| | $ | 33 |
|
| Operating expenses | | | |
| Total operating expenses | 1,077 |
| | 142 |
|
| (2,078 | ) | | (117 | ) |
| Net expenses | (1,001 | ) | | 25 |
|
| Net investment income | 2,988 |
| | 8 |
|
| Net change in unrealized appreciation (depreciation) on investment | 3,924 |
| | (78 | ) |
| Net increase (decrease) in net assets resulting from operations | 6,912 |
| | (70 | ) |
| Per Share data: | | | |
| Net investment income per Common Share outstanding - basic and diluted | $ | 0.55 |
| | $ | 0.26 |
|
| Earnings (loss) per Common Share - basic and diluted | $ | 1.27 |
| | $ | (2.29 | ) |
| Distributions per Common Share | $ | 0.66 |
| | $ | 0.15 |
|
| Other data: | | | |
Total investment return-net price (1) | 12.33 | % | | (1.85 | )% |
Total investment return-net asset value (2) | 12.77 | % | | (1.85 | )% |
| Total investment activity for the period | $ | 104,949 |
| | $ | 2,235 |
|
| Statements of Assets and Liabilities data: | | | |
| Total assets | $ | 113,799 |
| | $ | 2,231 |
|
| Total net assets | $ | 111,153 |
| | $ | 2,161 |
|
_______________________
| |
| (1) | Total investment return-net price is a measure of total return for shareholders, assuming the purchase of the Company’s Common Shares at the beginning of the period and the reinvestment of all distributions declared during the period. More specifically, total investment return-net price is based on (i) the purchase of Common Shares at the net offering price on the first day of the period, (ii) the sale at the net asset value per Common Share on the last day of the period, of (A) purchased Common Shares plus (B) any Common Shares issued in connection with the reinvestment of distributions and (iii) distributions payable relating to the ownership of Common Shares, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the Common Shares issued pursuant to the distribution reinvestment plan are issued at the then net offering price per Common Share on each distribution payment date. Since there is no public market for the Company’s Common Shares, the terminal sales price per Common Share is assumed to be equal to net asset value per Common Share on the last day of the period presented. Total investment return-net price is not annualized for the period from July 24, 2015 (inception) to December 31, 2015. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s Common Shares. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
| |
| (2) | Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s Common Shares at the beginning and end of the period, including distributions declared during the period. Total investment return-net asset value is based on (i) net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, plus any shares issued in connection with the reinvestment of monthly distributions and (iii) distributions payable relating to the ownership of shares, if any, on the last day of the period. The total investment return-net asset value calculation assumes that (i) cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the shares issued pursuant to the distribution reinvestment plan are issued at the then current public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, terminal market value per share is assumed to be equal to net asset value per share on the last day of the period presented. Total investment return-net asset value is not annualized for the period from July 24, 2015 (inception) to December 31, 2015. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s Common Shares. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands, except share and per share data, percentages and as otherwise indicated; for example, with the word "million" or otherwise)
The information contained in this item should be read in conjunction with our financial statements and related notes thereto appearing elsewhere in this Report. Unless otherwise noted, the terms "we," "us,""us" and "our" refer to CareyGuggenheim Credit Income Fund 2016 T. The Term "Master Fund" refers to CareyGuggenheim Credit Income Fund. Capitalized terms used in this Item 7 have the same
RevenuesRevenue
We generate revenues primarily in the form of dividendDividend income derived from our ownership of the Master Fund's common shares.share is our source of investment income. Our revenuesrevenue will fluctuate with the operating performance of the Master Fund and its distributions paid to us.
Operating Expenses
Our primary operating expenses include administrative services, related party reimbursements, custodian and accounting services, independent audit services, compliance services, tax services, fees, legal services, transfer agent services, shareholder servicing fees,component expenses, organization expenses and amortization of deferred offering expenses. Additionally, we indirectly bear the operating expenses of the Master Fund through our ownership of its common shares, such as an investment advisory fee, a performance-based incentive fee, independent audit services, third-party valuation services and various other professional services fees.
Results of Operations
Operating results for the yearyears ended December 31, 2016 and for the period from July 24, 2015 (inception) to2019, December 31, 20152018 and December 31, 2017 were as follows (in thousands):follows:
| | | | | | Period from | |
| | | | July 24, 2015 | | | | | | | |
| | Year Ended | | (inception) to | For the Years Ended December 31, |
| | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 | | 2017 |
| Total investment income | $ | 1,987 |
| | $ | 33 |
| $ | 10,389 |
| | $ | 13,636 |
| | $ | 10,604 |
|
| Net expenses | (1,001 | ) | | 25 |
| 1,344 |
| | 1,549 |
| | 1,773 |
|
| Net investment income | 2,988 |
| | 8 |
| 9,045 |
| | 12,087 |
| | 8,831 |
|
| Net change in unrealized appreciation (depreciation) on investment | 3,924 |
| | (78 | ) | |
| Net increase (decrease) in net assets resulting from operations | $ | 6,912 |
| | $ | (70 | ) | |
| Net realized gain from redemption of investment in GCIF | | 23 |
| | — |
| | 46 |
|
| Long term gain distributions from investment in GCIF | | 849 |
| | 2,233 |
| | 231 |
|
| Net change in unrealized appreciation (depreciation) from investment in GCIF | | (5,894 | ) | | (8,144 | ) | | 616 |
|
| Net increase in net assets resulting from operations | | $ | 4,023 |
| | $ | 6,176 |
| | $ | 9,724 |
|
Investment Income
Investment income consisted solely of distributions from the Master Fund for the yearyears ended December 31, 2016 and for the period from July 24, 2015 (inception) to2019, December 31, 2015.2018 and December 31, 2017.
Operating Expenses
Operating expenses consisted of the following major components for the yearyears ended December 31, 2016 and for the period from July 24, 2015 (inception) to2019, December 31, 2015 (in thousands):2018 and December 31, 2017:
|
| | | | | | | |
| | | | Period from |
| | | | July 24, 2015 |
| | Year Ended | | (inception) to |
| | December 31, 2016 | | December 31, 2015 |
| Administrative services | $ | 15 |
| | $ | 7 |
|
| Related party reimbursements | 284 |
| | 15 |
|
| Trustees fees | 3 |
| | 3 |
|
| Professional services fees | 153 |
| | 116 |
|
| Offering expenses | 435 |
| | — |
|
| Organization expenses | 94 |
| | 1 |
|
| Printing and mailing expenses | 44 |
| | — |
|
| Other expenses | 49 |
| | — |
|
| Total operating expenses | 1,077 |
| | 142 |
|
| Less: Expense support from related parties | (2,078 | ) | | (117 | ) |
| Net expenses | $ | (1,001 | ) | | $ | 25 |
|
The operating expenses presented above do not represent our normalized operations since we expect our operating expenses to increase as our equity capital base increases. |
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Administrative services | $ | 15 |
| | $ | 15 |
| | $ | 15 |
|
| Related party reimbursements | 215 |
| | 214 |
| | 293 |
|
| Trustees fees | 3 |
| | 3 |
| | 3 |
|
| Professional services fees | 125 |
| | 131 |
| | 299 |
|
| Offering costs | — |
| | 99 |
| | 1,493 |
|
| Shareholder servicing expenses | 342 |
| | 369 |
| | 191 |
|
| Transfer agent expense | 307 |
| | 265 |
| | 95 |
|
| Other expenses | 91 |
| | 106 |
| | 120 |
|
| Total operating expenses | 1,098 |
| | 1,202 |
| | 2,509 |
|
| Reimbursement of expense support | 246 |
| | 404 |
| | 1,045 |
|
| Less: Expense support from related parties | — |
| | (57 | ) | | (1,781 | ) |
| Net expenses | $ | 1,344 |
| | $ | 1,549 |
| | $ | 1,773 |
|
Related party reimbursements are comprised of the Company's allocable share of administrative costs and expenses incurred by the AdministratorCCA or Guggenheim that were reimbursable. Reimbursable costs and expenses include, but are not limited to, the Company's share of salaries, rent, office administration, costs associated with regulatory reporting and filings and costs related to the preparation for,
and conducting of, meetings of the Company's Board of Trustees.Board. An investment advisory fee is only incurred by the Master Fund, although it is incurred indirectly by the Company.Company through its ownership of Master Fund common shares
Beginning in the first calendar quarter after the close of the Company's Public Offering,on July 1, 2017, the Company will incurincurred an additional operating expense, specifically shareholder servicing fees,the Shareholder Servicing Component of the DSS Fee, to reimburse the dealer managerDealer Manager of the Company's Public Offering for costs incurred by participating broker-dealers and investment representatives for providing ongoing shareholder services. The shareholder servicing fees will accrueShareholder Servicing Component accrues daily and will beis recorded on the statementstatements of operations. The shareholder servicing fees will beShareholder Servicing Component is computed at the daily rate of 0.000685% (i.e.(i.e. annual rate of 0.25%) of the product of (i) the weighted average net price of Common Shares sold in the Public Offering, excluding CommonDRP Shares issued under the Company's distribution reinvestment plan ("DRP Shares"), and (ii) the number of Common Shares outstanding on each day of the recording period, excluding (a) DRP Shares and (b) Common Shares owned by the Company's shareholders that are not receiving shareholder services from an eligible participating broker-dealer. This operatingThe Shareholder Servicing Component expense when incurred, will beis borne equally among all of the Company's outstanding Shares.Shares as incurred.
The composition of our administrative and professional services fees for the year ended December 31, 2016 and for the period from July 24, 2015 (inception) to December 31, 2015 was as follows (in thousands):
|
| | | | | | | |
| | | | Period from |
| | | | July 24, 2015 |
| | Year Ended | | (inception) to |
| | December 31, 2016 | | December 31, 2015 |
| Accounting services | $ | 8 |
| | $ | 4 |
|
| Administration services | 7 |
| | 3 |
|
| Total administrative services | $ | 15 |
| | $ | 7 |
|
| | | | |
| Audit expense | $ | 91 |
| | $ | 53 |
|
| Compliance officer fees | 21 |
| | 8 |
|
| Legal fees | 34 |
| | 48 |
|
| Tax services | 7 |
| | 7 |
|
| Total professional services fees | $ | 153 |
| | $ | 116 |
|
Net Realized Gain (Loss)Gains from Investment
For the year ended December 31, 2016 and for2019, we had net realized gains of less than $0.1 million as a result of our sale of Master Fund Shares. In 2019, $0.8 million of distributions received from the period from July 24, 2015 (inception) toMaster Fund was classified as a long term gain distributions. For the year ended December 31, 2015,2018, we did not sell any shares of the Master Fund, therefore we incurred nodid not incur any realized gains or losses on our investment. In 2018, $2.2 million of distributions received from the Master Fund was classified as a long term gain distribution. For the year December 31, 2017, we had net realized gains of less than $0.1 million as a result of our sale of Master Fund Shares. In 2017, $0.2 million of distributions received from the Master Fund was classified as a long term gain distribution.
Changes in Unrealized Appreciation (Depreciation) onfrom Investment
For the year ended December 31, 2016,2019, the total net change in unrealized depreciation on our investment in the Master Fund was $(5.9) million. For the year ended December 31, 2018, the total net change in unrealized depreciation on our investment in the Master Fund was $(8.1) million. For the year ended December 31, 2017, the total net change in unrealized appreciation on our investment in the Master Fund was $3.9$0.6 million.
Cash Flows for the Years Ended December 31, 2019, December 31, 2018 and December 31, 2017
For the period from July 24, 2015 (inception) toyears ended December 31, 2015,2019, December 31, 2018 and December 31, 2017, net cash provided by (used in) operating activities was $17.7 million, $11.6 million and $(37.9) million, respectively. In 2019, distributions and redemption of shares from the total net change in unrealized depreciation on ourMaster Fund were the primary provider of cash. In 2018, distributions from the Master Fund were the primary provider for cash. In 2017, investment in the Master FundFund's shares was $0.1 million.
Cash Flows for the Year Ended December 31, 2016 and for the period from July 24, 2015 (inception) to December 31, 2015primary use of cash.
For the yearyears ended December 31, 2016, net cash used in operating activities was $103.1 million. Cash flows used in operating activities for the year ended2019, December 31, 2016 was primarily due to the Company's investment in the Master Fund.
For the period from July 24, 2015 (inception) to2018 and December 31, 2015,2017, net cash used in operating activities was $2.2 million. Cash flows used in operating operating activities for the period from July 24, 2015 (inception) to December 31, 2015 was primarily due to the Company's investment in the Master Fund.
Net cash provided by (used in) financing activities was $104.4$(18.6) million during, $(11.1) million, and $37.8 million, respectively. In 2019, the year ended December 31, 2016, primarily represented byrepurchase of Common Shares of $(10.4) million and shareholder distributions of $(7.4) million were the primary use of cash. In 2018, the repurchase of Common Shares of $(4.0) million and distribution payments of $(6.2) million were the primary use of cash. In 2017, proceeds from issuance of Common Shares of $106.2 million.
Net cash provided by financing activities$46.4 million was $2.2 million during the period from July 24, 2015 (inception) to December 31, 2015, primarily represented by proceeds from issuanceprimary provider of Common Shares of $2.2 million.cash.
Financial Condition, Liquidity and Capital Resources
Our primary sources of cash include (i) the sale of our Common Shares, (ii) our shareholders' reinvestment of their distributions, (iii)(ii) distributions, including capital gains, if any, received from our ownership of the Master Fund's common shares, and (iv)(iii) expense reimbursementsupport payments from the Advisors pursuant to the Expense Support Agreement.Agreement and (iv) the sale of our owned Master Fund shares in conjunction with periodic share repurchase programs. Our primary uses of cash include (i) investment in Master Fund common shares, (ii) payment of operating expenses and the DSS Fee Distribution Services Component, (iii) cash distributions to our shareholders (iv) payment of the distribution component of the distribution and shareholder servicing fee (the "DSS Fee") and (v) periodic repurchases of our Common Shares pursuant to our periodic share repurchase program.programs and (v) reimbursement payments for prior period expense support payments. We doare not intendpermitted to issue any senior securities, including preferred securities.
We manage our assets and liabilities such that current assets are sufficient to cover current liabilities. All remainingliabilities, and excess cash, in excess of net working capitalif any, is regularly invested in the acquisition of Master Fund common shares.
Off-Balance Sheet Arrangements
We dodid not have any off-balance sheet arrangements as of December 31, 20162019 and December 31, 2015.2018.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAPaccounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. We believe that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. Our significant accounting policies are described in Note 2. Significant Accounting Policies. Valuation of Investments
We invest substantially all of our equity capital in the purchase of Master Fund common shares of the Master Fund. As such, weshares. We determine the fair value of our investment in the Master Fund as the Master Fund's net asset value per common share (as determined by the Master Fund) multiplied by the number of Master Fund common shares that we own.
Distribution and Shareholder Servicing Fee (DSS Fee)
Beginning in the second calendar quarter after the close of the Company's Public Offering, the Company will commence quarterly payments of the DSS Fee at an annual rate of 0.90% of the average net purchase price per share sold in the Public Offering. The purpose of the DSS Fee is to reimburse the Dealer Manager of the Company'sour Public Offering for costs incurred by participating broker-dealersselected dealers and investment representatives for services related to (i) distribution of the Company's Common Shares (the distribution services component)Distribution Services Component and (ii) providing ongoing shareholder services (the shareholder services component). Due to the specific facts and circumstances associated with the Company's DSS Fee, beginningShareholder Services Component.
Beginning in the third quarter of 2017 (the first calendar quarter after the close of our Public Offering), we commenced recognition of the Company's Public Offering, the shareholder services component will be recognizedShareholder Services Component as an expense on the Company's statementstatements of operations as the services are provided, and the Company hasprovided. We allocated 0.25% per annum of the average net purchase price per share sold in the Public Offering to this component.the Shareholder Services Component. As the distribution services component,Distribution Services Component, representing 0.65% per annum of the average net purchase price per share sold in the Public Offering, pertains to the sale of the Company'sour Common Shares, given its specific facts and circumstances, the Company estimateswe estimate the present value of all future DSS FeeDistribution Services Component payments, in excess of quarterly payment amounts allocated to the shareholder services component, employing a discounteddiscount rate equal to a five year risk free interest rate. The Company recordsthe prevailing effective yield on 5-year US Treasuries as observed on December 30, 2016. We record a liability based onequal to the estimated present value of the distribution services component of the DSS Fee,Distribution Services Component, recorded as "Due to Dealer Manager" with an offsetting charge to “Paid-in-capital in excess of par value” on the statements of assets and liabilities, and recorded as a "Distribution services charge" on the statements of changes in net assets.
Beginning in the fourth quarter of 2017 (the second calendar quarter after the close of our Public Offering), we commenced quarterly payments of the DSS Fee at an annual rate of 0.90% of the average net purchase price per share sold in the Public Offering.
The table below reconciles the change in the Due to Dealer Manager for the periods presented:
|
| | | | | | | |
| | 2019 | | 2018 |
| Balance as of January 1, | $ | 2,907 |
| | $ | 3,618 |
|
Accretion of discount (1) | 44 |
| | 62 |
|
Incremental charge (reduction) to paid-in-capital (2) | (186 | ) | | 192 |
|
| Shareholder services component | 342 |
| | 369 |
|
| DSS fee payments | (1,254 | ) | | (1,334 | ) |
| Balance as of December 31, | $ | 1,853 |
| | $ | 2,907 |
|
______________________
| |
| (1) | As the present value discount of the Distribution Services Component is accreted, it is recorded as interest expense and included in other expenses on the statements of operations. |
| |
| (2) | Incremental charge or reduction to paid-in-capital is the result of incremental equity share sales and/or changes in assumptions employed in estimating future cash payments. |
Contractual Obligations
Commitments
We have not entered into any agreements under which we have material future commitments that cannot otherwise be terminated within a reasonable time period.
Obligations to Pay Distributions
Our Board of Trustees has declared distributions on Common Shares that will becomeare payable to shareholders of record after December 31, 2016. The obligation cannot be measured since it is dependent on the future sale of Common Shares prior to each record date and the total number of Shares outstanding on each record date.2019. The declared distribution rates per Share for the period after December 31, 20162019 are summarized as follows:
|
| | | | | | |
| 2017 Record Dates | | 2017 Payment Dates | | Declared Distribution per Share per Record Date |
| January 3, 10, 17, 24, 31 | | February 1 | | $ | 0.0124 |
|
| February 7, 14, 21, 28 | | March 1 | | 0.0124 |
|
| March 7, 14, 21, 28 | | March 29 | | 0.0124 |
|
Obligation to Pay the Distribution Services Component of Distribution and Shareholder Servicing Fee
The distribution services component of the DSS Fee represents reimbursement to the Dealer Manager for costs incurred by participating broker-dealers and investment representatives for the distribution of our Common Shares. The DSS Fee quarterly payments will cease in the event that the Dealer Manager Agreement is terminated by us or the Dealer Manager. The table below presents the expected schedule of future payments of the distribution services component of the DSS Fee (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 |
| | | Total | | < 1 year | | 1-3 years | | 3-5 years | | > 5 years |
| DSS Fee: Distribution services component | | $ | 2,468 |
| | $ | 179 |
| | $ | 1,198 |
| | $ | 989 |
| | $ | 102 |
|
|
| | | | | | | | | | |
| 2020 Record Dates | | 2020 Payment Dates | | Distribution per Share per Record Date | | Distribution per Share per Payment Date |
| January 6, 13, 20, 27 | | January 29 | | $ | 0.01258 |
| | $ | 0.05032 |
|
| February 3, 10, 17, 24 | | February 26 | | 0.01258 |
| | 0.05032 |
|
| March 2, 9, 16, 23, 30 | | April 1 | | 0.01258 |
| | 0.0629 |
|
Related Party Agreements and Transactions
Expense Support and Conditional Reimbursement Agreement
We have entered into agreements with the Advisor, and certain of its affiliates, and GPIMGuggenheim whereby we agreed to (i) receive expense support payments (ii)and to conditionally reimburse certain expenses of, and toit for prior period expense support payments, (ii) pay for administrative expense support, organization and offerings costs incurred on our behalfservices and (iii) compensate for capital market services in connection withperiodically pay DSS Fees to the marketing and distributionDealer Manager, an affiliate of our Shares.Guggenheim. See Note 4. Related Party Agreements and Transactions for a discussion of the related party transactionsagreements and expense reimbursement agreements. Reimbursement to the Advisorsof CCA and Guggenheim for Organization and Offering Expenses
Under the terms of the O&O Agreement, we agreed to reimburse the AdvisorsCCA and Guggenheim for our organization and offering expenses solely in connection with the capital raise of our Public Offering (see Note 4. Related Party Agreements and Transactions). Since our Public Offering was terminated, CCA and Guggenheim are not eligible to receive any further reimbursement of offering expenses after April 28, 2017. Reimbursement toof the Administrator for Administrative Services
We reimburse the Administrator for its expenses in connection with the provision of administrative services to us. These reimbursement expenses are periodically reviewed and approved by the Independent Trustees Committee of our Board of Directors.Trustees. See Note 4. Related Party Agreements and Transactions for a summary of reimbursable expenses as related to administrative services.
Obligation to Pay the Distribution Services Component of Distribution and Shareholder Servicing Fee
The Distribution Services Component of the DSS Fee represents reimbursement to the Dealer Manager for costs incurred by participating broker-dealers and investment representatives for the distribution of our Common Shares. (See Note 2. Significant Accounting Policies - Distribution and Shareholder Servicing Fees regarding the obligation to pay the Distribution Services Component.) The DSS Fee quarterly payments will cease in the event that the Dealer Manager Agreement is terminated by us or the Dealer Manager. The table below presents the expected schedule of future payments of the Distribution Services Component of the DSS Fee: |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Total | | ≤ 1 year | | > 1 - 3 years | | 3 - 5 years | | 5 years |
| DSS Fee: Distribution Services Component | | $ | 1,587 |
| | $ | 823 |
| | $ | 764 |
| | $ | — |
| | $ | — |
|
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are subject to financial market risks, including changes in interest rates through our investment in the Master Fund. As of December 31, 2016, 90.7%2019, 94.8% of the Master Fund's debt investments (91.4% of total investments), or $249.4$340.3 million measured at fair value, isare subject to variablefloating interest rates. The Master Fund's sole credit facility is also subject to changes in its 3-Month London Interbank Offered Rate (LIBOR) base rate. A rise in the general level of interest rates can be expected to lead to (i) higher interest income for the Master Fund's variablefloating rate debt investments, (ii) value declines for fixed rate investments the Master Fund may hold and (iii) higher interest expense in connection with the Master Fund's floating rate credit facility. To the extent that a majority of the Master Fund's investments may be in variablefloating rate investments, an increase in interest rates could also make it more difficult for borrowers to repay their loans, and a rise in interest rates may also make it easier for the AdvisorsAdvisor to meet or exceed the quarterly threshold for a performance basedperformance-based incentive fee as described in Note 4. Related Party Agreements and Transactions of the Master Fund's consolidated financial statements. Based on our investment position in the Master Fund as of December 31, 2016,2019, the following table presents the approximate annualized increase (decrease) in value per outstanding Common Share due to (i) interest income from the Master Fund's investment portfolio and (ii) interest expense on the Master Fund's floating rate borrowings, directly resulting from hypothetical changes in base rate interest rates (e.g., LIBOR), assuming no changes in (i) the number of outstanding Common Shares, (ii) the number of outstanding Master Fund Shares and (iii) our percent ownership of Master Fund shares and that changes in the Master Fund's net investment income are immediately passed on to the Master Fund's shareholders, including us:shares:
| | | | | Net Increase | |
| | | (Decrease) | |
| Basis Points (bps) Increase | | per Share | |
Basis Points (bps) Increase (Decrease) | | | Net Increase (Decrease) per Share |
| -50 bps | | | $ | (0.03 | ) |
| +50 bps | | $ | 0.01 |
| | 0.03 |
|
| +100 bps | | 0.04 |
| | 0.07 |
|
| +150 bps | | 0.06 |
| | 0.10 |
|
| +200 bps | | 0.09 |
| | 0.14 |
|
The Master Fund regularly measures its exposure to interest rate risk. The Master Fund assesses interest rate risk and manages its interest rate exposure on an ongoing basis by comparing its interest rate sensitive assets to its interest rate sensitive liabilities. Based on that review, the Master Fund determines whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees and Shareholders of CareyGuggenheim Credit Income Fund 2016 T:T
In our opinion,Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities and the related statements of operations, of changes in net assets and of cash flows present fairly, in all material respects, the financial position of CareyGuggenheim Credit Income Fund 2016 T (the “Company”) as of December 31, 20162019 and 2018, the related statements of operations, changes in net assets and cash flows for each of the two years in the period ended December 31, 2015,2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations, its changes in its net assets and its cash flows for each of the yeartwo years in the period ended December 31, 2016 and the period from July 24, 2015 (inception) through December 31, 20152019, in conformity with accounting principlesU.S. generally accepted in the United States of America. accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements 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 the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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 test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the auditor of one or more investment companies in the Guggenheim Credit Income Funds business development company group since 2018.
New York, NY
March 13, 2020
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Guggenheim Credit Income Fund 2016T
Opinion on the Financial Statements
We have audited the statements of operations, of changes in net assets and of cash flows of Guggenheim Credit Income Fund 2016T (the “Company”) for the year ended December 31, 2017, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit 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 test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
April 17, 2017March 14, 2018
We served as the Company's auditor from 2015 to 2017.
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share amounts)data)
| | | | December 31, 2016 | | December 31, 2015 | December 31, 2019 | | December 31, 2018 |
| Assets | | | | | | |
Investment in Carey Credit Income Fund (Cost of $107,184 and $2,235, respectively) | $ | 111,030 |
| | $ | 2,157 |
| |
| Investment in Guggenheim Credit Income Fund ("GCIF") (18,122,416 shares purchased at a cost of $150,509 and 18,835,670 shares purchased at a cost of $156,091, respectively) | | $ | 140,933 |
| | $ | 152,409 |
|
| Cash | 1,313 |
| | 41 |
| 802 |
| | 1,698 |
|
| Due from Advisors | 598 |
| | — |
| |
| Deferred offering costs | 854 |
| | — |
| |
| Dividend income receivable | — |
| | 33 |
| |
| Other assets | 4 |
| | — |
| |
| Principal receivable | | 6 |
| | — |
|
| Receivable from related parties | | — |
| | 31 |
|
| Dividends receivable | | — |
| | 2,189 |
|
| Total assets | 113,799 |
| | 2,231 |
| 141,741 |
| | 156,327 |
|
| | | | | | | |
| Liabilities | | | | | | |
| Due to Dealer Manager | | 1,853 |
| | 2,907 |
|
| Accounts payable, accrued expenses and other liabilities | $ | 87 |
| | $ | 3 |
| 32 |
| | 81 |
|
| Accrued professional services fees | 42 |
| | 47 |
| 60 |
| | 56 |
|
| Due to Advisors | 24 |
| | 20 |
| |
| Accrued offering expenses | 193 |
| | — |
| |
| Due to Dealer Manager | 2,300 |
| | — |
| |
| Distributions payable | | — |
| | 1,521 |
|
| Payable to related parties | | 108 |
| | 53 |
|
| Total liabilities | 2,646 |
| | 70 |
| 2,053 |
| | 4,618 |
|
| | | | |
| | | | |
| Net Assets | $ | 111,153 |
| | $ | 2,161 |
| $ | 139,688 |
| | $ | 151,709 |
|
| | | | | | | |
| Components of Net Assets: | | | | | | |
| Common Shares, $0.001 par value, 1,000,000,000 Common Shares authorized, 12,205,783 and 248,877 Common Shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively | $ | 12 |
| | $ | — |
| |
| Common Shares, $0.001 par value, 1,000,000,000 Common Shares authorized, 16,961,080 and 17,534,522 Common Shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | | $ | 17 |
| | $ | 18 |
|
| Paid-in-capital in excess of par value | 107,638 |
| | 2,240 |
| 149,220 |
| | 153,899 |
|
| Distributions in excess of net investment income | (343 | ) | | (1 | ) | |
| Net unrealized appreciation (depreciation) on investment | 3,846 |
| | (78 | ) | |
Accumulated loss, net of distributions (1) | | (9,549 | ) | | (2,208 | ) |
| Total net assets | $ | 111,153 |
| | $ | 2,161 |
| $ | 139,688 |
| | $ | 151,709 |
|
| Net asset value per Common Share | $ | 9.11 |
| | $ | 8.68 |
| $ | 8.24 |
| | $ | 8.65 |
|
_______________________
See Notes to Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)data)
| | | | | | Period from | |
| | | | July 24, 2015 | | | | | | | |
| | Year Ended | | (inception) to | For the Years Ended December 31, |
| | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 | | 2017 |
| Investment Income | | | | | | | | |
| Dividends from investment in Carey Credit Income Fund | $ | 1,987 |
| | $ | 33 |
| |
| Dividends from investment in GCIF | | $ | 10,389 |
| | $ | 13,636 |
| | $ | 10,604 |
|
| Total investment income | 1,987 |
| | 33 |
| 10,389 |
| | 13,636 |
| | 10,604 |
|
| | | | | | | | | |
Operating Expenses (1) | | | | | | | | |
| Administrative services | 15 |
| | 7 |
| 15 |
| | 15 |
| | 15 |
|
| Related party reimbursements | 284 |
| | 15 |
| 215 |
| | 214 |
| | 293 |
|
| Trustees fees | 3 |
| | 3 |
| 3 |
| | 3 |
| | 3 |
|
| Professional services fees | 153 |
| | 116 |
| 125 |
| | 131 |
| | 299 |
|
| Offering expenses | 435 |
| | — |
| |
| Organization expenses | 94 |
| | 1 |
| |
| Printing and mailing expenses | 44 |
| | — |
| |
| Offering costs | | — |
| | 99 |
| | 1,493 |
|
| Shareholder servicing expenses | | 342 |
| | 369 |
| | 191 |
|
| Transfer agent expense | | 307 |
| | 265 |
| | 95 |
|
| Other expenses | 49 |
| | — |
| 91 |
| | 106 |
| | 120 |
|
| Total operating expenses | 1,077 |
| | 142 |
| 1,098 |
| | 1,202 |
| | 2,509 |
|
| Reimbursement of expense support | | 246 |
| | 404 |
| | 1,045 |
|
| (2,078 | ) | | (117 | ) | — |
| | (57 | ) | | (1,781 | ) |
| Net expenses | (1,001 | ) | | 25 |
| 1,344 |
| | 1,549 |
| | 1,773 |
|
| Net investment income | 2,988 |
| | 8 |
| 9,045 |
| | 12,087 |
| | 8,831 |
|
| | | | | | |
| | |
| Unrealized appreciation (depreciation) from investment in Carey Credit Income Fund | | | | |
| Net change in unrealized appreciation (depreciation) on investment | 3,924 |
| | (78 | ) | |
| Total unrealized appreciation (depreciation) | 3,924 |
| | (78 | ) | |
| Net increase (decrease) in net assets resulting from operations | $ | 6,912 |
| | $ | (70 | ) | |
| Realized and unrealized gains (losses): | | | | | | |
| Net realized gain from redemption of investment in GCIF | | 23 |
| | — |
| | 46 |
|
| Long term gain distributions from investment in GCIF | | 849 |
| | 2,233 |
| | 231 |
|
| Net realized gains from investment in GCIF | | 872 |
| | 2,233 |
| | 277 |
|
| Net change in unrealized appreciation (depreciation) from investment in GCIF | | (5,894 | ) | | (8,144 | ) | | 616 |
|
| Net realized and unrealized gains (losses) | | (5,022 | ) | | (5,911 | ) | | 893 |
|
| Net increase in net assets resulting from operations | | $ | 4,023 |
| | $ | 6,176 |
| | $ | 9,724 |
|
| | | | | | | | | |
| Per Common Share information: | | | | | | | | |
| Net investment income per Common Share outstanding - basic and diluted | $ | 0.55 |
| | $ | 0.26 |
| $ | 0.52 |
| | $ | 0.69 |
| | $ | 0.53 |
|
| Earnings (loss) per Common Share - basic and diluted | $ | 1.27 |
| | $ | (2.29 | ) | |
| Earnings per Common Share - basic and diluted | | $ | 0.23 |
| | $ | 0.35 |
| | $ | 0.58 |
|
| Weighted average Common Shares outstanding - basic and diluted | 5,442,377 |
| | 30,518 |
| 17,454,069 |
| | 17,526,578 |
| | 16,698,890 |
|
| Distributions per Common Share | | $ | 0.65 |
| | $ | 0.74 |
| | $ | 0.64 |
|
______________
| |
| (1) | Operating expenses solely represent the Company's operating expenses and do not include the Company's proportionate share of the Master Fund's operating expenses. |
See Notes to Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share and per share amounts)data)
|
| | | | | | | |
| | | | Period from |
| | | | July 24, 2015 |
| | Year Ended | | (Inception) to |
| | December 31, 2016 | | December 31, 2015 |
| Operations | | | |
| Net investment income | $ | 2,988 |
| | $ | 8 |
|
| Net change in unrealized appreciation (depreciation) | 3,924 |
| | (78 | ) |
| Net increase (decrease) in net assets resulting from operations | 6,912 |
| | (70 | ) |
| Shareholder distributions: | | | |
| Distributions from net investment income | (2,988 | ) | | (8 | ) |
| Distributions in excess of net investment income | (523 | ) | | (1 | ) |
| Net decrease in net assets from shareholder distributions | (3,511 | ) | | (9 | ) |
| Capital share transactions: | | | |
| Issuance of Common Shares | 106,181 |
| | 2,237 |
|
| Reinvestment of shareholders distributions | 1,715 |
| | 3 |
|
| Repurchase of Common Shares | (5 | ) | | — |
|
| Distribution services charge | (2,300 | ) | | — |
|
| Net increase in net assets resulting from capital share transactions | 105,591 |
| | 2,240 |
|
| Total increase in net assets | 108,992 |
| | 2,161 |
|
| Net assets at beginning of period | 2,161 |
| | — |
|
| Net assets at end of period | $ | 111,153 |
| | $ | 2,161 |
|
| | | | |
| Capital share activity: | | | |
| Shares outstanding at the beginning of the period | 248,877 |
| | — |
|
| Common Shares issued from subscriptions | 11,770,097 |
| | 248,547 |
|
| Common Shares issued from reinvestment of distributions | 187,409 |
| | 330 |
|
| Common Shares repurchased | (600 | ) | | — |
|
| Shares outstanding at the end of the period | 12,205,783 |
| | 248,877 |
|
| Distribution in excess of net investment income at end of period | $ | (343 | ) | | $ | (1 | ) |
| Distributions per Common Share | $ | 0.66 |
| | $ | 0.15 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Common Shares | | Paid-in-Capital in Excess of Par Value | | Accumulated Earnings (Loss), net of Distributions | | |
| | Shares | | Amount | | | | Total |
| Balance at December 31, 2016 | 12,205,783 |
| | $ | 12 |
| | $ | 107,638 |
| | $ | 3,503 |
| | $ | 111,153 |
|
| Operations: | | | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | 8,831 |
| | 8,831 |
|
| Net realized gains from investment in GCIF | — |
| | — |
| | — |
| | 277 |
| | 277 |
|
| Net change in unrealized appreciation from investment in GCIF | — |
| | — |
| | — |
| | 616 |
| | 616 |
|
| Net increase in net assets resulting from operations | — |
| | — |
| | — |
| | 9,724 |
| | 9,724 |
|
| Shareholder distributions: | | | | | | | | | |
| Distributions from earnings | — |
| | — |
| | — |
| | (10,665 | ) | | (10,665 | ) |
| Net decrease in net assets resulting from shareholder distributions | — |
| | — |
| | — |
| | (10,665 | ) | | (10,665 | ) |
| Capital share transactions: | | | | | | | | | |
| Issuance of Common Shares | 4,951,760 |
| | 5 |
| | 46,385 |
| | — |
| | 46,390 |
|
| Common Shares issued from reinvestment of distributions | 552,406 |
| | — |
| (1) | 5,067 |
| | — |
| | 5,067 |
|
| Common Shares repurchased | (308,015 | ) | | — |
| (1) | (2,812 | ) | | — |
| | (2,812 | ) |
| Distribution services charge | — |
| | — |
| | (1,401 | ) | | — |
| | (1,401 | ) |
| Net increase in net assets resulting from capital share transactions | 5,196,151 |
| | 5 |
| | 47,239 |
| | — |
| | 47,244 |
|
| Reclassifications of permanent book tax differences | — |
| | — |
| | (1,552 | ) | | 1,552 |
| | — |
|
| Net increase for the period | 5,196,151 |
| | 5 |
| | 45,687 |
| | 611 |
| | 46,303 |
|
| Balance at December 31, 2017 | 17,401,934 |
| | $ | 17 |
| | $ | 153,325 |
| | $ | 4,114 |
| | $ | 157,456 |
|
| Operations: | | | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | 12,087 |
| | 12,087 |
|
| Net realized gains from investment in GCIF | — |
| | — |
| | — |
| | 2,233 |
| | 2,233 |
|
| Net change in unrealized depreciation from investment in GCIF | — |
| | — |
| | — |
| | (8,144 | ) | | (8,144 | ) |
| Net increase in net assets resulting from operations | — |
| | — |
| | — |
| | 6,176 |
| | 6,176 |
|
| Shareholder distributions: | | | | | | | | | |
| Distributions from earnings | — |
| | — |
| | — |
| | (12,911 | ) | | (12,911 | ) |
| Net decrease in net assets resulting from shareholder distributions | — |
| | — |
| | — |
| | (12,911 | ) | | (12,911 | ) |
| Capital share transactions: | | | | | | | | | |
| Issuance of Common Shares | 3 |
| | — |
| (1) | — |
| | — |
| | — |
|
| Common Shares issued from reinvestment of distributions | 577,942 |
| | 1 |
| | 5,210 |
| | — |
| | 5,211 |
|
| Common Shares repurchased | (445,357 | ) | | — |
| (1) | (4,031 | ) | | — |
| | (4,031 | ) |
| Distribution services charge | — |
| | — |
| | (192 | ) | | — |
| | (192 | ) |
| Net increase in net assets resulting from capital share transactions | 132,588 |
| | 1 |
| | 987 |
| | — |
| | 988 |
|
| Reclassifications of permanent book tax differences | — |
| | — |
| | (413 | ) | | 413 |
| | — |
|
| Net increase (decrease) for the period | 132,588 |
| | 1 |
| | 574 |
| | (6,322 | ) | | (5,747 | ) |
| Balance at December 31, 2018 | 17,534,522 |
| | $ | 18 |
| | $ | 153,899 |
| | $ | (2,208 | ) | | $ | 151,709 |
|
| Operations: | | | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | 9,045 |
| | 9,045 |
|
| Net realized gains from investment in GCIF | — |
| | — |
| | — |
| | 872 |
| | 872 |
|
| Net change in unrealized depreciation from investment in GCIF | — |
| | — |
| | — |
| | (5,894 | ) | | (5,894 | ) |
| Net increase in net assets resulting from operations | — |
| | — |
| | — |
| | 4,023 |
| | 4,023 |
|
| Shareholder distributions: | | | | | | | | | |
| Distributions from earnings | — |
| | — |
| | — |
| | (11,413 | ) | | (11,413 | ) |
| Net decrease in net assets resulting from shareholder distributions | — |
| | — |
| | — |
| | (11,413 | ) | | (11,413 | ) |
| Capital share transactions: | | | | | | | | | |
| Common Shares issued from reinvestment of distributions | 648,515 |
| | — |
| (1) | 5,536 |
| | — |
| | 5,536 |
|
| Common Shares repurchased | (1,221,957 | ) | | (1 | ) | | (10,352 | ) | | — |
| | (10,353 | ) |
| Distribution services charge | — |
| | — |
| | 186 |
| | — |
| | 186 |
|
| Net decrease in net assets resulting from capital share transactions | (573,442 | ) | | (1 | ) | | (4,630 | ) | | — |
| | (4,631 | ) |
| Reclassifications of permanent book tax differences | — |
| | — |
| | (49 | ) | | 49 |
| | — |
|
| Net decrease for the period | (573,442 | ) | | (1 | ) | | (4,679 | ) | | (7,341 | ) | | (12,021 | ) |
| Balance at December 31, 2019 | 16,961,080 |
| | $ | 17 |
| | $ | 149,220 |
| | $ | (9,549 | ) | | $ | 139,688 |
|
_______________________
| |
| (1) | Amount is less than $1,000. |
See Notes to Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | |
| | | | Period from |
| | | | July 24, 2015 |
| | Year Ended | | (Inception) to |
| | December 31, 2016 | | December 31, 2015 |
| Operating activities | | | |
| Net increase (decrease) in net assets resulting from operations | $ | 6,912 |
| | $ | (70 | ) |
| Adjustments to reconcile net (increase) decrease in net assets from operations to net cash used in operating activities: | | | |
| Purchase of investments in Carey Credit Income Fund | (104,949 | ) | | (2,235 | ) |
| Net change in unrealized (appreciation) depreciation on investment | (3,924 | ) | | 78 |
|
| (Increase) decrease in operating assets: | | | |
| Due from Advisors | (598 | ) | | — |
|
| Deferred offering costs | (854 | ) | | — |
|
| Dividend income receivable | 33 |
| | (33 | ) |
| Other assets | (4 | ) | | — |
|
| Increase (decrease) in operating liabilities: | | | |
| Accounts payable, accrued expenses and other liabilities | 84 |
| | 3 |
|
| Accrued professional services fees | (5 | ) | | 47 |
|
| Due to Advisors | 4 |
| | 20 |
|
| Accrued offering expenses | 193 |
| | — |
|
| Net cash used in operating activities | (103,108 | ) | | (2,190 | ) |
| | | | |
| Financing activities | | | |
| Issuance of Common Shares | $ | 106,181 |
| | $ | 2,237 |
|
| Distributions paid | (1,796 | ) | | (6 | ) |
| Repurchase of Common Shares | (5 | ) | | — |
|
| Net cash provided by financing activities | 104,380 |
| | 2,231 |
|
| | | | |
| Net increase in cash | 1,272 |
| | 41 |
|
| Cash, beginning of period | 41 |
| | — |
|
| Cash, end of period | $ | 1,313 |
| | $ | 41 |
|
| Supplemental information: | | | |
| Distributions reinvested | $ | 1,715 |
| | $ | 3 |
|
| Amounts due to Dealer Manager | $ | 2,300 |
| | $ | — |
|
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Operating activities | | | | | |
| Net increase in net assets resulting from operations | $ | 4,023 |
| | $ | 6,176 |
| | $ | 9,724 |
|
| Adjustments to reconcile net increase in net assets from operations to net cash provided by (used in) operating activities: | | | | | |
| Purchase of investment in GCIF | (1,000 | ) | | — |
| | (49,417 | ) |
| Sale of investment in GCIF through GCIF's share repurchase program | 6,605 |
| | — |
| | 556 |
|
| Net realized gains from investment in GCIF | (23 | ) | | — |
| | (46 | ) |
| Net change in unrealized (appreciation) depreciation from investment in GCIF | 5,894 |
| | 8,144 |
| | (616 | ) |
| (Increase) decrease in operating assets: | | | | | |
| Principal receivable | (6 | ) | | — |
| | — |
|
| Receivable from related parties | 31 |
| | (31 | ) | | 598 |
|
| Dividends receivable | 2,189 |
| | (2,189 | ) | | — |
|
| Prepaid expenses and other assets | — |
| | 99 |
| | 759 |
|
| Increase (decrease) in operating liabilities: | | | | | |
| Due to Dealer Manager | (13 | ) | | (7 | ) | | 112 |
|
| Accounts payable, accrued expenses and other liabilities | (49 | ) | | 25 |
| | (31 | ) |
| Accrued professional services fees | 4 |
| | 4 |
| | 10 |
|
| Payable to related parties | 55 |
| | (605 | ) | | 634 |
|
| Accrued offering expenses | — |
| | — |
| | (193 | ) |
| Net cash provided by (used in) operating activities | 17,710 |
| | 11,616 |
| | (37,910 | ) |
| | | | | | |
| Financing activities | | | | | |
| Issuance of Common Shares | — |
| | — |
| | 46,390 |
|
| Repurchase of Common Shares | (10,353 | ) | | (4,031 | ) | | (2,812 | ) |
| Distributions paid | (7,398 | ) | | (6,179 | ) | | (5,598 | ) |
| Payment of DSS Fees | (855 | ) | | (896 | ) | | (195 | ) |
| Net cash provided by (used in) financing activities | (18,606 | ) | | (11,106 | ) | | 37,785 |
|
| | | | | | |
| Net increase (decrease) in cash | (896 | ) | | 510 |
| | (125 | ) |
| Cash, beginning of year | 1,698 |
| | 1,188 |
| | 1,313 |
|
| Cash, end of year | $ | 802 |
| | $ | 1,698 |
| | $ | 1,188 |
|
| Supplemental information and non-cash financing activities: | | | | | |
| Distributions reinvested | $ | 5,536 |
| | $ | 5,211 |
| | $ | 5,067 |
|
| Due to Dealer Manager | $ | (186 | ) | | $ | 192 |
| | $ | 1,401 |
|
| Related party payments to shareholders for purchase price adjustments | $ | — |
| | $ | — |
| | $ | 23 |
|
See Notes to Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data, percentages and as otherwise indicated;
for example, with the word “million” or otherwise)
Note 1. Principal Business and Organization
CareyGuggenheim Credit Income Fund 2016 T (the "Company") was formed as a Delaware statutory trust on September 5, 2014. The Company's investment objectives are to provide its shareholders with current income, capital preservation and, to a lesser extent, long-term capital appreciation by investing substantially all of its equity capital in CareyGuggenheim Credit Income Fund (the "Master Fund", or "GCIF"). The Company is a non-diversified, closed-end management investment company that elected to be treated as a business development company (a "BDC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Master Fund has elected to be treated as a BDC under the 1940 Act and it has the same investment objectives as the Company. The Master Fund is externally managed by Carey Credit Advisors, LLC (the "Advisor"), an affiliate of W. P. Carey Inc. ("WPC"), and Guggenheim Partners Investment Management, LLC ("GPIM") (collectively the "Advisors"), which are responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investment opportunities, structuring investments and ongoing monitoring of the Master Fund’s investment portfolio. Both Advisors are registered as investment advisers with the U.S. Securities and Exchange Commission ("SEC"). The Advisor also provides the administrative services necessary for the operations of the Company and the Master Fund. The Master Fund commenced investment operations on April 2, 2015. The Master Fund's consolidated financial statements are an integral part of the Company's financial statements and should be read in their entirety.
The Master Fund is externally managed by Guggenheim Partners Investment Management, LLC ("Guggenheim" or the "Advisor"), which were responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investment opportunities, structuring investments and ongoing monitoring of the Master Fund’s investment portfolio.
Between July 24, 2015 and April 28, 2017, the Company is currently offeringoffered and sellingsold its common shares ("Shares" or "Common Shares") pursuant to a registration statement on Form N-2 (the “Registration Statement”) covering its continuous public offering of up to 104,712,041 Common Shares$1.0 billion (the “Public Offering”). The Company willinitially sold and issued Shares on October 8, 2015 and then commenced investment operations. On April 28, 2017, the Company's Public Offering was terminated, resulting in a gross capital raise of approximately $164 million from the sale and issuance of Common Shares in the Public Offering. The Company may continue to acquire Master Fund common shares in a continuous series of private placement transactions with the proceeds from its Public Offeringdistribution reinvestment program, subject to the availability of surplus cash available for investment (see Note 5. Common Shares). The Company initially sold and issued Shares on October 8, 2015 and then commenced investment operations. As of December 31, 2016,2019, the Company owned 62.40%66.7% of the Master Fund's outstanding common shares.
Note 2. Significant Accounting Policies
Basis of Presentation
Management has determined that the Company meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC Topic 946”).
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying financial statements of the Company and the related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Regulation S-X. The Company's financial statements should be read in conjunction with the Master Fund's financial statements.
Reclassifications
Certain prior period amounts have beenmay be reclassified to conform to the current presentation with no effect on the Company's financial condition, results of operations or cash flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the reported amounts of income and expenses during the reported period and (iii) disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ materially from those estimates under different assumptions and conditions.
Cash
Cash consists of demand deposits held at a major U.S. financial institution and the amount recorded on the statements of assets and liabilities may exceed the Federal Deposit Insurance Corporation insured limit. Management believes the credit risk related to its demand deposits is minimal.
Notes to Financial Statements
Valuation of Investments
The Company invests substantially all of its equity capital in the purchase of the Master Fund's common shares and its primary investment position is common shares of the Master Fund. The Company determines the fair value of the Master Fund's common shares as the Master Fund's net asset value per common share (as determined by the Master Fund) multiplied by the number of Master Fund common shares owned by the Company. The Company has implemented Accounting Standards Update ("ASU") 2015-07, which permits a reporting entity, as a practical expedient, to measure the fair value of certain investments using the net asset value per share of the investment.
Transactions with the Master Fund
Distributions received from the Master Fund are recorded on the record date. Distributions received from the Master Fund are generally recognized as dividend income or distributions of long term gains in the current period, a portion of which may be subject to a change in characterization
Notes to Financial Statements
in future periods, including the potential for reclassification to realizedbetween dividend income, long term gains and return of capital. The Company's transactions with the Master Fund are recorded on the effective date of the subscription in, or the redemption from theof, Master Fund.Fund shares. Realized gains and losses resulting from the Company's share repurchase transactions with the Master Fund are calculated on the specific share identification basis.
Organization and Offering Expenses
Organization expenses are expensed on the Company's statements of operations. Continuous offering expenses are capitalized monthly on the Company's statements of assets and liabilities as deferred offering costs and thereafter expensed to the Company's statements of operations over a 12-month period.period on a straight-line basis commencing at the later of (i) when the expense was incurred or (ii) when operations began.
Distribution and Shareholder Servicing Fees
Beginning in the second calendar quarter after the close of the Company's Public Offering, the Company will commence quarterly payments of the DSS Fee at an annual rate of 0.90% of the average net purchase price per share sold in the Public Offering. The purpose of the distribution and shareholder servicing fee ("DSS FeeFee") is to reimburse the Dealer ManagerGuggenheim Funds Distributors, LLC, a Delaware limited liability company (the "Dealer Manager" or "GFD"), an affiliate of the Company's Public Offering,Guggenheim, for costs incurred by participating broker-dealersselected dealers and investment representatives for (i) distribution of the Company's Common Shares (the distribution services component)"Distribution Services Component") and (ii) providing ongoing shareholder services (the shareholder services component)"Shareholder Services Component"). Due to the specific facts and circumstances associated with the Company's DSS Fee, beginningBeginning in the third quarter of 2017 (the first calendar quarter after the close of the Company's Public Offering,Offering), the shareholder services component will be recognizedCompany commenced recognition of the Shareholder Services Component as an expense on the Company's statementstatements of operations as the services are provided, and theprovided. The Company has allocated 0.25% per annum of the average net purchase price per share sold in the Public Offering to this component.the Shareholder Services Component. As the distribution services component,Distribution Services Component, representing 0.65% per annum of the average net purchase price per share sold in the Public Offering, pertains to the sale of the Company's Common Shares, and given its specific facts and circumstances, the Company estimates the present value of all future DSS FeeDistribution Services Component payments, in excess of the quarterly payment amounts allocated to shareholder services component , employing a discounteddiscount rate equal to a five year risk free interest rate.the prevailing effective yield on 5-year US Treasuries as observed on December 30, 2016. The Company records a liability based onequal to the estimated present value of the distribution services component of the DSS Fee,Distribution Services Component payments, recorded as part of "Due to Dealer Manager"with an offsetting charge to “Paid-in-capital in excess of par value” on the statements of assets and liabilities and recorded as a "Distribution services charge" on the statements of changes in net assets.
The payment of the DSS Fee is computed at the daily rate of 0.002466% (i.e. annual rate of 0.90%), which includes both the distribution component and the shareholder services component, of the product of (i) the weighted average net price of Common Shares sold in the Public Offering, excluding Common Shares issued under the Company's distribution reinvestment plan ("DRP Shares"), and (ii) the number of Common Shares outstanding on each day during the recording period, excluding (a) DRP Shares and (b) Shares not being serviced by an eligible participating broker-dealer. The Company will cease to pay the DSS Fee at the earlier of: (i) the date at which the second amended and restated dealer manager agreement (the "Dealer Manager Agreement") is terminated; (ii) the date at which the underwriting compensation from all sources, including the DSS Fee, any organization and offering fees paid to Carey Financial, LLC, a Delaware limited liability company (the "Dealer Manager") for underwriting,underwriting compensation, and shareholder servicing paid directly by the shareholders and the Company or its affiliates, equals 10% of the gross proceeds from the Company's initial public offering of Common Shares, excluding proceeds from Common Share sales pursuant to the Company's distribution reinvestment plan; and (iii) the date at which a liquidity event occurs.
During the year ended December 31, 2016, $2.3 million of DSS Fees were charged to “Paid-in-capital in excess of par value”. This amount represents estimated future payments for distribution services already rendered of $2.5 million discounted at a five year risk free interest rate, estimated to be 2.6%. The following table shows the payment of the estimated $2.5 million in DSS Fees pertaining to distribution services in connection with the Company's Public Offering (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 |
| | | Total | | < 1 year | | 1-3 years | | 3-5 years | | > 5 years |
| DSS Fee: Distribution services component | | $ | 2,468 |
| | $ | 179 |
| | $ | 1,198 |
| | $ | 989 |
| | $ | 102 |
|
Fourth Quarter Adjustment
In the fourth quarter of 2016, the Company recorded an adjustment in the financial statements related to the accounting for the distribution component of the DSS Fee. A liability of $2.3 million was recorded, of which $1.6 million pertains to distribution services rendered for the period from January 1, 2016 through September 30, 2016, to reflect the present value of the estimated future payments that the Company expects to pay the Dealer Manager.
Earnings per Common Share
Earnings per Common Share is calculated based upon the weighted average number of Common Shares outstanding during the reporting period.
Distributions to the Company's Shareholders
DistributionsDeclared distributions to the Company's shareholders are recorded as a liability as of the record date.
Notes to Financial Statements
Federal Income Taxes
The Company has elected to be treated for federal income tax purposes, and intends to maintain its qualification, as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes dividends in a timely manner out of assets legally available for distributions to its shareholders of an amount generally at least equal to 90% of its “Investment Company Taxable Income,” determined without regard to any dividend paid, as defined in the Code. The Company intends to distribute sufficient dividends to maintain its RIC status each year and it does not anticipate incurring a material level of federal income taxes.
The Company is generally subject to nondeductible federal excise taxes if it does not distribute dividends to its shareholders in respect of each calendar year of an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gain net income (i.e., capital gains in excess of capital losses), adjusted for certain ordinary losses, for the one-year period generally ending on October 31st of the calendar year and (iii) any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which the Company incurred no federal income tax. The Company may, at its discretion, incur a 4% nondeductible federal excise tax on under-distribution of taxable ordinary income and capital gains.
Notes to Financial Statements
The Company follows ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other expenses in the statements of operations. Management has reviewed all open tax years and concluded that there is no effect to the Company’s financial positions or results of operations and no tax liability was required to be recorded resulting from unrecognized tax benefits relating to uncertain income tax position taken or expected to be taken on a tax return. During this period, the Company did not incur any material interest or penalties. Open tax years are those years that are open for examination by the relevant income taxing authority. As of December 31, 2019, open U.S. Federal and state income tax years include the tax years ended September 30, 2016 through September 30, 2019. The Company has no examinations in progress. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
Recent Accounting Standards
Securities and Exchange Commission (“SEC”) Disclosure Update and Simplification:
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification (the "SEC Release"), amending certain disclosure requirements intended to facilitate the disclosure of information to investors and simplify compliance. The SEC Release is effective for all filings on or after November 5, 2018. The Company first adopted the SEC Release for the fiscal quarter ended March 31, 2019. The SEC Release required presentation changes to the Company's statements of assets and liabilities and statements of changes in net assets. Prior to adoption, the Company presented, in accordance with previous SEC rules, accumulated earnings (loss), net of distributions, on the statements of assets and liabilities, as three components: 1) accumulated undistributed (distributions in excess of) net investment income; 2) accumulated undistributed net realized gains (losses) and 3) net unrealized appreciation (depreciation) on investment and presented distributions from earnings on the statements of changes in net assets as three components: 1) distributions from net investment income; 2) distributions from net realized gains on investment and 3) distributions in excess of net investment income. In accordance with the SEC Release, accumulated earnings and distributions from earnings are shown in total on the statements of assets and liabilities and statements of changes in net assets, respectively. The changes in presentation have been retrospectively applied to comparative periods presented in the financial statements.
The following tables provide the reconciliation of the components of distributions from earnings to conform to the current period presentation for the years ended December 31, 2018 and December 31, 2017:
|
| | | | | | | |
| | For the Year Ended December 31, 2018 | | For the Year Ended December 31, 2017 |
| Shareholder distributions: | | | |
| Distribution from net investment income | $ | (12,087 | ) | | $ | (8,831 | ) |
| Distribution from net realized gains from investment in GCIF | (824 | ) | | (277 | ) |
| Distribution in excess of net investment income | — |
| | (1,557 | ) |
| Distributions from earnings | $ | (12,911 | ) | | $ | (10,665 | ) |
The following table presents a breakout of accumulated loss, net of distributions, as of December 31, 2018:
|
| | | |
| | As of December 31, 2018 |
| Accumulated undistributed net investment income | $ | 66 |
|
| Accumulated undistributed net realized gains | 1,408 |
|
| Net unrealized depreciation on investment from investment in GCIF | (3,682 | ) |
| Accumulated loss, net of distributions | $ | (2,208 | ) |
Notes to Financial Statements
Note 3. Investments
Below is a summary of the Company's investment in the Master Fund, a related party (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Investment | | As of: | | No. of Shares | | Weighted Average Shares Owned (1) | | Cost | | Fair Value | | % of Net Assets |
| Carey Credit Income Fund | | December 31, 2016 | | 13,105 |
| | 5,860 |
| | $ | 107,184 |
| | $ | 111,030 |
| | 99.9 | % |
| Carey Credit Income Fund | | December 31, 2015 | | 270 |
| | 14 |
| | $ | 2,235 |
| | $ | 2,157 |
| | 99.8 | % |
___________________
(1) Weighted average shares owned of the Master Fund is computed as the weighted average shares owned from January 1st of the year
noted to the corresponding as of date. |
| | | | | | | | | | | | | | | | | | | |
| | | End of Period | | Weighted Average Shares Owned | | | | | | % of Net |
| Period Ended | | No. of Shares | | Quarter to Date | Year to Date | | Cost | | Fair Value | | Assets |
| December 31, 2019 | | 18,122,416 |
| | 18,445,894 |
| 18,742,374 |
| | $ | 150,509 |
| | $ | 140,933 |
| | 100.9 | % |
| December 31, 2018 | | 18,835,670 |
| | 18,835,670 |
| 18,835,670 |
| | $ | 156,091 |
| | $ | 152,409 |
| | 100.5 | % |
Restricted Securities
The Master Fund does not currently intend to list its common shares on any securities exchange and it does not expect a secondary market to develop for its issued and outstanding common shares. As a result, the Company's ability to sell its Master Fund common shares is limited. Because the Master Fund common shares are being acquired in one or more transactions not involving a public offering, they are "restricted securities" and may be required to be held indefinitely. Master Fund common shares may not be sold, transferred, assigned, pledged or otherwise disposed of unless (i) the Master Fund's consent is granted, and (ii) the Master Fund common shares are registered under applicable securities laws or specifically exempted from registration (in which case the Master Fund's shareholder may, at the Master Fund's option, be required to provide the Master Fund with a legal opinion, in form and substance satisfactory to the Master Fund, that registration is not required). Accordingly, a shareholder in the Master Fund, including the Company, must be willing to bear the economic risk of investing in the Master Fund.Fund common shares. No sale, transfer, assignment, pledge or other disposition, whether voluntary or involuntary, of the Master Fund's common shares may be made except by registration of the transfer on the Master Fund's books. Each transferee will be required to execute an instrument agreeing to be bound by these restrictions and the other restrictions imposed on the Master Fund common shares and to execute such other instruments or certifications as are reasonably required by the Master Fund.
From October 8, 2015 through March 20, 2019, the Company acquired its investment in the Master Fund at prices ranging from $7.84 per share to $8.55 per share.
Share Repurchase Program
The Master Fund has implemented a share repurchase program, whereby each calendar quarter it offers to repurchase up to 2.5% of the weighted average number of common shares outstanding in the prior four calendar quarters at a price estimated to be equal to its net asset value per common share as of the end of the preceding calendar quarter. The Master Fund's Board of Trustees may amend, suspend or terminate the share repurchase program upon 30 days' notice.
Note 4. Related Party Agreements and Transactions
AllThe Company has entered into agreements with Guggenheim whereby the Company agrees to (i) receive expense support payments, (ii) reimburse certain expenses of, and to pay for, administrative, expense support, organization and offerings costs incurred by Guggenheim on the Company’s executive officers, except its chief executive officerCompany's behalf and chief compliance officer, also serve as executive officers(iii) pay DSS Fees payments to GFD, an affiliate of the Advisor. Its chief executive officer also serves as chief executive officer of WPC, the Advisor's ultimate parent. Guggenheim.
The memberships of the Company's Board of Trustees (the "Company's Board" or the "Board of the CompanyTrustees") and the Master FundFund's Board are identical and consequently the Company and the Master Fund are related parties. All of the Company's executive officers also serve as executive officers of the Master Fund.
The Company has entered into agreements with the Advisor whereby the Company agrees to (i) receive expense support payments and (ii) reimburse certain expenses of, and to pay for, administrative, expense support, organization and offerings costs incurred on the Company's behalf. The Company has entered into an agreement with the Dealer Manager, an affiliate Two of the Advisor, to compensate it for capital market services in connection with the marketingCompany’s executive officers, Kevin Robinson, Senior Vice President, and distributionBrian Binder, Senior Vice President, serve as executive officers of the Company's Shares. TheGuggenheim.
Notes to Financial Statements
Company has entered into an agreement with GPIM whereby the Company agrees to (i) receive expense support payments, and (ii) reimburse it for certain expenses such as expense support and organization and offering costs incurred on the Company's behalf.
Administrative Services Agreement
On October 3, 2016, theThe Company entered intois party to an amended and restated administrative services agreement with the AdvisorGuggenheim (the "Administrative Services Agreement") whereby Guggenheim, serving as the Advisoradministrator (the "Administrator"), has agreed to provide administrative services, to the Company, including office facilities and equipment and clerical, bookkeeping and record-keeping services. More specifically, the Advisor, serving as the Administrator (the "Administrator"), performs and oversees the Company's required administrative services, which include financial and corporate record-keeping, preparing and disseminating the Company's reports to its shareholders and filing reports with the SEC. In addition, the Administrator assists in determining net asset value, overseesoverseeing the preparation and filing of tax returns, overseesoverseeing the payment of expenses and distributions and overseesoverseeing the performance of administrative and professional services fees rendered by others. For providing these services, facilities and personnel, the Company reimburses the Administrator the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administrative Services Agreement. Prior to October 7, 2015,
The Administrative Services Agreement may be terminated at any time, without the payment of any penalty: (i) by the Company had no obligationupon 60 days' written notice to reimburseGuggenheim upon the Administrator for any services or other expenses incurred directly by the Administrator or its affiliates, excluding any expensesvote of third-party service providers incurred by the Administrator or its affiliates on the Company's behalf.
independent trustees or (ii) by Guggenheim upon not less than 120 days' written notice to the Company. Unless earlier terminated, the Administrative Services Agreement will remain in effect for a period of two years, from the date it first became effective and will remain in effect year to year thereafter shall continue automatically for successive one-year periods if approved annually by a majority of the Company's Board of Trustees and the Company's Independent Trustees.Master Fund's independent trustees.
Dealer Manager Agreement
On April 12, 2017, theThe Company entered into an amended and restatedis party to a dealer managementmanager agreement with GFD (the "Dealer Manager Agreement") with the Dealer Manager and the Master Fund.. Under the terms of the Dealer Manager Agreement, the Dealer ManagerGFD is to act on a best efforts basis as the exclusive dealer manager for (i) the administration of the Company's public offering of Common SharesDSS Fee payments to selected dealers and (ii) the public offering of Common Sharescommon shares for future feeder funds affiliated with the Master Fund. The Company, not the Master Fund, is responsible for the compensation of the Dealer ManagerGFD pursuant to the terms of the Dealer Manager Agreement. GFD does not receive any compensation to manage the Company's DSS Fees program and it is not entitled to retain any of the DSS Fees payments. The Dealer Manager Agreement may be terminated by the Company or GFD upon 60 calendar days' written notice to the other party. In the event that the Company or GFD terminates the Dealer Manager Agreement with respect to the Company, the Dealer Manager Agreement will continue with respect to any other feeder fund.
Beginning in the fourth quarter of 2017 (the second calendar quarter after the close of the Company's Public OfferingOffering), the Company commenced quarterly payments of the DSS Fee at an annual rate of 0.90% of the average net purchase price per share sold in the Public Offering. The quarterly payment of the DSS Fee is computed at the daily rate of 0.002466% (i.e. annual rate of 0.90%) of the product of (i) $9.12 per Common Share (the average net purchase price of Common Shares.Shares sold in the Public Offering, excluding Common Shares issued under the Company's distribution reinvestment plan ("DRP Shares")) and (ii) the number of Common Shares outstanding on each day during the recording period, excluding (a) DRP Shares and (b) Shares owned by shareholders that are not recipients of ongoing shareholder services from eligible selected dealers. The Company will initiate quarterlycease to pay the DSS Fee paymentsat the earlier of: (i) the date at which the second amended and restated dealer manager agreement (the "Dealer Manager Agreement") is terminated; (ii) the date at which the underwriting compensation from all sources, including the DSS Fee, any organization and offering fees paid to reimburse the Dealer Manager for costs incurred by participating broker-dealers and investment representatives for providing distributionunderwriting, underwriting compensation and shareholder services. Theservicing paid directly by the shareholders and the Company or its affiliates, equals 10% of the gross proceeds from the Company's Public Offering, excluding proceeds from DRP Share sales; and (iii) the date at which a liquidity event occurs.
During the year ended December 31, 2019, a reduction of $0.2 million of DSS Fee quarterly payments will ceaseFees was booked to “Paid-in-capital in excess of par value”, $0.3 million was charged to "Shareholder servicing component expenses" and less than $0.1 million was charged to interest expense, included in other expenses, for the event thataccretion of the present value discount. As of December 31, 2019, the Company had recognized a liability to the Dealer Manager Agreement is terminated byof $1.9 million representing (i) the Companypresent value of all future estimated payments of the Distribution Services Component amounting to $1.6 million, or $1.6 million discounted at a rate of 1.93% and (ii) the Dealer Manager.current period accrued and unpaid portion of the Distribution and Shareholder Services Component, or $0.3 million. The following table presents the timing of future payments of the estimated $1.6 million of the DSS Fee: Distribution Services Component:
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Total | | ≤ 1 year | | > 1 - 3 years | | 3 - 5 years | | 5 years |
| DSS Fee: Distribution Services Component | | $ | 1,587 |
| | $ | 823 |
| | $ | 764 |
| | $ | — |
| | $ | — |
|
Notes to Financial Statements
Organization and Offering Expense Reimbursement Agreement
On August 17, 2015, theThe Company entered intois party to an organization and offering expense reimbursement agreement, as may be amended (the "O&O Agreement"), with the Advisors.Guggenheim. Under the O&O Agreement the Company reimburses the Advisorsreimbursed Guggenheim for organization and offering costsexpenses incurred on the Company's behalf, including, but not limited to, legal services, audit services, printer services and the registration of securities under the Securities Act. The reimbursement of organization and offering expenses iswas conditional on the Company's receipt of equity capital from the sale of its Common Shares. Any such reimbursement willcould not exceed actual expenses incurred by the AdvisorsGuggenheim and their affiliates. The Advisors will bewere ultimately responsible for the payment of the Company's cumulative organization and offering expenses to the extent they exceedexceeded 1.5% of the aggregate proceeds from the sale of the Company's Common Shares, without recourse against or reimbursement by the Company. In 2015, the Advisors waived reimbursement in connection with equity raised during the months of November and December and the reimbursement waiver expired on December 31, 2015. As of December 31, 2016, the Advisors have incurred organization and offering costs on behalf of the Company, net of reimbursements received from the Company, in the approximate amount of $1.6 million. Under the terms of the O&O Agreement, the Company is not obligated to reimburse the AdvisorsGuggenheim for these organization andany unreimbursed offering expenses solely in connection withafter the capital raise activityclose of itsthe Company's Public Offering.Offering on April 28, 2017.
Expense Support and Conditional Reimbursement Agreement
Pursuant toThe Company initially entered into an expense support and conditional reimbursement agreement executedwith Carey Credit Advisors, LLC ("CCA"), one of the Company's prior investment advisors, and Guggenheim on July 24, 2015, by and between the Advisors and the Companyas amended (the "Expense"Prior Expense Support Agreement"),. According to the Advisors haveterms of the Prior Expense Support Agreement, CCA and Guggenheim agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company's distributions to shareholders will be paid from Common Share offering proceeds or borrowings. The Advisorsproceeds. CCA and Guggenheim agreed to reimburse the Company monthly for expenses in an amount equal to the difference between the Company's cumulative distributions paid to its shareholders in each month less the sum of the Company's estimated investment company taxable income and net capital gains in each month. On September 5, 2017 the Company entered into an amended and restated expense support and conditional reimbursement agreement (the "Expense Support Agreement") with Guggenheim and CCA, for a limited purpose, effective as of September 11, 2017. The amended terms of the Expense Support Agreement: (i) released CCA from all obligations to make further expense payments, (ii) terminated all of CCA's rights under the Expense Support Agreement, including any right to reimbursement for prior period expense payments made under the terms of the Prior Expense Support Agreement and (iii) permitted the Company the option to limit or reduce Guggenheim expense payments in any manner so that the Company will comply with IRC Section 851 in each of its future tax years. As a result, 100% of all CCA's prior periods' unreimbursed expense payments were classed as ineligible for future reimbursement, and going forward, Guggenheim is the sole source of expense payments and solely eligible for reimbursement of prior periods' expense payments.
Pursuant to the Expense Support Agreement, the Company has a conditional obligation to reimburse the AdvisorsGuggenheim for any amounts funded by the AdvisorsGuggenheim under this arrangement or the Prior Expense Support Agreement if (and only to the extent that), during any month occurring within three years of the date on which the AdvisorsGuggenheim funded such amount, the sum of the Company's estimated investment company taxable income and net capital gains exceeds the ordinary cash distributions paid by the Company to its shareholders; provided, however, that (i) the Company will only reimburse the AdvisorsGuggenheim for expense support payments made by the AdvisorsGuggenheim to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other operating expenses" (as defined below) (on an annualized basis and net of any expense support reimbursement payments
Notes to Financial Statements
received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the Company's average net assets attributable to its Common Shares for the fiscal year-to-date period after taking such reimbursement payments into account and (B) the percentage of the Company's average net assets attributable to its Common Shares represented by "other operating expenses" during the fiscal year in which such expense support payment from the AdvisorsGuggenheim was made (provided, however, that this clause (B) will not apply to any reimbursement payment which relates to an expense support payment from the AdvisorsGuggenheim made during the same fiscal year); and (ii) the Company will not reimburse the AdvisorsGuggenheim for expense support payments made by the AdvisorsGuggenheim if the annualized rate of regular cash distributions declared by the Company at the time of such reimbursement payment is less than the annualized rate of regular cash distributions declared by the Company at the time the AdvisorsGuggenheim made the expense support payment to which such reimbursement payment relates. "Other operating expenses" means the Company's total "operating expenses" (as defined below), excluding andany investment advisory fee, a performance-based incentive fee,fees, organization and offering expenses, shareholder servicing fees, interest expense, brokerage commissions and extraordinary expenses. "Operating expenses" means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.
Notes to Financial Statements
The Company or the AdvisorsGuggenheim may terminate the Expense Support Agreement at any time. The Expense Support Agreement will automatically terminate if (i) if the CompanyMaster Fund terminates the investment advisory agreement,Investment Advisory Agreement with Guggenheim or (ii) if the Company's Board of Trustees makes a determination to dissolve or liquidate the Company or (iii) upon a liquidity event of the Company, including but not limited to (1) a listing of the Common Shares on a national securities exchange, (2) the sale of all or substantially all of the Company's assets either on a complete portfolio basis or individually followed by a liquidation or (3) a merger or another transaction approved by the Board of Trustees in which shareholders will likely receive cash or shares of a publicly-traded company.Company.
The specific amount of Advisors'Guggenheim's expense supportpayment obligation is determined at the end of each month. Upon termination of the Expense Support Agreement by the Advisors, they areGuggenheim, it is required to fund any amounts accrued thereunder as of the date of termination. Similarly, the conditional obligation of the Company to reimburse the AdvisorsGuggenheim pursuant to the terms of the Expense Support Agreement shall survive the termination of such agreementthe Expense Support Agreement by either party. There can be no assurance that the Expense Support Agreement will remain in effect or that the AdvisorsGuggenheim will reimburse any portion of the Company's expenses in future months.
Notes to Financial Statements
The table below presents a summary of allunreimbursed monthly expenses supported by the Advisors and the associated dates through which such expenses are eligible for reimbursement by the Company (in thousands, except per share amounts):Guggenheim:
|
| | | | | | | | | | | | | |
| Month Ended | Expense Support from Advisors (3) | Expense Support Reimbursement to Advisors | Unreimbursed Expense Support | Ratio of Other Operating Expenses to Average Net Assets for the Period (1) | Minimum of 1.75% and Annualized Fiscal Year to Date Other Operating Expense Ratio (1) | Annualized Regular Cash Distribution Rate/Share, Declared (2) | Eligible for Reimbursement through |
| July 2015 | $ | 11 |
| $ | — |
| $ | 11 |
| NM | NM | $0.00000 | July 31, 2018 |
| August 2015 | 32 |
| — |
| 32 |
| NM | NM | $0.33436 | August 31, 2018 |
| September 2015 | 30 |
| — |
| 30 |
| NM | NM | $0.66872 | September 30, 2018 |
| October 2015 | 30 |
| — |
| 30 |
| 135.82% | 1.75% | $0.66872 | October 31, 2018 |
| November 2015 | 33 |
| — |
| 33 |
| 9.29% | 1.75% | $0.66872 | November 30, 2018 |
| December 2015 | (19 | ) | — |
| (19 | ) | 0.47% | 1.75% | $0.66872 | December 31, 2018 |
| January 2016 | 44 |
| — |
| 44 |
| 0.97% | 1.75% | $0.66872 | January 31, 2019 |
| February 2016 | 56 |
| — |
| 56 |
| 0.52% | 1.75% | $0.66872 | February 28, 2019 |
| March 2016 | 73 |
| — |
| 73 |
| 0.72% | 1.75% | $0.64792 | March 31, 2019 |
| April 2016 | 164 |
| — |
| 164 |
| 0.20% | 1.75% | $0.65520 | April 30, 2019 |
| May 2016 | 267 |
| — |
| 267 |
| 0.15% | 1.75% | $0.65520 | May 31, 2019 |
| June 2016 | 280 |
| — |
| 280 |
| 0.12% | 1.75% | $0.65520 | June 30, 2019 |
| July 2016 | 330 |
| — |
| 330 |
| 0.10% | 1.75% | $0.65520 | July 31, 2019 |
| August 2016 | 80 |
| — |
| 80 |
| 0.08% | 1.75% | $0.65520 | August 31, 2019 |
| September 2016 | (670 | ) | — |
| (670 | ) | 0.06% | 1.65% | $0.65520 | September 30, 2019 |
| October 2016 | 507 |
| — |
| 507 |
| 0.05% | 1.43% | $0.65520 | October 31, 2019 |
| November 2016 | 693 |
| — |
| 693 |
| 0.04% | 1.25% | $0.65520 | November 30, 2019 |
| December 2016 | 254 |
| — |
| 254 |
| 0.03% | 1.10% | $0.64480 | December 31, 2019 |
| Total | $ | 2,195 |
| $ | — |
| $ | 2,195 |
| | | | |
|
| | | | | | | | | | | | | | | | | |
| Month Ended | Expense Support from CCA and Guggenheim | CCA Waiver of Expense Support Reimbursement | Expense Support Reimbursement | Unreimbursed Expense Support | Minimum of 1.75% and Annualized Fiscal Year to Date Other Operating Expense Ratio (1) | Annualized Regular Cash Distribution Rate/Share, Declared (2) | Eligible for Reimbursement through |
| February 2017 | $ | 258 |
| $ | (129 | ) | $ | (129 | ) | $ | — |
| 0.64% | $ | 0.64480 |
| February 29, 2020 |
| March 2017 | 348 |
| (174 | ) | (174 | ) | — |
| 0.64% | 0.64480 |
| March 31, 2020 |
| April 2017 | 179 |
| (89 | ) | (74 | ) | 16 |
| 0.64% | 0.63700 |
| April 30, 2020 |
| May 2017 | 254 |
| (127 | ) | — |
| 127 |
| 0.64% | 0.63076 |
| May 31, 2020 |
| June 2017 | 315 |
| (158 | ) | — |
| 157 |
| 0.64% | 0.63076 |
| June 30, 2020 |
| April 2018 | 57 |
| — |
| — |
| 57 |
| 0.43% | 0.67571 |
| April 30, 2021 |
| Total |
|
|
| $ | 357 |
| | | |
______________________
| |
| (1) | Other operating expenses include all expenses borne by the Company excluding organization and offering costs, an investment advisorya management fee, a performance-based incentive fee, financing fees and costs and interest expense. "NM" means not measurable in these months due to the absence of a positive value for Average Net Assets. |
| |
| (2) | "Annualized Regular Cash Distribution Rate/Share, Declared" equals the annualized rate of average weekly or monthly distributions per Share that were declared with record dates in the subject month immediately prior to the date the expensesexpense support payment obligation was incurred by the Advisors.CCA and Guggenheim. Regular cash distributions do not include declared special cash or share distributions, if any. Regular distributions are grossed up to disregard the expense impact of the DSS Fees on the statement of operations. |
| |
(3) | In September 2016 and December 2015, the Advisors' year-to-date expense support obligation was reduced after adjusting for the Master Fund's periodic distributions to the Company and a decrease in estimated professional services fees. |
Notes to Financial Statements
Summary of Related Party Transactions for the Year Ended December 31, 2016 and for the period from July 24, 2015 (inception) to December 31, 2015
The following table presents the related party fees, expenses and transactions for the yearyears ended December 31, 2016 and for the period from July 24, 2015 (inception) to2019, December 31, 2015;2018 and December 31, 2017; related party transactions between the Company and the Master Fund in connection with Common Shares purchases, sales and distributions are disclosed elsewhere in the financial statements:
Notes to Financial Statements
|
| | | | | | | | | | | | | |
| | | | For the Years Ended December 31, |
Related Party (1) | Source Agreement & Description | | 2019 | | 2018 | | 2017 |
| | Related Party Expenses: | | | | | | |
| CCA | Prior Administrative Services Agreement - expense reimbursement | | $ | — |
| | $ | — |
| | $ | 250 |
|
| Guggenheim | Administrative Services Agreement - expense reimbursement | | 215 |
| | 214 |
| | 43 |
|
| CCA & Guggenheim | O&O Agreement - offering expenses reimbursements | | — |
| | — |
| | 738 |
|
| CCA & Guggenheim | Prior Expense Support Agreement - expense support reimbursement | | — |
| | — |
| | 1,045 |
|
| Guggenheim | Expense Support Agreement - expense support reimbursement | | 246 |
| | 404 |
| | — |
|
| Carey Financial | Dealer Manager Agreement - sales commissions and dealer manager fees | | — |
| | — |
| | 2,311 |
|
| Dealer Manager | Dealer Manager Agreement - DSS Fee (Distribution Services Component only) | | — |
| | — |
| | 1,127 |
|
| Dealer Manager | Dealer Manager Agreement - DSS Fee (Shareholder Services Component) | | — |
| | — |
| | 191 |
|
| | Related Party Income: | | | | | | |
| CCA & Guggenheim | Prior Expense Support Agreement - expense support from related parties | | — |
| | — |
| | 1,768 |
|
| Guggenheim | Expense Support Agreement - expense support from related parties | | — |
| | 57 |
| | 13 |
|
| CCA | Payments to the Company's shareholders for Share purchase price adjustments | | — |
| | — |
| | 23 |
|
|
| | | | | | | | | |
| | | | | | Period from |
| | | | | | July 24, 2015 |
| | | | Year Ended | | (inception) to |
| Related Party | Source Agreement & Description | | December 31, 2016 | | December 31, 2015 |
| Advisor | Administrative Services Agreement - expense reimbursement | | $ | 284 |
| | $ | 15 |
|
| Dealer Manager | Dealer Management Agreement - sales commissions and dealer manager fees | | $ | 5,015 |
| | $ | 136 |
|
| Dealer Manager | Dealer Management Agreement - DSS Fee (distribution services component only) | | $ | 2,300 |
| | $ | — |
|
| Advisors | O&O Agreement - organization expenses reimbursements | | $ | 94 |
| | $ | 1 |
|
| Advisors | O&O Agreement - offering expenses reimbursements | | $ | 1,289 |
| | $ | — |
|
| Advisors | Expense Support Agreement - expense support from related parties | | $ | 2,078 |
| | $ | 117 |
|
Indemnification
The Administrative Services Agreement provides certain indemnification to the Administrator,Guggenheim, its directors, officers, persons associated with the Administrator,Guggenheim and its affiliates. In addition, the Company's Declaration of Trust, as amended, provides certain indemnifications to its officers, trustees, agents and certain other persons. The Dealer Manager Agreement provides for certain indemnifications from the Company (with respect to the primary offering of its Common Shares) to the Dealer Manager,GFD, any selected dealers and their respective officers, directors, employees, members, affiliates, agents, representatives and, if any, each person who controls such person or entity within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act. Such indemnifications are subject to certain limitations as provided for in the Company’s Declaration of Trust and the North American Securities Administrators Association Guidelines and are considered customary by management. As of December 31, 2016,2019, management believes that the risk of incurring any losses for such indemnification is remote.
Note 5. Common Shares
Issuance of Common Shares
The Company's Registration Statement pertaining to its initial public offeringPublic Offering of 104,712,041 Common Shares at an initial public offering price of $9.55 per Share was declared effective on July 24, 2015. For the year ended December 31, 2016, the public offering price of the Company's Common Shares ranged from a low of $9.25 per Common Share to a high of $9.90 per Common Share. From July 24, 2015 (inception) through December 31, 2015 there were no revisions to the public offering price.
The following table summarizes (i) the total Common Shares issued before share repurchase activity, and proceeds received in connection with the Company's Public Offering and (ii) reinvestment of distributions for (i)(a) the year ended December 31, 20162019 and (ii)(b) the period commencing on July 24, 2015 (inception) and endingthrough December 31, 2016 (in thousands, except share and per share amounts):
|
| | | | | | | | | | | | | |
| | Year Ended December 31, 2016 | | Inception through December 31, 2016 |
| | Shares | | Amount | | Shares | | Amount |
| Gross proceeds from offering | 11,770,097 |
| | $ | 112,624 |
| | 12,018,644 |
| | $ | 114,997 |
|
| Commissions paid outside escrow | — |
| | (1,428 | ) | | — |
| | (1,428 | ) |
| Dealer Manager fees and commissions | — |
| | (5,015 | ) | | — |
| | (5,151 | ) |
| Net proceeds to the Company | 11,770,097 |
| | 106,181 |
| | 12,018,644 |
| | 108,418 |
|
| Reinvestment of distributions | 187,409 |
| | 1,715 |
| | 187,739 |
| | 1,718 |
|
| Net proceeds from offering | 11,957,506 |
| | $ | 107,896 |
| | 12,206,383 |
| | $ | 110,136 |
|
| Average net proceeds per Common Share | $9.02 | | $9.02 |
Notes to Financial Statements
|
| | | | | | | | | | | | | |
| | Year ended | | Inception through |
| | December 31, 2019 | | December 31, 2019 |
| | Shares | | Amount | | Shares | | Amount |
| Gross proceeds from Public Offering | — |
| | $ | — |
| | 16,970,408 |
| | $ | 164,194 |
|
| Commissions paid outside escrow | — |
| | — |
| | — |
| | (1,924 | ) |
| Dealer Manager fees and commissions | — |
| | — |
| | — |
| | (7,462 | ) |
| Net proceeds to the Company from Public Offering | — |
| | — |
| | 16,970,408 |
| | 154,808 |
|
| Reinvestment of shareholders' distributions | 648,515 |
| | 5,536 |
| | 1,966,602 |
| | 17,532 |
|
| Net proceeds from all issuance of Common Shares | 648,515 |
| | $ | 5,536 |
| | 18,937,010 |
| | $ | 172,340 |
|
| Average net proceeds per Common Share | $8.54 | | $9.10 |
Repurchase of Common Shares
The following table is a summary of the quarterly share repurchasesrepurchase programs completed during the yearthree years ended December 31, 2016 (in thousands except share and per share amount):2019:
|
| | | | | | | | | | | | | | | | | | | | |
| Tender Offer Termination Date | | Total Number of Shares Offered to Repurchase | | Total Number of Shares Repurchased | | Total Consideration | | Price Paid per Share | | No. of Shares Repurchased / Total Shares Offered | | No. of Shares Repurchased / Weighted Average Shares (1) |
| 2019: | | | | | | | | | | | | |
| March 8, 2019 | | 438,164 |
| | 207,679 |
| | $ | 1,797 |
| | $ | 8.65 |
| | 47.4 | % | | 1.18 | % |
| June 5, 2019 | | 439,278 |
| | 323,596 |
| | 2,792 |
| | 8.63 |
| | 73.7 | % | | 1.84 | % |
| October 11, 2019 | | 439,656 |
| | 396,895 |
| | 3,322 |
| | 8.37 |
| | 90.3 | % | | 2.26 | % |
| December 6, 2019 | | 438,630 |
| | 293,787 |
| | 2,442 |
| | 8.31 |
| | 67.0 | % | | 1.67 | % |
| Total | | 1,755,728 |
| | 1,221,957 |
| | $ | 10,353 |
| | | | 69.6 | % | | |
| | | | | | | | | | | | | |
| 2018: | | | | | | | | | | | | |
| March 14, 2018 | | 417,473 |
| | 102,672 |
| | $ | 929 |
| | $ | 9.05 |
| | 24.6 | % | | 0.61 | % |
| June 6, 2018 | | 435,337 |
| | 53,844 |
| | 490 |
| | 9.10 |
| | 12.4 | % | | 0.31 | % |
| September 5, 2018 | | 436,451 |
| | 129,420 |
| | 1,174 |
| | 9.07 |
| | 29.7 | % | | 0.74 | % |
| December 6, 2018 | | 437,336 |
| | 159,421 |
| | 1,438 |
| | 9.02 |
| | 36.5 | % | | 0.91 | % |
| Total | | 1,726,597 |
| | 445,357 |
| | $ | 4,031 |
| | | | 25.8 | % | | |
| | | | | | | | | | | | | |
| 2017: | | | | | | | | | | | | |
| March 3, 2017 | | 136,060 |
| | 9,718 |
| | $ | 90 |
| | $ | 9.29 |
| | 7.1 | % | | 0.18 | % |
| June 19, 2017 | | 221,543 |
| | 26,043 |
| | 239 |
| | 9.17 |
| | 11.8 | % | | 0.29 | % |
| September 20, 2017 | | 307,448 |
| | 119,167 |
| | 1,088 |
| | 9.13 |
| | 38.8 | % | | 0.97 | % |
| December 20, 2017 | | 373,463 |
| | 153,087 |
| | 1,395 |
| | 9.11 |
| | 41.0 | % | | 1.02 | % |
| Total | | 1,038,514 |
| | 308,015 |
| | $ | 2,812 |
| | | | 29.7 | % | | |
| |
| (1) | Weighted average shares is based on the weighted average number of common shares outstanding in the prior four calendar quarters |
Notes to Financial Statements
|
| | | | | | | | | | | | | | | | | |
| Repurchase/Termination Date | | Total Number of Shares Offered to Repurchase | | Total Number of Shares Repurchased | | Total Consideration | | No. of Shares Repurchased / Total Offer | | Price Paid per Share |
| 2016: | | | | | | | | | | |
| September 16, 2016 | | 36,822 |
| | 600 |
| | $ | 5 |
| | 1.6 | % | | $ | 8.89 |
|
| December 19, 2016 | | 71,951 |
| | — |
| | — |
| | — | % | | 9.13 |
|
| Total | | 108,773 |
| | 600 |
| | $ | 5 |
| | 0.6 | % | |
|
Note 6. Distributions
Declared distributions are paid monthly. The following table presentssummarizes the cash distributions per Common Share per week that the Company paiddeclared on its Common Shares during the yearyears ended December 31, 2016 and for the period commencing on July 24, 2015 (inception) and ending2019, December 31, 2015 (in thousands, except per share amounts):2018 and December 31, 2017:
|
| | | | | | | | | | | | | | |
| Record Date | | Payment Date | | Declared Distribution per Share per Record Date | | Declared Distribution per Share per Payment Date | | Total Distribution (including Reinvested Distributions) |
| Year Ended December 31, 2016 | | | | | | | | |
| January 5, 12, 19, 26 | | January 27 | | $ | 0.01286 |
| | $ | 0.05144 |
| | $ | 16 |
|
| February 2, 9, 16, 23 | | February 24 | | 0.01286 |
| | 0.05144 |
| | 29 |
|
| March 1, 8, 15, 22, 29 | | March 30 | | 0.01246 |
| | 0.06230 |
| | 75 |
|
| April 5, 12, 19, 26 | | April 27 | | 0.01260 |
| | 0.05040 |
| | 120 |
|
| May 3, 10, 17, 24, 31 | | June 1 | | 0.01260 |
| | 0.06300 |
| | 224 |
|
| June 7, 14, 21, 28 | | June 29 | | 0.01260 |
| | 0.05040 |
| | 226 |
|
| July 5, 12, 19, 26 | | July 27 | | 0.01260 |
| | 0.05040 |
| | 279 |
|
| August 2, 9, 16, 23, 30 | | August 31 | | 0.01260 |
| | 0.06300 |
| | 436 |
|
| September 6, 13, 20, 27 | | September 28 | | 0.01260 |
| | 0.05040 |
| | 414 |
|
| October 4, 11, 18, 25 | | October 26 | | 0.01260 |
| | 0.05040 |
| | 465 |
|
| November 1, 8, 15, 22, 29 | | November 30 | | 0.01260 |
| | 0.06300 |
| | 652 |
|
| December 6, 13, 20, 27 | | December 28 | | 0.01240 |
| | 0.04960 |
| | 575 |
|
| Total | | | |
| | $ | 0.65578 |
| | $ | 3,511 |
|
| Period from July 24, 2015 (inception) through December 31, 2015: | | | | |
| October 13, 20, 27 | | October 28 | | $ | 0.01286 |
| | $ | 0.03858 |
| | $ | — |
|
| November 3, 10, 17, 24 | | November 25 | | 0.01286 |
| | 0.05144 |
| | 1 |
|
| December 1, 8, 15, 22, 29 | | December 30 | | 0.01286 |
| | 0.06430 |
| | 8 |
|
| Total | | | | | | $ | 0.15432 |
| | $ | 9 |
|
|
| | | | | | | | | | | | | | |
| Record Date | | Payment Date | | Distribution Per Common Share at Record Date | | Distribution Per Common Share at Payment Date | | Distribution Amount |
| For Fiscal Year 2019 | | | | | | | | |
| January 7, 14, 21, 28 | | January 30 | | $ | 0.01258 |
| | $ | 0.05032 |
| | $ | 883 |
|
| February 4, 11, 18, 25 | | February 27 | | 0.01258 |
| | 0.05032 |
| | 889 |
|
| March 4, 11, 18, 25 | | March 27 | | 0.01258 |
| | 0.05032 |
| | 889 |
|
| April 1, 8, 15, 22, 29 | | May 1 | | 0.01258 |
| | 0.06290 |
| | 1,103 |
|
| May 6, 13, 20, 27 | | May 29 | | 0.01258 |
| | 0.05032 |
| | 885 |
|
| June 3, 10, 17, 24 | | June 26 | | 0.01258 |
| | 0.05032 |
| | 884 |
|
| July 1, 8, 15, 22, 29 | | July 29 | | 0.01258 |
| | 0.06290 |
| | 1,092 |
|
| August 5, 12, 19, 26 | | August 28 | | 0.01258 |
| | 0.05032 |
| | 877 |
|
| September 2, 9, 16, 23, 30 | | October 2 | | 0.01258 |
| | 0.06290 |
| | 1,098 |
|
| October 7, 14, 21, 28 | | October 30 | | 0.01258 |
| | 0.05032 |
| | 876 |
|
| November 4, 11, 18, 25 | | November 27 | | 0.01258 |
| | 0.05032 |
| | 863 |
|
| December 2, 9, 16, 23, 30 | | December 31 | | 0.01258 |
| | 0.06290 |
| | 1,074 |
|
| | | | | | | $ | 0.65416 |
| | $ | 11,413 |
|
Note 7. Commitments and Contingencies |
| | | | | | | | | | | | | | |
| Record Date | | Payment Date | | Distribution Per Common Share at Record Date | | Distribution Per Common Share at Payment Date | | Distribution Amount |
| For Fiscal Year 2018 | | | | | | | | |
| January 30 | | January 31 | | $ | 0.05453 |
| | $ | 0.05453 |
| | $ | 949 |
|
| February 27 | | February 28 | | 0.05453 |
| | 0.05453 |
| | 952 |
|
| March 27 | | March 28 | | 0.05453 |
| | 0.05453 |
| | 954 |
|
| April 24 | | April 25 | | 0.05453 |
| | 0.05453 |
| | 951 |
|
| May 29 | | May 30 | | 0.05453 |
| | 0.05453 |
| | 954 |
|
| June 26 | | June 27 | | 0.05453 |
| | 0.05453 |
| | 954 |
|
| July 31 | | August 1 | | 0.05453 |
| | 0.05453 |
| | 956 |
|
| August 28 | | August 29 | | 0.05453 |
| | 0.05453 |
| | 959 |
|
| September 4, 11, 18, 25 | | September 26 | | 0.01258 |
| | 0.05032 |
| | 886 |
|
| October 2, 9, 16, 23, 30 | | October 31 | | 0.01258 |
| | 0.06290 |
| | 1,104 |
|
| November 6, 13, 20, 27 | | November 28 | | 0.01258 |
| | 0.05032 |
| | 886 |
|
| December 3, 10, 17, 24 | | December 26 | | 0.01258 |
| | 0.05032 |
| | 886 |
|
| December 28 | | January 16, 2019 | | 0.07414 |
| | 0.07414 |
| | 1,300 |
|
| December 31 | | January 30, 2019 | | 0.01258 |
| | 0.01258 |
| | 220 |
|
| | | | | | | $ | 0.73682 |
| | $ | 12,911 |
|
Organization and Offering Expense Reimbursement Agreement
On August 17, 2015, the Company entered into the O&O Agreement with the Advisors. Under the O&O Agreement the Company reimburses the Advisors for organization and offering costs incurred on the Company's behalf, including, but not limited to, legal services, audit services, printer services, and the registration of securities under the Securities Act. The reimbursement of organization and offering expenses is conditional on the Company's receipt of equity capital from the sale and issuance of its Common Shares. Any such reimbursement will not exceed actual expenses incurred by the Advisors and their affiliates. The Advisors will be responsible for the payment of the Company's cumulative organization and offering expenses to the extent they exceed 1.5% of the aggregate proceeds from the sale and issuance of the Company's Common Shares, without recourse against or reimbursement by the Company. The Advisors waived reimbursement in connection with equity raised during the months of
Notes to Financial Statements
|
| | | | | | | | | | | | | |
| Record Date | | Payment Date | | Distribution Per Common Share at Record Date | | Distribution Per Common Share at Payment Date | | Distribution Amount |
| For Fiscal Year 2017 | | | | | | | | |
| January 3, 10, 17, 24, 31 | | February 1 | | 0.01240 |
| | 0.06200 |
| | 798 |
|
| February 7, 14, 21, 28 | | March 1 | | 0.01240 |
| | 0.04960 |
| | 721 |
|
| March 7, 14, 21, 28 | | March 29 | | 0.01240 |
| | 0.04960 |
| | 804 |
|
| April 4, 11, 18, 25 | | April 26 | | 0.01225 |
| | 0.04900 |
| | 846 |
|
| May 2, 9, 16, 23, 30 | | May 31 | | 0.01213 |
| | 0.06065 |
| | 1,050 |
|
| June 6, 13, 20, 27 | | June 28 | | 0.01213 |
| | 0.04852 |
| | 843 |
|
| July 25 | | July 26 | | 0.04852 |
| | 0.04852 |
| | 843 |
|
| August 29 | | August 30 | | 0.06065 |
| | 0.06065 |
| | 1,057 |
|
| September 26 | | September 27 | | 0.04852 |
| | 0.04852 |
| | 848 |
|
| October 31 | | November 1 | | 0.05453 |
| | 0.05453 |
| | 949 |
|
| November 28 | | November 29 | | 0.05453 |
| | 0.05453 |
| | 952 |
|
| December 26 | | December 27 | | 0.05453 |
| | 0.05453 |
| | 954 |
|
| | | | | | | $ | 0.64065 |
| | $ | 10,665 |
|
For income tax purposes, the Company estimates that its 2019 calendar year distributions are fully covered by taxable income before the paid distributions deduction (see Note 8. Taxable/Distributable Income).
Notes to Financial Statements
Note 7. Financial Highlights
The following per Common Share data and December 2015 andfinancial ratios have been derived from information provided in the reimbursement waiver expired onfinancial statements. The following is a schedule of financial highlights during the years ended December 31, 2015. As of2019, December 31, 2016, the Advisors have incurred organization and offering costs on behalf of the Company, net of reimbursements received from the Company, in the approximate amount of $1.6 million. Under the terms of the O&O Agreement, the Company is obligated to reimburse the Advisors for these organization and offering expenses solely in connection with the capital raise activity of its Public Offering.
Note 8. Earnings Per Common Share
The following information sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations (i.e. earnings per Common Share) for the year ended2018, December 31, 2017, December 31, 2016 and for the period from July 24, 2015 (inception) to December 31, 2015 (in thousands, except share and per share data): 2015:
|
| | | | | | | | |
| | | | | Period from |
| | | | | July 24, 2015 |
| | | Year Ended | | (inception) to |
| | | December 31, 2016 | | December 31, 2015 |
| Net increase (decrease) in net assets resulting from operations | | $ | 6,912 |
| | $ | (70 | ) |
| Weighted average Common Shares outstanding - basic and diluted | | 5,442,377 |
| | 30,518 |
|
Earnings (loss) per Common Share - basic and diluted (1) | | $ | 1.27 |
| | $ | (2.29 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Inception Through
December 31, 2015 |
| PER COMMON SHARE OPERATING PERFORMANCE | | | | | | | | | |
| Net asset value, beginning of period | $ | 8.65 |
| | $ | 9.05 |
| | $ | 9.11 |
| | $ | 8.68 |
| | $ | — |
|
Net investment income (1) | 0.52 |
| | 0.69 |
| | 0.53 |
| | 0.55 |
| | 0.14 |
|
Long term gain distributions from investment in GCIF (1) | 0.05 |
| | 0.13 |
| | 0.02 |
| | — |
| | — |
|
Net unrealized appreciation (depreciation) from investment in GCIF (2) | (0.34 | ) | | (0.47 | ) | | 0.04 |
| | 0.67 |
| | (0.48 | ) |
| Net increase (decrease) resulting from operations | 0.23 |
| | 0.35 |
| | 0.59 |
| | 1.22 |
| | (0.34 | ) |
| Distributions to common shareholders | | | | | | | | | |
Distributions from net investment income (3) | (0.52 | ) | | (0.69 | ) | | (0.53 | ) | | (0.56 | ) | | (0.14 | ) |
Distributions from realized gains on investment (3) | (0.13 | ) | | (0.05 | ) | | (0.02 | ) | | — |
| | — |
|
Distributions in excess of net investment income (3) | — |
| | — |
| | (0.09 | ) | | (0.10 | ) | | (0.01 | ) |
Distributions from earnings (3) | (0.65 | ) | | (0.74 | ) | | (0.64 | ) | | (0.66 | ) | | (0.15 | ) |
| Capital Share Transactions | | | | | | | | | |
| Issuance of Common Shares, net of sales load | — |
| | — |
| | — |
| | — |
| | 9.00 |
|
Issuance of Common Shares above net asset value (4) | — |
| | — |
| | 0.07 |
| | 0.06 |
| | 0.17 |
|
Distribution services charge (9) | 0.01 |
| | (0.01 | ) | | (0.08 | ) | | (0.19 | ) | | — |
|
| Net increase (decrease) in net assets resulting from Capital Share transactions | 0.01 |
| | (0.01 | ) | | (0.01 | ) | | (0.13 | ) | | 9.17 |
|
| Net asset value, end of period | $ | 8.24 |
| | $ | 8.65 |
| | $ | 9.05 |
| | $ | 9.11 |
| | $ | 8.68 |
|
| | | | | | | | | | |
| INVESTMENT RETURNS | | | | | | | | | |
Total investment return-net price (5) | N/A |
| | N/A |
| | 3.95 | % | | 12.33 | % | | (1.85 | )% |
Total investment return-net asset value (6) | 2.76 | % | | 3.78 | % | | 6.52 | % | | 12.77 | % | | (1.85 | )% |
| | | | | | | | | | |
| RATIOS/SUPPLEMENTAL DATA | | | | | | | | | |
| Net assets, end of period | $ | 139,688 |
| | $ | 151,709 |
| | $ | 157,456 |
| | $ | 111,153 |
| | $ | 2,161 |
|
Average net assets (7) | $ | 148,654 |
| | $ | 157,996 |
| | $ | 150,482 |
| | $ | 49,718 |
| | $ | 473 |
|
| Common Shares outstanding, end of period | 16,961,080 |
| | 17,534,522 |
| | 17,401,934 |
| | 12,205,783 |
| | 248,877 |
|
| Weighted average Common Shares outstanding | 17,454,069 |
| | 17,526,578 |
| | 16,698,890 |
| | 5,442,377 |
| | 30,518 |
|
Ratios-to-average net assets: (7) (8) | | | | | | | | | |
| Total expenses | 0.74 | % | | 0.76 | % | | 1.67 | % | | 2.16 | % | | 30.07 | % |
| Effect of expense support reimbursement to (received from) the Advisors | 0.16 | % | | 0.22 | % | | (0.49 | )% | | (4.18 | )% | | (24.80 | )% |
| Net expenses | 0.90 | % | | 0.98 | % | | 1.18 | % | | (2.02 | )% | | 5.28 | % |
| Net investment income | 6.08 | % | | 7.65 | % | | 5.87 | % | | 6.01 | % | | 1.68 | % |
______________________Notes to Financial Statements
_____________________
| |
| (1) | Earnings (loss)The per Common Share both basic and diluted, were equivalentdata was derived by using the weighted average Common Shares outstanding during the period because there were nopresented. |
| |
| (2) | The amounts shown at this caption are the balancing figures derived from the other figures in the schedule. The amounts shown at this caption for a Common Share equivalents outstanding throughout the period may not agree with the change in the aggregate gains and losses in portfolio securities for the period because of the timing of sales of the Company’s Common Shares in relation to fluctuating market values for the portfolio. |
| |
| (3) | The per Common Share data for distributions is the actual amount of distributions paid or payable per Common Share outstanding during the entire period; distributions per Common Share are rounded to the nearest $0.01. For income tax purposes, distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital or a combination thereof. The tax character of distribution is determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP. The tax character of distribution shown above is an estimate since the exact amount cannot be determined at this point. As of December 31, 2019, the Company estimated distributions to be composed of either ordinary income or capital gains. The final determination of the tax character of distributions will not be made until we file our tax return. |
| |
| (4) | The continuous issuance of Common Shares may cause an incremental increase in net asset value per Share due to the sale of Shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per Share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period. |
| |
| (5) | Total investment return-net price is a measure of total return for shareholders, assuming the purchase of the Company’s Common Shares at the beginning of the period and the reinvestment of all distributions declared during the period. More specifically, total investment return-net price is based on (i) the purchase of Common Shares at the net offering price on the first day of the period, (ii) the sale at the net asset value per Common Share on the last day of the period, of (A) purchased Common Shares plus (B) any Common Shares issued in connection with the reinvestment of distributions, and (iii) distributions payable relating to the ownership of Common Shares, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the Common Shares issued pursuant to the distribution reinvestment plan are issued at the then net offering price per Common Share on each distribution payment date. Since there is no public market for the Company’s Common Shares, then the terminal sales price per Common Share is assumed to be equal to net asset value per Common Share on the last day of the period presented. Total investment return-net price is not annualized for the period from July 24, 2015 (inception) through December 31, 2015. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s Common Shares. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
| |
| (6) | Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s Common Shares at the beginning and end of the period, including distributions declared during the period. Total investment return-net asset value is based on (i) net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, plus any shares issued in connection with the reinvestment of monthly distributions and (iii) distributions payable relating to the ownership of shares, if any, on the last day of the period. The total investment return-net asset value calculation assumes that distributions are reinvested in accordance with the Company’s distribution reinvestment plan. Because there is no public market for the Company’s shares, terminal market value per share is assumed to be equal to the net asset value per share on the last day of the period presented. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s Common Shares. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
| |
| (7) | The computation of average net assets during the period is based on averaging the amount on the first day of the first month of the period and the last day of each month during the period. |
| |
| (8) | The ratios-to-average net assets do not include any proportionate allocation of income and expenses incurred at the Master Fund. The Master Fund's total expenses-to-average net assets were 7.87%, 6.55%, 7.35%, 9.65%, 3.38% for the years ended 2019, 2018, 2017, 2016 and 2015, respectively. |
| |
| (9) | The per share impact of the distribution services component of the DSS Fee is calculated as the amount of the adjustment to distribution services component of the DSS Fee charged to “Paid-in-capital in excess of par value” divided by common shares outstanding at the end of the period. |
Notes to Financial Statements
Note 8. Taxable/Distributable Income
Income and capital gain distributions are determined in accordance with the Code and federal tax regulations, which may differ from amounts determined in accordance with GAAP. The book-to-tax basis differences, which could be material, may be due to differing treatments of income and expenses incurred by the Company. Permanent book-to-tax basis differences result in reclassifications to paid-in capital in excess of par value and accumulated undistributed (distributions in excess of) net investment income. Undistributed (distributions in excess of) net investment income, accumulated net realized gains and accumulated net unrealized appreciation on investments, may include temporary book and tax basis differences which will reverse in subsequent periods.
For the years ended December 31, 2019, December 31, 2018 and December 31, 2017, the Company made the following reclassifications of permanent book-to-tax basis differences. For the years ended December 31, 2018 and December 31, 2017, the permanent book-to-tax basis differences were primarily composed of offering expenses that are not tax deductible. For the year ended December 31, 2019, the permanent book-to-tax basis differences was primarily composed of interest expense related to distribution fee that is not tax deductible.
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| Capital Accounts | 2019 | | 2018 | | 2017 |
| Paid in capital in excess of par value | $ | (49 | ) | | $ | (410 | ) | | $ | (1,551 | ) |
| Distributions in excess of net investment income | 49 |
| | 410 |
| | 1,551 |
|
| Accumulated realized gains | — |
| | — |
| | — |
|
| Total | $ | — |
| | $ | — |
| | $ | — |
|
The following table reconciles net increase in net assets resulting from operations to total taxable income available for distributions for the tax years ended September 30, 2019, September 30, 2018 and September 30, 2017:
|
| | | | | | | | | | | |
| | Tax Years Ended September 30, |
| | 2019 | | 2018 | | 2017 |
| Net increase in net assets resulting from operations | $ | 1,979 |
| | $ | 10,301 |
| | $ | 10,984 |
|
| Net change in unrealized appreciation (depreciation) | 11,139 |
| | 1,445 |
| | (3,027 | ) |
| Offering expense | — |
| | 345 |
| | 1,501 |
|
| Other book-tax differences | 43 |
| | 59 |
| | 44 |
|
| Total taxable income available for distributions | $ | 13,161 |
| | $ | 12,150 |
| | $ | 9,502 |
|
The Company did not incur U.S. federal excise tax for the calendar years ended December 31, 2018 and December 31, 2017, and the Company does not expect to incur a U.S. federal excise tax for the calendar year ended December 31, 2019. The tax character of shareholder distributions attributable to the tax years ended September 30, 2019, September 30, 2018 and September 30, 2017 was as follows:
|
| | | | | | | | | | | |
| | Tax Years Ended September 30, |
| Paid Distributions attributable to: | 2019 | | 2018 | | 2017 |
| Ordinary income | $ | 10,913 |
| | $ | 11,042 |
| | $ | 9,456 |
|
Long-term capital gains (1) | 2,082 |
| | 329 |
| | 46 |
|
| Total | $ | 12,995 |
| | $ | 11,371 |
| | $ | 9,502 |
|
| Paid distributions as a percentage of taxable income available for distributions | 99 | % | | 94 | % | | 100 | % |
___________________
(1) The Company designates as long term capital gain dividends, pursuant to Internal Revenue Code Section 852(b)(3).
Notes to Financial Statements
As of September 30, 2019, September 30, 2018 and September 30, 2017 the components of tax basis accumulated earnings were as follows:
|
| | | | | | | |
| | As of September 30, |
| | 2019 | | 2018 |
| Undistributed ordinary income, net | $ | — |
| | $ | — |
|
| Undistributed capital gains | 946 |
| | 780 |
|
| Unrealized gain (loss) | (7,550 | ) | | 3,590 |
|
| Other temporary adjustments | (70 | ) | | (76 | ) |
| Total accumulated earnings, net | $ | (6,674 | ) | | $ | 4,294 |
|
Notes to Financial Statements
Note 9. Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 is presented below:
|
| | | | | | | | | | | | | | | |
| | For the three months ended |
| | December 31, 2019 | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| Total investment income | $ | 2,310 |
| | $ | 2,571 |
| | $ | 3,312 |
| | $ | 2,196 |
|
| Net investment income | 1,987 |
| | 2,237 |
| | 2,971 |
| | 1,850 |
|
| Net realized gain (loss) from investment in GCIF | (22 | ) | | — |
| | 45 |
| | — |
|
| Long term gain distributions from investment in GCIF | — |
| | — |
| | — |
| | 849 |
|
| Net change in unrealized depreciation on investment | (2,027 | ) | | (2,837 | ) | | (623 | ) | | (407 | ) |
| Net increase (decrease) in net assets resulting from operations | (62 | ) | | (600 | ) | | 2,393 |
| | 2,292 |
|
| Net assets | 139,688 |
| | 146,638 |
| | 149,441 |
| | 151,381 |
|
| Total investment income per Common Share outstanding - basic and diluted | 0.13 |
| | 0.15 |
| | 0.19 |
| | 0.12 |
|
| Net investment income per Common Share outstanding - basic and diluted | 0.12 |
| | 0.13 |
| | 0.17 |
| | 0.10 |
|
| Earnings (loss) per Common Share - basic and diluted | — |
| | (0.03 | ) | | 0.14 |
| | 0.13 |
|
| Net asset value per Common Share at end of quarter | 8.24 |
| | 8.40 |
| | 8.61 |
| | 8.63 |
|
|
| | | | | | | | | | | | | | | |
| | For the three months ended |
| | December 31, 2018 | | September 30, 2018 | | June 30, 2018 | | March 31, 2018 |
| Total investment income | $ | 4,130 |
| | $ | 3,604 |
| | $ | 3,489 |
| | $ | 2,413 |
|
| Net investment income | 3,814 |
| | 3,239 |
| | 3,104 |
| | 1,930 |
|
| Long term gain (loss) distributions from investment in GCIF | 1,356 |
| | (5 | ) | | — |
| | 882 |
|
| Net change in unrealized appreciation (depreciation) from investment | (7,272 | ) | | (1,175 | ) | | (614 | ) | | 917 |
|
| Net increase (decrease) in net assets resulting from operations | (2,102 | ) | | 2,059 |
| | 2,490 |
| | 3,729 |
|
| Net assets | 151,709 |
| | 158,386 |
| | 159,119 |
| | 158,704 |
|
| Total investment income per Common Share outstanding - basic and diluted | 0.23 |
| | 0.21 |
| | 0.20 |
| | 0.14 |
|
| Net investment income per Common Share outstanding - basic and diluted | 0.22 |
| | 0.18 |
| | 0.18 |
| | 0.11 |
|
| Earnings (loss) per Common Share - basic and diluted | (0.12 | ) | | 0.12 |
| | 0.14 |
| | 0.21 |
|
| Net asset value per Common Share at end of quarter | 8.65 |
| | 9.02 |
| | 9.07 |
| | 9.10 |
|
Notes to Financial Statements
|
| | | | | | | | | | | | | | | |
| | For the three months ended |
| | December 31, 2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 |
| Total investment income | $ | 3,832 |
| | $ | 2,968 |
| | $ | 2,301 |
| | $ | 1,503 |
|
| Net investment income | 2,361 |
| | 2,318 |
| | 2,237 |
| | 1,915 |
|
| Net realized gain from investment in GCIF | — |
| | 46 |
| | — |
| | — |
|
| Long term gain distributions from investment in GCIF | 231 |
| | — |
| | — |
| | — |
|
| Net change in unrealized appreciation (depreciation) on investment | (572 | ) | | 94 |
| | (124 | ) | | 1,218 |
|
| Net increase in net assets resulting from operations | 2,020 |
| | 2,458 |
| | 2,113 |
| | 3,133 |
|
| Net assets | 157,456 |
| | 158,500 |
| | 158,633 |
| | 158,305 |
|
| Total investment income per Common Share outstanding - basic and diluted | 0.22 |
| | 0.17 |
| | 0.13 |
| | 0.10 |
|
| Net investment income per Common Share outstanding - basic and diluted | 0.14 |
| | 0.13 |
| | 0.13 |
| | 0.13 |
|
| Earnings per Common Share - basic and diluted | 0.12 |
| | 0.14 |
| | 0.12 |
| | 0.22 |
|
| Net asset value per Common Share at end of quarter | 9.05 |
| | 9.11 |
| | 9.13 |
| | 9.17 |
|
Note 9. Financial Highlights10. Subsequent Events
The following per Common Share dataManagement has evaluated subsequent events through the date of issuance of these financial statements and financial ratios have been derived from information providedhas determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the financial statements. The following is a schedule of financial highlights during the year ended December 31, 2016 and for the period from July 24, 2015 (inception) to December 31, 2015:
|
| | | | | | | |
| | | | Period from |
| | | | July 24, 2015 |
| | Year Ended | | (Inception) to |
| | December 31, 2016 | | December 31, 2015 |
| PER COMMON SHARE OPERATING PERFORMANCE | | | |
| Net asset value, beginning of period | $ | 8.68 |
| | $ | — |
|
Net investment income (1) | 0.55 |
| | 0.14 |
|
Net unrealized gains (losses) (2) | 0.67 |
| | (0.48 | ) |
| Net increase (decrease) resulting from operations | 1.22 |
| | (0.34 | ) |
| Distributions to common shareholders | | | |
Distributions from net investment income (3) | (0.56 | ) | | (0.14 | ) |
Distributions in excess of net investment income (3) | (0.10 | ) | | (0.01 | ) |
| Net decrease resulting from distributions | (0.66 | ) | | (0.15 | ) |
| Capital Share Transactions | | | |
| Issuance of Common Shares, net of sales load | — |
| | 9.00 |
|
Issuance of Common Shares above net asset value (4) | 0.06 |
| | 0.17 |
|
Repurchases of Common Shares (9) | — |
| | — |
|
Distribution services charge (10) | (0.19 | ) | | — |
|
| Net increase in net assets resulting from Capital Share transactions | (0.13 | ) | | 9.17 |
|
| Net asset value, end of period | $ | 9.11 |
| | $ | 8.68 |
|
| | | | |
| INVESTMENT RETURNS | | | |
Total investment return-net price (5) | 12.33 | % | | (1.85 | )% |
Total Investment return-net asset value(6) | 12.77 | % | | (1.85 | )% |
| | | | |
| RATIOS/SUPPLEMENTAL DATA (all amounts in thousands except share amounts and ratios) | | | |
| Net assets, end of period | $ | 111,153 |
| | $ | 2,161 |
|
Average net assets (7) | $ | 49,718 |
| | $ | 473 |
|
| Common Shares outstanding, end of period | 12,205,783 |
| | 248,877 |
|
| Weighted average Common Shares outstanding | 5,442,377 |
| | 30,518 |
|
Ratios-to-average net assets:(7)(8) | | | |
| Net investment income | 6.01 | % | | 1.68 | % |
| Total expenses | 2.16 | % | | 30.07 | % |
| Effect of expense reimbursement from Advisors | (4.18 | )% | | (24.80 | )% |
| Net expenses | (2.02 | )% | | 5.28 | % |
_____________________
| |
(1) | The per Common Share data was derived by using the weighted average Common Shares outstanding during the period. |
| |
(2) | The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption for a Common Share outstanding throughout the period may not agree with the change in the aggregate gains and losses in portfolio securities for the period because of the timing of sales of the Company’s Common Shares in relation to fluctuating market values for the portfolio. |
| |
(3) | The per Common Share data for distributions is the actual amount of distributions paid or payable per Common Share outstanding during the entire period; distributions per Common Share are rounded to the nearest $0.01. |
Notes to Financial Statements
| |
(4) | The continuous issuance of Common Shares may cause an incremental increase in net asset value per Share due to the sale of Shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per Share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period. |
| |
(5) | Total investment return-net price is a measure of total return for shareholders, assuming the purchase of the Company’s Common Shares at the beginning of the period and the reinvestment of all distributions declared during the period. More specifically, total investment return-net price is based on (i) the purchase of Common Shares at the net offering price on the first day of the period, (ii) the sale at the net asset value per Common Share on the last day of the period, of (A) purchased Common Shares plus (B) any Common Shares issued in connection with the reinvestment of distributions, and (iii) distributions payable relating to the ownership of Common Shares, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the Common Shares issued pursuant to the distribution reinvestment plan are issued at the then net offering price per Common Share on each distribution payment date. Since there is no public market for the Company’s Common Shares, then the terminal sales price per Common Share is assumed to be equal to net asset value per Common Share on the last day of the period presented. Total investment return-net price is not annualized for the period from July 24, 2015 (inception) through December 31, 2015. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s Common Shares. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
| |
(6) | Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s Common Shares at the beginning and end of the period, including distributions declared during the period. Total investment return-net asset value is based on (i) net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, plus any shares issued in connection with the reinvestment of monthly distributions, and (iii) distributions payable relating to the ownership of shares, if any, on the last day of the period. The total investment return-net asset value calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the shares issued pursuant to the distribution reinvestment plan are issued at the then current public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, terminal market value per share is assumed to be equal to the net asset value per share on the last day of the period presented. Total investment return-net asset value is not annualized for the period from July 24, 2015 (inception) through December 31, 2015. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s Common Shares. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
| |
(7) | The computation of average net assets during the period is based on averaging the amount on the first day of the first month of the period and the last day of each month during the period. |
| |
(8) | The ratios-to-average net assets do not include any proportionate allocation of income and expenses incurred at the Master Fund. |
| |
(9) | The per share impact of the Company’s repurchase of common shares is an increase to net asset value of less than $0.01 per common share during the applicable period. |
| |
(10) | The per share impact of the distribution services component of the DSS Fee is calculated as the amount of the incremental distribution services component of the DSS Fee charged to “Paid-in-capital in excess of par value” divided by common shares outstanding at the end of the period. |
Note 10. Taxable/Distributable Income
Income and capital gain distributions are determined in accordance with the Code and federal tax regulations, which may differ from amounts determined in accordance with GAAP. The book-to-tax basis differences, which could be material, may be due to (i) differing treatments of income and gains on various investment securities held by the Company and expenses incurred by the Company and (ii) the transition of the Company from non-RIC tax status to RIC tax status. Permanent book and tax basis differences result in reclassifications to paid-in capital in excess of par value and undistributed net investment income. Undistributed (distributions in excess of) net investment income, accumulated net realized gains and accumulated net unrealized appreciation on investments, may include temporary book and tax basis differences which will reverse in subsequent periods
The Company's first RIC tax year began October 1, 2015. There were no book and tax differences for the period prior to October 1, 2015. As of December 31, 2016 the Company made the following reclassifications of permanent book and tax basis differences (in thousands):
|
| | | |
| Capital Accounts | 2016 |
| Paid in capital in excess of par value | $ | (181 | ) |
| Distributions in excess of net investment income | 181 |
|
| Total | $ | — |
|
Notes to Financial Statements
The following table reconciles net increase in net assets resulting from operations to total taxable income available for distributions for the tax year ended September 30, 2016 (in thousands):
|
| | | |
| | Tax Year Ended |
| | September 30, 2016 |
| Net increase in net assets resulting from operations | $ | 3,563 |
|
| Net change in depreciation | (2,008 | ) |
| Offering expense | 181 |
|
| Other book-tax difference | 92 |
|
| Total taxable income available for distributions | $ | 1,828 |
|
The tax character of shareholder distributions attributable to the tax year ended September 30, 2016 was as follows (in thousands):
|
| | | |
| Paid Distributions attributable to: | 2016 |
| Ordinary income | $ | 1,828 |
|
| Long-term capital gains | — |
|
| Return of capital | — |
|
| Total | $ | 1,828 |
|
| Paid distributions as a percentage of taxable income available for distributions | 100.0 | % |
As of September 30, 2016 the components of tax basis accumulated earnings were as follows (in thousands):
|
| | | |
| | 2016 |
| Undistributed ordinary income, net | $ | — |
|
| Undistributed capital gains | — |
|
| Unrealized gain | 2,008 |
|
| Other temporary adjustments | — |
|
| Total accumulated earnings, net | $ | 2,008 |
|
For the tax year ended September 30, 2016, the Company had taxable income equal to the distributions made from such taxable income during the year. Furthermore, the Company did not incur a U.S. federal excise tax for the calendar year ending December 31, 2016.
Notes to Financial Statements
Note 11. Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the year ended December 31, 2016 and for the period from July 24, 2015 (inception) to December 31, 2015 is presented below (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| | For the three months ended |
| | December 31, 2016 | | September 30, 2016 | | June 30, 2016 | | March 31, 2016 |
| Total investment income | $ | 361 |
| | $ | 1,539 |
| | $ | — |
| | $ | 87 |
|
| Net investment income | 1,442 |
| | 991 |
| | 533 |
| | 22 |
|
| Net unrealized appreciation (depreciation) | 1,838 |
| | 1,422 |
| | 674 |
| | (10 | ) |
| Net increase in net assets resulting from operations | 3,280 |
| | 2,413 |
| | 1,207 |
| | 12 |
|
Net assets (1) | 111,153 |
| | 80,951 |
| | 46,017 |
| | 17,001 |
|
| Total investment income per Common Share outstanding - basic and diluted | 0.03 |
| | 0.22 |
| | — |
| | 0.12 |
|
| Net investment income per Common Share outstanding - basic and diluted | 0.14 |
| | 0.14 |
| | 0.15 |
| | 0.03 |
|
Earnings per Common Share - basic and diluted
| 0.31 |
| | 0.35 |
| | 0.34 |
| | 0.02 |
|
| Net asset value per Common Share at end of quarter | 9.11 |
| | 9.13 |
| | 8.89 |
| | 8.66 |
|
| |
(1) | A $1.6 million adjustment was recorded in Q4 2016 relating to distribution services rendered during the period January 1, 2016 through September 30, 2016. The amounts of $0.3 million, $0.6 million, and $0.7 million (an aggregate adjustment amount of $1.6 million) relate to the periods ended March 31, 2016, June 30, 2016, and September 30, 2016 respectively. |
|
| | | | | | | |
| | For the three months ended |
| | December 31, 2015 | | September 30, 2015 |
| Total investment income | $ | 33 |
| | $ | — |
|
| Net investment income | 8 |
| | — |
|
| Net unrealized depreciation | (78 | ) | | — |
|
| Net decrease in net assets resulting from operations | (70 | ) | | — |
|
| Net assets | 2,161 |
| | — |
|
| Total investment income per Common Share outstanding - basic and diluted | 0.62 |
| | — |
|
| Net investment income per Common Share outstanding - basic and diluted | 0.15 |
| | — |
|
Loss per Common Share - basic and diluted
| (1.31 | ) | | — |
|
| Net asset value per Common Share at end of quarter | 8.68 |
| | — |
|
Note 12. Subsequent Events
The Company issued 4,263,499 Common Shares after December 31, 2016, resulting in a $39.9 million increase in equity capital.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are notno and have not been any disagreements between the Company and its independent accountant on any matter of accounting principles, practices or financial statement disclosure.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act, is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
Our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016,2019, have concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, were effective as of December 31, 20162019 at a reasonable level of assurance.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) underand 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control 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 policies or procedures may deteriorate.
WeManagement assessed the effectiveness of our internal control over financial reporting at December 31, 2016.2019. In making this assessment, we used criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (2013 COSO Framework). Based on our assessment, wemanagement concluded that, at December 31, 2016,2019, our internal control over financial reporting is effective based on those criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules that exempt us from the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Changes in Internal Control over Financial Reporting
During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10.Directors, Executive Officers and Corporate Governance.
Board of Trustees
Pursuant to the Company’s Declaration of Trust and bylaws, the Company’s business and affairs are managed under the direction of the Board of Trustees, which has overall responsibility for monitoring and overseeing the Company’s management and operations. The Board of Trustees consists of five members, three of whom are considered Independent Trustees. The initial Trustees were elected by the Company's organizational shareholders. The Trustees are subject to removal or replacement in accordance with Delaware law and the Company’s Declaration of Trust.
Messrs. Goodman, Rosenblatt and Roth are “Independent Trustees,” defined as Trustees who (i) are not “interested persons” of the Company as defined in Section 2(a)(19) of the 1940 Act, and (ii) meet the independence requirements of Section 10A(m)(3) of the Exchange Act, and the rules and regulations of the SEC thereunder and under the Securities Act.
The responsibilities of the Board of Trustees include the oversight of our investment activities, quarterly valuations of our assets, financing arrangements, and corporate governance activities. The Board of Trustees, including the Independent Trustees, oversees and monitors our investment performance and, beginning with the second anniversary of the effective date of the Investment Advisory Agreement, annually reviews the compensation the Company pays to W. P. Carey and the compensation that W. P. Carey pays to Guggenheim and to determine that the provisions of the Investment Advisory Agreement and the Investment Sub-Advisory Agreement, respectively, are carried out.
The Board of Trustees currently has an Independent Trustees Committee, an Audit Committee and a Nominating and Governance Committee, and it may establish additional committees from time to time as necessary to fulfill its obligations. The Board of Trustees has not established a standing compensation committee because the executive officers of the Company do not receive any compensation from the Company. The Master Fund's Board of Trustees, as a whole, participates in the consideration of Independent Trustee compensation and its decisions on Independent Trustee compensation are based on, among other things, a review of director and trustee compensation data for comparable BDCs.
Biographies of Interested Trustees
Mark J. DeCesarisMatthew S. Bloom serves as Chief Executive Officer of the Company, Carey Credit Income Fund and Carey Credit Income Fund - I since February 2016 and as Chief Executive Officer of Carey Credit Income Fund 2018 T since May 2016. Mr. DeCesaris also serves as Chief Executive Officer of W. P. Carey Inc. since February 2016 and as a member of its Board of Directors since July 2012. He also serves as Chief Executive Officer and President of Corporate Property Associates 17 - Global Incorporated (“CPA®:17 - Global”) and Corporate Property Associates 18 - Global Incorporated (“CPA®:18 - Global”) since February 2016. Mr. DeCesaris was Chief Financial Officer of W. P. Carey Inc. and CPA®:17 - Global from 2010 to 2013, having served as Acting Chief Financial Officer of each since 2005 and 2007, respectively. He was also Chief Financial Officer of CPA®:18 - Global from 2012 to 2013 and of Carey Watermark Investors Incorporated from 2008 to 2013. Mr. DeCesaris has also been a member of the Board of Managers of Carey Financial, LLC since 2006 and served as its Chairman from 2013 to 2015. Before joining W. P. Carey, from March 2003 to December 2004, Mr. DeCesaris was Executive Vice President for Southern Union Company, a natural gas energy company publicly traded on the New York Stock Exchange, where he oversaw the integration of acquisitions and developed and implemented a shared service organization to reduce annual operating costs. From August 1999 to March 2003, he was Senior Vice President for Penn Millers Insurance Company, a property and casualty insurance company where he served as President and Chief Operating Officer of Penn Software, a subsidiary of Penn Millers Insurance. From 1994 to August 1999, he was President and Chief Executive Officer of System One Solutions, a business consulting firm that he founded. He started his career with Coopers & Lybrand in Philadelphia, earning his Certified Public Accountant license in 1983. Mr. DeCesaris graduated from Kings College with a B.S. in Accounting and a B.S. in Information Technology. He currently serves on the Board of Kings College and on the Board of the Denver Mile High Youth Corps, Petroleum Service Co. and Mountain Productions, Inc.
Mr. DeCesaris was selected as one of our two Interested Trustees because of his experience and his familiarity with W. P. Carey Inc. and its capital market efforts for other offerings and its alternative investment funds. His experience with advisory services and capital raising is particularly relevant to his trusteeship and, we believe, provides us with exceptional experience upon which to draw.
Jeffrey B. Abrams serves on the Investment Committee of Guggenheim, the Sub-Advisor to the Company. He is a Senior Managing Director and Portfolio Manager inHead of Research for Guggenheim’s Corporate Credit Group.Group and has been with Guggenheim Partners since 2006. He is also a member of the Investment Committee overseeing Guggenheim’s corporate credit investing activities.activities and serves as Chairman and CEO of Guggenheim Credit Income Fund. During his career at the firm, Mr. Abrams’ prior roles at Guggenheim includeBloom has been an analyst covering the retaila variety of sectors, and consumer sectors as a Senior Analyst. Hesubsequently led an industry team that focused on investing acrossin the leveraged credit marketsconsumer, financial, food, gaming, industrials, retail, services and transportation sectors. In addition, in his capacity as a number of industries, including financial institutions, retail, foodsenior analyst and beverage,as a team leader, Mr. Bloom has sourced and consumer products. Mr. Abrams has also focused on sourcing and structuringstructured directly negotiated middle market debt investments. Prior to joining Guggenheim, Mr. AbramsBloom worked as an attorney at Skadden, Arps, Slate, Meagher & Flom in the Leveraged Finance Group at Bear Stearns, where he focused on various leveraged debt transactions across multiple industries.Mergers & Acquisitions and Banking & Institutional Investing groups. Mr. AbramsBloom received his BA in HistoryB.S. from University of Florida and a BBA in Financehis J.D. from Emory University.Columbia University School of Law.
Mr. AbramsBloom was selected as one of our two Interested Trustees because of his priorextensive knowledge of corporate credit investing activities and the Company's business and operations. Additionally, his experience as Head of Research and an Investment Committee Member at Guggenheim Partners is particularly relevant to his trusteeship, and which we believe provides us with exceptional experience and familiarityleadership.
Kevin H. Gundersen serves as Senior Managing Director and Head of Guggenheim's Corporate Credit Group. He is a member of the Investment Committee overseeing Guggenheim's corporate credit investing activities, and has been with Guggenheim.Guggenheim Partners since 2002. He has over 15 years of experience in the high yield and leverage loan asset class. During his career at the firm, Mr. Gundersen has been an analyst covering a variety of sectors, and subsequently led an industry team that focused on investing across the capital structure in the media, telecommunications and technology sectors. In addition, in his capacity as a senior analyst and as a team leader, Mr. Gundersen has sourced and structured directly negotiated middle market debt investments. Prior to joining Guggenheim, Mr. Gundersen worked at GeoTrust, a technology company focused on eCommerce security solutions. Mr. Gundersen received his A.B. from Harvard University.
Mr. Gundersen was selected as one of our two Interested Trustees because of his extensive and broad based experience in corporate credit, including his roles as a Portfolio Manager and Investment Committee Member at Guggenheim Partners. Equally significant is his industry-specific knowledge and leadership experience with corporate credit investing activities analytics, both ofat Guggenheim Partners, which we believe are key qualifications for providing sound directiontactical and leadership.strategic advice and leadership to us.
Biographies of Independent Trustees
Marc S. Goodman serves as an Independent Trustee, a member of the Audit Committee and the Independent Trustees Committee, and as Chairman of the Nominating and Governance Committee. He is a Co-Founder and Managing Director of Conyers Consulting Group, LLC, a consulting firm for asset management companies. Until March 31, 2014, he was Co-Executive Chairman and Global Co-Chief Investment Officer of the Kenmar Olympia Group. Prior to that Mr. Goodman was the President, Co-Chief Executive Officer and Co-Chief Investment Officer of The Kenmar Group. Prior to co-founding The Kenmar Group in 1983, Mr. Goodman was a Vice President and Director of Pasternak, Baum and Co., Inc., a global dealer of cash commodities. Mr. Goodman graduated from the Bernard M. Baruch School of Business of the City University of New York with a BBA degree and an MBA in Finance and Investments. He was awarded an Economics and Finance Department Fellowship during his studies. Mr. Goodman is the Chairman of the Board of the Stacy Joy Goodman Memorial Foundation, a non-profit charity committed to finding a cure for juvenile diabetes. Mr. Goodman also serves on the Diabetes Research Institute Foundation’s National Board and Executive Committee, as well as the Foundation’s Northeast Board and its Executive Committee.
Mr. Goodman was selected as one of our three Independent Trustees because of his experience in the asset management industry and as a chief investment officer; as well as his prior and current experience as a director for other non-traditional funds.
Eric Rosenblatt serves as an Independent Trustee, a member of the Audit Committee and the Nominating and Governance Committee, and as Chairman of the Independent Trustees Committee. He is the President and Founder of R Group AG (“("R Group”Group"), which he founded in 2012. R Group is a financial advisory firm based in Switzerland that serves high net worth individuals. R Group focuses on the due diligence, structuring and monitoring of direct investments (specifically private equity and private debt) and their integration into pre-existing or currently developing financial relationships. Between 2004-2009,From 2004 to 2009, Mr. Rosenblatt was a Vice President at Guggenheim Partners, an asset management firm in New York.Partners. During his tenure at Guggenheim Partners, he oversaw a portfolio of over $2 billion across multiple asset classes; these included private and public equity, high yield and investment grade bonds, credit default swaps, corporate bank debt and distressed loans. Mr. Rosenblatt holds a BS in Physics from the Massachusetts Institute of Technology and an MBA from the New York University Stern School of Business, where he was inducted into the Beta Gamma Sigma Honors Society.
Mr. Rosenblatt was selected as one of our three Independent Trustees because of his knowledge of portfolio management across multiple asset classes and as a director for private companies.
Peter E. Roth serves as an Independent Trustee, a member of the Nominating and Governance Committee and the Independent Trustees Committee, and as Chairman of the Audit Committee. Since 2017, Mr. Roth currently serves asis the Managing Partner of Rothpoint Group llc, a financial services consulting firm. From 2012 to 2018, Mr. Roth was the Managing Partner of JP Charter Oak Advisors LLC,llc, an investment and advisory firm that is focusingwas focused on the financial services industry. From 2006 to 2012, he served as Chief Executive Officer of KBW Asset Management, Inc. (“KBWAM”), a wholly owned subsidiary of KBW, Inc. While at KBWAM, Mr. Roth oversaw the management of several alternative investment funds and was Managing Director and a member of the Investment Committee of KBW Capital Partners GP LLC. During the same period, he also served as a Financial Agent to the U.S. Department of the Treasury on its Capital Purchase Program and the Automotive Industry Finance Program. From 2003 to 2006, he served as the Head of Insurance Investment Banking for Keefe, Bruyette & Woods, Inc. and, from 1990 to 2003, as Head of U.S. Investment Banking for Fox-Pitt, Kelton Inc. (a division of Swiss Re since 1999).
Previously, Mr. Roth served on the Board of Directors of KBW, Inc., and as an Observer on the Board of Directors of SPARTA Insurance Holdings, Inc. and Asset Allocation & Management Company. In the non-profit sector, Mr. Roth serves on the Board of Directors of St. Mary’s Healthcare System for Children in Bayside, Queens, and is Chairman of its Finance and Investment Committee and a member of its Executive Committee. He was previously the Treasurer and Secretary. Additionally, Mr. Roth serves as a Non Executive Director on the Board of City of London Investment Group plc and is the Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees. Mr. Roth also serves as a Non Executive Director on the Board of City of London Investment Management. Mr. Roth received a BA from the University of Pennsylvania and an MBA from The Wharton School at the University of Pennsylvania.
Mr. Roth was selected as one of our three Independent Trustees because of his prior experience in capital raising transactions and strategic planning and his leadership roles at several firms in the financial service industry. He also has finance expertise which, we believe, is beneficial in providing leadership on the Audit Committee.
Supplemental information regarding our Trustees is set forth below. Unless otherwise noted, the address for each Trustee is c/o CareyGuggenheim Credit Income Fund, 50 Rockefeller Plaza,330 Madison Avenue, New York, New York 10020.10017. The same five Trustees also serve on each of the Master Fund's Careyand Guggenheim Credit Income Fund 2018 T's and Carey Credit Income Fund - I's2019's Board of Trustees where they have overall responsibility for overseeing management and operations for those affiliated funds.
As of December 31, 2019, the master fund/feeder fund complex consisted of the Master Fund, GCIF 2019 and the Company (collectively, the "GCIF Master/Feeder Complex"), each entity representing a distinct trust with a class of securities registered pursuant to Section 12 of the Exchange Act.
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| | | | |
Name and Age of Trustee | Position(s) Held with Company | Term of Office-Length of Time Served | Principal Occupation(s) Past Five Years(1) | Other Directorships Held by Trustee(1) |
Interested Trustees (2) | | | | |
Mark J. DeCesaris, 58Matthew S. Bloom, 42 | Chief Executive Officer, President and Chairman of the Board of Trustees | Appointed CEO February 2016; appointed Trustee and Chairman March 2016 | Chief Executive Officer, W. P. Carey Inc., 02/2016-present; Acting Chief Financial Officer and Chief Financial Officer, W. P. Carey Inc., 11/2005-03/2013; Chief Executive Officer, Carey Credit Income Fund 2018 T, 05/2016-present; Chief Executive Officer, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2016-present. | Trustee, Carey Credit Income Fund 2018 T, 05/2016-present; Trustee, Carey Credit Income Fund and Carey Credit Income Fund - I, 03/2016-present; Director, W. P. Carey Inc., 07/2012-present; Trustee and Vice Chairman, King's College, 2001- present; Director, Mountain Productions Inc., 2012-present; Director, Petroleum Service Company, 2008-present. |
Jeffrey B. Abrams, 40 | Interested Trustee | Appointed February 20152017 | Senior Managing Director & Portfolio Manager,and Head of Research, Guggenheim Partners, 05/2002-present.(2006-present). | GCIF Master/Feeder Complex (2017-present). |
| Kevin H. Gundersen, 42 | Interested Trustee Carey | Appointed 2017
| Senior Managing Director and Head of Guggenheim's Corporate Credit Income Fund 2018 T, 05/2016-present; Trustee, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2015-present; Director, Provo Craft Holdings, LLC, 09/2013-present.Group, Guggenheim Partners, (2002-present). | GCIF Master/Feeder Complex (2017-present). |
| Independent Trustees | | | | |
Marc S. Goodman, 6971 | Trustee, Chairman of the Nominating and Governance Committee, Member of the Audit Committee, Member of the Independent Trustees Committee | Appointed February 2015 | Managing Director, Conyers Consulting Group, 04/2014-present;(2014-present); Managing Director, Statsure Financial Services (2017-present); Co-Executive Chairman, Co-Chief Investment Officer, Kenmar Olympia Group, 1983-03/2014.(1983-2014). | Trustee, Carey Credit Income Fund 2018 T, 05/2016-present; Trustee, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2015-present;GCIF Master/Feeder Complex (2015-present); Director, Duet Commodities Fund Limited, 07/2014-present;(2014-2017); Director, Electrum Special Acquisition Corporation, 04/2015-present.(2015-2018). |
Eric Rosenblatt, 3437 | Trustee, Chairman of the Independent Trustees Committee, Member of the Audit Committee, Member of the Nominating and Governance Committee | Appointed February 2015 | President/Founder and Director, R Group AG, 03/2012-present.(2012-present). | Trustee, Carey Credit Income Fund 2018 T, 05/2016-present; Trustee, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2015-present;GCIF Master/Feeder Complex (2015-present); Director, R Group AG, (2012-present); Director, R Capital GmbH, 11/2015-present;(2015-present); Director, R investments GmbH, (2018-present); Director, Zeotap GmbH, 7/2015-present; Director, R Group AG, 03/2012-present.(2015-present). |
Peter E. Roth, 5861 | Trustee, Chairman of the Audit Committee(3), Member of the Nominating and Governance Committee, Member of the Independent Trustees Committee | Appointed February 2015 | Managing Partner, Rothpoint Group llc, (2017-present); Managing Partner, JP Charter Oak Advisors llc, 01/2012-present;(2012-2018); Chief Executive Officer, KBW Asset Management, Inc., 2006-01/2012.(2006-2012). | Trustee, Carey Credit Income Fund 2018 T, 05/2016-present; Trustee, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2015-present;GCIF Master/Feeder Complex (2015-present); Non Executive Director, City of London Investment Group plc, (2019-present); Non Executive Director, City of London Investment Management, (2019-present); Board Member, St. Mary’s Healthcare System for Children, 09/2010-present.(2010-present). |
______________
| |
| (1) | W. P. Carey Inc., Carey Credit Income Fund 2018 T, Carey Credit Income Fund - I, Carey Credit Income Fund, and Guggenheim Partners are affiliatesis an affiliate of Carey Credit Income Fund 2016 T.the Company. |
| |
| (2) | Messrs. DeCesarisBloom and Abrams,Gundersen, our two Interested Trustees, are among the senior executives of W. P. Carey and Guggenheim respectively, who provide services to us on behalf of our Advisors.us. |
| |
| (3) | Our Board of Trustees has determined that Independent Trustee and Audit Committee Chairman Peter E. Roth is an "audit committee financial expert" as that term is defined under Item 407(d)(5) of Regulation S-K underof the Exchange Act. |
Executive Officers
Information regarding our executive officers is set forth below. Unless otherwise noted, the address for each executive officer is c/o CareyGuggenheim Credit Income Fund, 50 Rockefeller Plaza,330 Madison Avenue, New York, New York 10020.10017. The sixseven executive officers identified below also serve as executive officers of the Master Fund Careyand Guggenheim Credit Income Fund - I, and Carey Credit Income Fund 2018 T2019 in the same positions. The Company does not have any employees.
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| | | | |
| Name and Age of Officer | Position(s) Held
with Company | Term of
Office-Length
of Time Served | Principal Occupation(s) Past Five Years (1) | Other Directorships
Held by Officer (1) |
Mark J. DeCesaris, 58Matthew S. Bloom, 42 | Chief Executive Officer, President and Chairman of the Board of Trustees | Appointed CEO February 2016; appointed Trustee2017 | Senior Managing Director and Chairman March 2016Head of Research, Guggenheim Partners, (2006-present). | Chief Executive Officer, W. P. Carey Inc., 02/2016-present; Acting GCIF Master/Feeder Complex (2017 - present). |
| Brian S. Williams, 37 | Chief Financial Officer and Chief Financial Officer, W. P. Carey Inc., 11/2005-03/2013; Chief Executive Officer, Carey Credit Income Fund 2018 T, 05/2016-present; Chief Executive Officer, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2016-present. | Trustee, Carey Credit Income Fund 2018 T, 05/2016-present; Trustee, Carey Credit Income Fund and Carey Credit Income Fund - I, 03/2016-present; Director, W. P. Carey Inc., 07/2012-present; Trustee and Vice Chairman, King's College, 2001- present; Director, Mountain Productions Inc., 2012-present; Director, Petroleum Service Company, 2008-present. |
Mark M. Goldberg, 55 | President | Appointed December 2014 | Managing Director, W. P. Carey Inc., 09/2008-present; President and Chief Executive Officer, Carey Credit Advisors, LLC, 12/2014-present; President, Carey Credit Income Fund 2018 T, 05/2016-present; President, Carey Credit Income Fund and Carey Credit Income Fund - I, 01/2015-present; Chairman, Carey Financial, LLC, 06/2008-present; Managing Director, Corporate Property Associates 18 – Global Incorporated, 04/2013-present; Managing Director, Corporate Property Associates 17— Global Incorporated, 01/2010-present; Managing Director, Carey Watermark Investors Incorporated, 12/2010-present; Managing Director, Carey Watermark Investors 2 Incorporated, 02/2015-present. | |
Paul S. Saint-Pierre, 63 | Chief Financial Officer, Secretary, and Treasurer | Appointed December 20142018
| Chief Financial Officer, Secretary, and Treasurer, Carey Credit Income Fund 2018 T, 05/2016-present; Chief Financial Officer, Secretary, and Treasurer, Carey Credit Income Fund and Carey Credit Income Fund - I, 01/2015-present; SeniorCurrent: Director, Guggenheim Investments, (2017-present).
Former: First Vice President, W. P. Carey Inc., 12/2014-present; Senior Vice President, (2008-2017).
| None |
| Amy J. Lee, 58 | Secretary and Chief FinancialLegal Officer | Appointed 2018
| Current: Interested Trustee, certain other funds in the Fund Complex(2) (2018-present); Chief Legal Officer, certain other funds in the Fund Complex (2014-present); Vice President, certain other funds in the Fund Complex (2007-present); Senior Managing Director, Guggenheim Investments (2012-present).
Former: President and Chief Executive Officer, certain other funds in the Fund Complex (2017-2019); Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012).
| Guggenheim Fund Complex (2)(2018-present) |
| Richard Cheung, 40 | Senior Vice President
| Appointed 2017 | Senior Managing Director, Head of Private Fund Accounting, Guggenheim Partners, (2008-present). | None |
| Kevin M. Robinson, 60 | Senior Vice President | Appointed 2017 | General Counsel, Guggenheim Investments, (2016-present); Senior Managing Director, Guggenheim Partners, LLC, (2007-present). | None |
| John V. Palmer, 35 | Senior Vice President | Appointed 2015 | Current: Director, Guggenheim Partners Investment Management, LLC (2017-present).
Former: First Vice President, W. P. Carey Inc., (2014-2017); First Vice President, Carey Credit Advisors, LLC, 12/2014-present; Chief Financial Officer, Corporate Capital Trust, Inc., 06/2010-11/2014; Senior Vice President and Group Chief Financial Officer,(2014-2017); Director of Fund Management, CNL Financial Group, LLC, 2011-11/2014; Senior Vice President and Chief Financial Officer, CNL Fund Advisors Company, 01/2007-11/2014.(2009-2014).
| None |
|
| | | | |
| Name and Age of Officer | Position(s) Held
with Company | Term of
Office-Length
of Time Served | Principal Occupation(s) Past Five Years (1) | Other Directorships
Held by Officer (1) |
Robert F. Amweg, 64 | Chief Compliance Officer | Appointed February 2015 | Chief Compliance Officer, Carey Credit Income Fund 2018 T, 05/2016-present; Chief Compliance Officer, Carey Credit Income Fund and Carey Credit Income Fund - I, 02/2015-present; Compliance Director, Vigilant Compliance, LLC, 08/2013-present; Consultant to financial service industry, 09/2012-12/2014; Chief Financial Officer and Chief Accounting Officer, Turner Investments, LP, 02/2007-08/2012. | |
Kamal Jafarnia, 50Brian E. Binder, 48 | Senior Vice President | Appointed December 20142018
| Current: President and Chief Executive Officer, certain other funds in the Guggenheim Fund Complex (2)(2018-present); President and Chief Executive Officer, Guggenheim Funds Investment Advisors, LLC and Security Investors, LLC (2018-present); Senior ViceManaging Director and Chief Administrative Officer, Guggenheim Investments (2018-present).
Former: Managing Director and President, Carey Credit IncomeDeutsche Funds, and Head of US Product, Trading and Fund 2018 T, 05/2016-present; Senior Vice President, Carey Credit IncomeAdministration, Deutsche Asset Management (2013-2018); Managing Director, Head of Business Management and Consulting, Invesco Ltd. (2010-2012).
| Director, Guggenheim Partners Fund and Carey Credit Income FundManagement (Europe) Limited, (2018 - I, 01/2015-present; Senior Vice President, W. P. Carey Inc., 10/2014-present; Executive Vice President, present). Chairman of the Board of Managers, Guggenheim Funds investment Advisors, LLC, (2018 - present). |
| Joanna M. Catalucci, 53 | Chief Compliance Officer and General Counsel, Carey Financial, LLC, 10/2014-present;Anti-Money Laundering Officer | Appointed 2018
| Current: Chief Compliance Officer, certain funds in the Guggenheim Fund Complex(2) (2012-present); Senior Managing Director, Guggenheim Investments (2012-present).
Former: Chief Compliance Officer and Secretary, certain other funds in the Guggenheim Fund Complex (2008-2012); Senior Vice President and& Chief Compliance Officer, Carey Credit Advisors,Security Investors, LLC 12/2014-present; Counsel, Greenberg Traurig, LLP, 03/2014-10/2014; Counsel, Alston & Bird LLP, 08/2012-03/2014;and certain affiliates (2010-2012); Chief Compliance Officer and Senior Vice President, American Realty Capital, 11/2008-08/2012. | Non-Executive Independent Director, Ashford Hospitality Trust, Inc. |
John V. Palmer, 32 | Vice President | Appointed December 2014 | Vice President, Carey Credit Income Fund 2018 T, 05/2016-present; Vice President, Carey Credit Income Fund and Carey Credit Income Fund - I, 01/2015-present; First Vice President, W. P. Carey Inc., 05/2014-present; First Vice President, Carey CreditRydex Advisors, LLC 12/2014-present; Directorand certain affiliates (2010-2011).
| Member of Fund Management, CNL Financial Group, LLC, 05/2009-05/2014. | Board of Trustees, Merrimack College, (2018 - present). |
______________
| |
| (1) | Guggenheim, Guggenheim Partners, W. P. Carey Inc., Carey Credit Advisors, LLC, Carey Financial LLC, Carey Credit Income Fund 2018 T, Carey Credit Income Fund - I, and Carey Credit Income FundCCA are affiliates of Carey Credit Incomethe Company for all or a portion of 2017. |
| |
| (2) | The Guggenheim Fund 2016 T.Complex includes all registered closed- and open-end funds (including all of their portfolios) advised by the Advisor and any funds that have an investment adviser or servicing agent that is an affiliated person of the Advisor. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that Trustees, Executive Officers and persons who are the beneficial owners of more than 10% of our Common Shares file reports of their ownership and changes in ownership of our Common Shares with the SEC and to furnish us with copies of all such Section 16 reports that they file. Based solely upon a review of the copies of such reports furnished to us as filed with the SEC and other written representations that no other reports were required to be filed during the year, the Company believes that all Trustees, Executive Officers and beneficial owners of 10% or more of our Common Shares were in compliance with the reporting requirements of Section 16(a) of the Exchange Act during 2016.2019.
Code of Ethics
The Company 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. Persons subject to this code of ethics 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 requirements of the code of ethics. A copy of our code of ethics is available at www.careycredit.com/Corporate-Governance.www.guggenheiminvestments.com/credit-income-fund/corporate-governance.
Corporate Governance
Board of Trustees Leadership Structure
Our business and affairs are managed under the direction of our Board of Trustees. Among other things, our Board of Trustees sets broad policies for us and approves the appointment of our Advisors,Advisor, administrator and officers. The role of our Board of Trustees, and of any individual Trustee, is one of oversight and not of management of our day-to-day affairs.
Under our bylaws,Bylaws, our Board of Trustees may designate one of our Trustees as Chairman to preside over meetings of our Board of Trustees and meetings of shareholders, and to perform such other duties as may be assigned to him or her by our Board of Trustees. Presently, Mr. DeCesarisBloom serves as Chairman of our Board of Trustees and is an “interested person” by virtue of his professional association with W. P. Carey Inc.Guggenheim. We believe that it is in the best interests of our shareholders for Mr. DeCesarisBloom to serve as Chairman of our Board of Trustees because of his experience in matters of relevance to our business. Our Board of Trustees has determined that the compositions of the Audit Committee and the Independent Trustees Committee are appropriate means to address any potential conflicts of interest that may arise from the Chairman’s status as an interested person of us. We believe that our Board of Trustees’ flexibility to determine its Chairman and reorganize its leadership structure from time to time is in the best interests of us and our shareholders.
Each year, ourOur Independent Trustees designatehave designated an Independent Trustee to serve aswho is also the Chairman of the Independent Trustees Committee and who also servesto serve as the lead Independent Trustee on our Board of Trustees. The designation of a lead Independent Trustee is for a one-yearan indefinite term, but themay be voted on from time to time. The lead Independent Trustee may succeed himself or herself in that position. If the lead Independent Trustee is unavailable for a meeting, his or her immediate predecessor or an Independent Trustee designated by the other Independent Trustees will serve as lead Independent Trustee for such meeting. The lead Independent Trustee will presidepresides over meetings of our Independent Trustees Committee. The lead Independent Trustee will also serveserves as a liaison between our Independent Trustees Committee and our management on a wide variety of matters, including agenda items for our Board of Trustees meetings. Designation as such does not impose on the lead Independent Trustee any obligations or standards greater than or different from those of our other Trustees.
All of the Independent Trustees play an active role on the Board of Trustees. The Independent Trustees compose a majority of our Board of Trustees and are closely involved in all material deliberations related to us. Our Board of Trustees believes that, with these practices, each Independent Trustee has an equal involvement in the actions and oversight role of our Board of Trustees and equal accountability to us and our shareholders. Our Independent Trustees are expected to meet separately (i) as part of each regular Board of Trustees meeting, and (ii) with our chief compliance officer, as part of at least one Board of Trustees meeting each year. Our Independent Trustees Committee may hold additional meetings at the request of the lead Independent Trustee or another Independent Trustee.
Our Board of Trustees, which reviews its leadership structure periodically as part of its self-assessment process, further believes that its structure is presently appropriate to enable it to exercise its oversight of us.
Board of Trustees’ Role in Risk Oversight
Our Board of Trustees oversees our business and operations, including certain risk management functions. Risk management is a broad concept comprising many disparate elements (for example, investment risk, issuer and counterparty risk, compliance risk, operational risk and business continuity risk). Our Board of Trustees will implementimplements its risk oversight function both as a whole and through its committees. In the course of providing oversight, our Board of Trustees and its committees will receive reports on our Advisors’Advisor’s activities, including reports regarding our investment portfolio and financial accounting and reporting. Our Board of Trustees will also receivereceives a quarterly report from our Chief Compliance Officer, who reports on our compliance with federal and state securities laws and our internal compliance policies and procedures, as well as those of our Advisors,Advisor, administrator and transfer agent. The Audit Committee’s meetings with our independent public accounting firm will also contribute to its oversight of certain internal control risks. In addition, our Board of Trustees will meetmeets periodically with our AdvisorsAdvisor to receive reports regarding our operations, including reports on certain investment and operational risks, and our Independent Trustees will beare encouraged to communicate directly with senior members of our management.
Our Board of Trustees believes that this role in risk oversight is appropriate. We believe that we have robust internal processes in place and a strong internal control environment to identify and manage risks. However, not all risks that may affect us can be identified, or processes and controls developed to eliminate or mitigate their occurrence or effects, and some risks are beyond the control of us, our Advisors,Advisor, the administrator and our other service providers.
Board of Trustees Committees - Independent Trustees Committee, Audit Committee, Nominating and Governance Committee
Our Independent Trustees will also serve on one or more of the following committees, which have been established by our Board of Trustees to handle certain designated responsibilities. The Board of Trustees has designated a Chairman of each committee. The Board of Trustees may establish additional committees, change the membership of any committee, fill all vacancies, designate alternate members to replace any absent or disqualified member of any committee or dissolve any committee as it deems necessary and in our best interest.
Independent Trustees Committee. Our Independent Trustees Committee consists of all of our Independent Trustees. Mr. Rosenblatt currently serves as Chairman of the Independent Trustees Committee. The Independent Trustees Committee assists the Board of Trustees by acting as a liaison between the Board of Trustees and our principal service providers, including without limitation, our Advisors.Advisor. The Independent Trustees Committee is responsible for assessing the flow of information between our management and the Board of Trustees and overseeing the annual approval process of the Investment Advisory Agreement and the Administrative Services Agreement, and the Investment Sub-Advisory Agreement. The Independent Trustees Committee is also responsible for addressing conflict of interest matters and directing the retention of any consultants that the Board of Trustees may deem necessary or appropriate. Time is allotted at each quarterly meeting of our Board of Trustees for the Independent Trustees to meet and discuss any issues that they deem necessary or appropriate. The Independent Trustees may also choose to meet in executive session outside the presence of the Interested Trustees during the course of other meetings of our Board of Trustees or at other times as they deem necessary or appropriate.
Audit Committee. Our Audit Committee consists of all of our Independent Trustees, each of whom meets the independence standards established by the SEC for audit committees and is not an “interested person” for purposes of the 1940 Act. Mr. Roth serves as Chairman of the Audit Committee. Our Board of Trustees has determined that Mr. Roth is an “audit committee financial expert” as that term is defined under Item 407 of Regulation S-K of the Exchange Act. The Audit Committee operates pursuant to a written charter and meets periodically as necessary. A copy of the Audit Committee’s charter is available on our website at www.careycredit.com.www.guggenheiminvestments.com/credit-income-fund/corporate-governance. The Audit Committee is responsible for selecting, engaging and discharging our independent accountants; reviewing the plans, scope and results of the audit engagement with our independent accountants; approving professional services provided by our independent accountants (including compensation therefore); reviewing the independence of our independent accountants;accountants and reviewing the adequacy of our internal controls over financial reporting.
Nominating and Governance Committee. Our Nominating and Governance Committee consists of all of our Independent Trustees. Mr. Goodman serves as Chairman of the Nominating and Governance Committee. The Nominating and Governance Committee operates pursuant to a written charter and meets periodically as necessary. A copy of the Nominating and Governance Committee’s charter is available on our website at www.careycredit.com.www.guggenheiminvestments.com/credit-income-fund/corporate-governance. The Nominating and Governance Committee is responsible for selecting, researching and nominating Trustees for election by our shareholders, selecting nominees to fill vacancies on the Board of Trustees or a committee of the Board of Trustees, developing and recommending to the Board of Trustees a set of corporate governance principles and overseeing the evaluation of the Board of Trustees and our management. Our Nominating and Governance Committee will consider shareholders’ proposed nominations for Trustees. A shareholder who desires to recommend a nominee must submit a request in writing pursuant to the relevant provisions of our bylaws. Our Nominating and Governance Committee will consider nominees recommended in writing by a shareholder (other than shareholder recommendations of himself or herself) to serve as Trustees, provided that: (i) such person is a shareholder of our Company at the time he, she or it recommends such nominee and is entitled to vote at the meeting of shareholders at which Trustees will be elected; and (ii) the committee will make the final determination as to the qualifications of the individual to be nominated. The committee will evaluate each nominee recommended by a shareholder to serve as Trustee in the same manner as it would evaluate potential nominees identified by the committee.
The Delaware Trustee
Wilmington Trust, National Association (the “Delaware Trustee”) serves as our sole Trustee in the State of Delaware. The Delaware Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890. The Delaware Trustee is unaffiliated with us. The rights and duties of the Delaware Trustee are governed by the provisions of the Delaware Statutory Trust Act and by our Declaration of Trust.
The Delaware Trustee will accept service of legal process on us in the State of Delaware. The duties of the Delaware Trustee are limited to the execution of any certificates required to be filed with the Delaware Secretary of State, which the Delaware Trustee is required to execute under the Delaware Statutory Trust Act. The Delaware Trustee does not owe any other duties to us or our shareholders. The Declaration of Trust provides that the Delaware Trustee is permitted to resign upon at least 30 days’ notice to us, provided, that any such resignation will not be effective until a successor trustee is appointed by our Board of Trustees or a court of competent jurisdiction, or a successor is appointed by a court of competent jurisdiction pursuant to a court petition by the Delaware Trustee. The Declaration of Trust provides that the Delaware Trustee is compensated by us in accordance with a separate fee agreement, and is indemnified by us, as appropriate, against any and all losses, damages, liabilities, claims, actions, suits, costs, expenses, disbursements (including the reasonable fees and expenses of counsel), taxes and penalties of any kind and nature whatsoever, to the extent such expenses arise out of or are imposed upon the Delaware Trustee with respect to the performance of its duties pursuant to our Declaration of Trust, or the formation, operation or termination of the Company. The Delaware Trustee
shall not be indemnified by us for any expenses that result from the gross negligence, bad faith or willful misconduct of the Delaware Trustee. Our Board of Trustees will havehas discretion to replace the Delaware Trustee.
Under Delaware law, neither the Delaware Trustee, either in its capacity as Delaware Trustee or in its individual capacity, nor any director, officer or controlling person of the Delaware Trustee is, or has any liability as, the issuer or a Trustee, officer or controlling person of the issuer.
Under our Declaration of Trust, the Delaware Trustee’s duties are limited to (i) accepting legal process served on the Company in Delaware and (ii) execution of any certificates required to be filed with the Delaware Secretary of State that the Delaware Trustee is required to execute under Section 3811 of the Delaware Statutory Trust Act. The Delaware Trustee will havehas no duty or liability to supervise or monitor the performance of our Board of Trustees, nor willdoes the Delaware Trustee have any liability for the acts or omissions of our Board of Trustees. Because the Delaware Trustee will delegatedelegates substantially all of its authority over our operations to our Board of Trustees, the Delaware Trustee itself is not registered in any capacity with the SEC.
Item 11.Executive Compensation.
(a) Compensation of Executive Officers
| |
| (a) | Compensation of Executive Officers |
As an externally managed BDC, we rely on the services of W. P. CareyGuggenheim as investment advisor under the Investment Advisory Agreement and the services ofAgreement. Guggenheim as investment sub-advisor under the Investment Sub-Advisory Agreement. W. P. Carey also provides administrative services to the Company under an Administrative Services Agreement. Several of W. P. Carey's appointedOf the Company’s executive officers, alsoKevin Robinson, Senior Vice President, and Brian Binder, Senior Vice President, serve on behalf of our Company, specifically our president, chief financial officer, treasurer and secretary, senior vice president, and vice president. We do not pay any compensation to any of ouras executive officers withof Guggenheim. None of the exceptionCompany's executive officers receive direct compensation from us. Guggenheim is reimbursed by us for the allocable portion of a contractual compensation agreement with Vigilant Compliance, LLC for our Chief Compliance Officer.administrative services performed by some of the Company's executive officers.
| |
| (b) | Compensation of Independent Trustees |
The Board of Trustees is responsible for evaluating and approving trustee compensation; making decisions on trustee compensation, which are based on, among other things, a review of compensation data of comparable BDCs and investment companies.
In fiscal year 2016, each Independent Trustee was entitled to compensation for his Trustee-related services including: an annual retainer fee amount of $52,500, $2,500 for each regular in-person Board of Trustees meetings, $1,000 for (i) all committee meetings held during regular Board of Trustees meetings and (ii) telephonic meetings of the Board of Trustees and committees, and reasonable out-of-pocket expenses incurred in connection with attending Board of Trustees and committee meetings. In addition, the Audit Committee chairman was paid a $10,000 annual retainer fee. The table below sets forth the compensation received by each Independent Trustee from the Company for the fiscal year ending December 31, 2016; compensation for the Delaware Trustee and Independent Trustees' travel expenses are not included. The Independent Trustees did not receive any additional compensation from the Feeder Funds.
|
| | | | | | | | |
| INDEPENDENT TRUSTEE COMPENSATION |
| Fiscal Year ended December 31, 2016 |
| Independent Trustee Names | | Fees earned or paid in cash | | Total |
| Marc S. Goodman | | $ | 107,500 |
| | $ | 107,500 |
|
| Eric Rosenblatt | | 107,500 |
| | 107,500 |
|
| Peter E. Roth | | 116,500 |
| | 116,500 |
|
| | | $ | 331,500 |
| | $ | 331,500 |
|
In fiscal year 2017,2019, the compensation schedule for each Independent Trustee consistsconsisted of a $70,000 annual retainer fee, $2,500 for participation in each regular in-person Board of Trustees meetings, $1,000 for (i) all committee meetings held during any regular Board of Trustees meeting and (ii) telephonic meetings of the Board of Trustees and committees, $500$250 for consideration and approval of resolutions submitted for unanimous written consent, and reasonable out-of-pocket expenses incurred in connection with attending the in-person meetings of the Board of Trustees and committee meetings.committee. In addition, the Audit Committee chairman is entitled towas compensated with a $10,000 annual retainer fee. The table below sets forth the compensation received by each Independent Trustee from the Master Fund for the fiscal year ending December 31, 2019; the Independent Trustees did not receive any additional compensation from the Feeder Funds and compensation for the Delaware Trustee and Independent Trustees' travel expenses are not included in the table below.
|
| | | | |
| INDEPENDENT TRUSTEE COMPENSATION |
| Fiscal Year ended December 31, 2019 |
| Independent Trustee Names | | Total fees earned and received in cash |
| Marc S. Goodman | | $ | 96,250 |
|
| Eric Rosenblatt | | 96,250 |
|
| Peter E. Roth | | 106,250 |
|
| | | $ | 298,750 |
|
In fiscal year 2020, there are no changes to the compensation schedule for each Independent Trustee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The following table sets forth, as of the date of this Report, information with respect to the beneficial ownership of our Shares by:
each person known to us to beneficially own more than 5% of the outstanding Common Shares,
each of our Trustees and each executive officer, and
all of our Trustees and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. There are no Shares subject to options that are currently exercisable or exercisable within 60 days of the date of this Report. Ownership information for those persons who beneficially own 5% or more of our Shares is based upon information furnished by the our transfer agent and other information provided by such persons, if available. A shareholder that owns more than 25% of our Shares is deemed to control us (as such term is defined in the 1940 Act).
|
| | | | |
Name of Beneficial Owner(1) | Number | Percentage of
current ownership ownership(2) |
| Beneficial Owners of More Than 5%: | | |
| None | | |
| | | |
| Trustees and Executive Officers: | | |
| Trustees: | | |
Mark J. DeCesarisMatthew S. Bloom (3)
| — |
| — | % |
Jeffrey B. AbramsKevin H. Gundersen | — |
| — | % |
| Marc S. Goodman | —�� |
| — | % |
| Eric Rosenblatt | — |
| — | % |
| Peter E. Roth | — |
| — | % |
| | | |
| Executive Officers: | | |
| Brian S. Williams, Chief Financial Officer and Treasurer | — |
| — | % |
Mark M. Goldberg,Amy J. Lee, Secretary and Chief Legal Officer | — |
| — | % |
| Richard Cheung, Senior Vice President | — |
| — | % |
Paul S. Saint-Pierre, Chief Financial Officer and Secretary | — |
| — | % |
Kamal Jafarnia,Brian Binder, Senior Vice President | — |
| — | % |
| John V. Palmer, Senior Vice President | — |
| — | % |
Robert F. Amweg,Kevin M. Robinson, Senior Vice President | — |
| — | % |
| Joanna M. Catalucci, Chief Compliance Officer and Anti-Money Laundering Officer | — |
| — | % |
All Trustees and executive officersExecutive Officers as a group (10(12 persons): | — |
| — | % |
_____________________
| |
| (1) | Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. |
| |
| (2) | Based on a total of 16,469,282 Common17,048,185 Shares issued and outstanding as of March 17, 2017.6, 2020. |
| |
| (3) | Mark J. DeCesarisMatthew S. Bloom is also the Chief Executive Officer and President of the registrant. |
Item 13. Certain Relationships and Related Transactions, and Trustee Independence.
Potential Conflicts of Interest
The respective members, directors, officers and other personnel of the AdvisorsGuggenheim allocate their time between advising us and managing other investment and business affairs in an appropriate manner. However, our AdvisorsGuggenheim will continue to devote the time, resources and other services necessary to managing theirits other investment and business activities and the Advisors areGuggenheim is not precluded from conducting activities unrelated to our business affairs. As a result of these business activities, the AdvisorsGuggenheim may have conflicts of interest in allocating management time, services and functions among us and other business ventures or clients.
We may compete with other advisory clients or affiliates of the AdvisorsGuggenheim for investments, subjecting an AdvisorGuggenheim and its affiliates to certain conflicts of interest in evaluating the suitability of investment opportunities or making acquisitions on our behalf.
Our AdvisorsGuggenheim and theirits respective affiliates may give advice and recommend securities to other clients which may differ from advice given to, or securities recommended or bought for, us even though their investment objectives may be similar to ours. As a result, the AdvisorsGuggenheim may at certain times be simultaneously seeking to purchase or dispose of investments for the CompanyMaster Fund and for other clients for which they serve as advisor.
To the extent not restricted by confidentiality requirements or applicable law, our AdvisorsGuggenheim may apply experience and information gained in providing services to our portfolio companies in providing services to competing companies invested in by our affiliates’ other clients.
As a BDC, we arethe Master Fund is limited in ourits ability to invest in any portfolio company in which an affiliate’s other client has an investment. We areThe Master Fund is also limited in ourits ability to co-invest in a portfolio company with our AdvisorsGuggenheim or one or more of their respectiveits affiliates. Some of these co-investments are only permitted pursuant to reliance on previous no-action letters or an exemptive order from the SEC.
From time to time, and to the extent consistent with the 1940 Act and the rules and regulations promulgated thereunder, or with the co-investment transaction exemptive relief wethe Master Fund received from the SEC, wethe Master Fund and other clients for which our Advisors provideGuggenheim provides investment management services or carrycarries on investment activities may make investments at different levels of an investment entity’s capital structure or otherwise in different classes of an issuer’s securities. These investments may inherently give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held by usthe Master Fund and such other clients, including in the case of financial distress of the investment entity.
Our AdvisorsFrom time to time, and their respectiveto the extent consistent with the 1940 Act and the rules and regulations promulgated thereunder, or with the co-investment transaction exemptive relief the Master Fund received from the SEC, Guggenheim and its affiliates may receive capital structuring fees and loan administration fees in connection with our investments. Guggenheim and its affiliates are obligated to remit to the future,Master Fund any earned capital structuring fees and loan administration fees based on its pro rata portion of the co-investment transactions in which it participates.
Guggenheim and its affiliates may advise a broad range of investment funds, vehicles and other accounts, including proprietary vehicles, that make investments worldwide. Each of our AdvisorsGuggenheim may also make investments for its own account.
By reason of the advisory, investment banking and/or other activities of the AdvisorsGuggenheim and theirits affiliates, the AdvisorsGuggenheim may acquire confidential or material non-public information or be restricted from initiating transactions in certain securities. This may also happen if, for example, any members of the board of directors of a portfolio company are nominated or designated by the AdvisorsGuggenheim or any of theirits affiliates. The AdvisorsGuggenheim will not be free to divulge, or to act upon, any such confidential or material non-public information, and because of these restrictions, the AdvisorsGuggenheim may not be able to initiate a transaction for the CompanyMaster Fund that they otherwise might have initiated (including taking a new position or adding to an existing position). As a result, the CompanyMaster Fund may be frozen in an investment position that it otherwise might have liquidated or closed out, or may not be able to acquire a position that it might otherwise have acquired.
Our AdvisorsGuggenheim and their respectiveits affiliates are not restricted from forming additional investment funds, from entering into other investment advisory relationships, or from engaging in other business activities, even though such activities may compete with us or may require substantial resources.
Our Advisors
Guggenheim may have, or enter into, advisory relationships with other advisory clients that could lead to circumstances in which a conflict of interest between the AdvisorsGuggenheim and its advisory clients could exist or develop. In addition, to the extent that another client of W. P. Carey or Guggenheim holds a different class of securities of the same issuer than us,the Master Fund, the interest of such client and ourthe interest of the Master Fund may not be aligned. As a result of these conflicts and restrictions, our AdvisorsGuggenheim may be unable to implement ourthe investment strategies of the Master Fund as effectively as they could have in the absence of such conflicts or restrictions. In order to avoid these conflicts and restrictions, our AdvisorsGuggenheim may choose to exit these investments prematurely and, as a result, we, through our investment in the Master Fund, would forgo any future positive return associated with such investments.
No rebates or give-ups may be received by the AdvisorsGuggenheim or theirits affiliates, nor may the AdvisorsGuggenheim participate in any reciprocal business arrangements that would circumvent the prohibition of rebates or give-ups.
Various potential and actual conflicts of interest may arise as a result of the investment banking, commercial banking, asset management, financing and financial advisory services and products provided by the AdvisorsGuggenheim and theirits affiliates. The AdvisorsGuggenheim and theirits affiliates may purchase, hold and sell, both for their respectiveits accounts or for the account of their respectiveits clients, on a principal or agency basis, loans, securities and other obligations and financial instruments and engage in private equity investment activities. Subject to applicable law, the AdvisorsGuggenheim and theirits affiliates will not be restricted in their performance of any such services or in the types of debt or equity investments that they may make. In conducting the foregoing activities, the AdvisorsGuggenheim and theirits affiliates will be acting for their own account or the account of their clients and, subject to applicable law, will have no obligation to act in the interest of the Company.
Transactions with Related Persons, Promoters and Certain Control Persons
W. P. CareyGuggenheim may be deemed a promoter and control person of the Company. During 2015,Master Fund. From inception through September 10, 2017, the Company entered intoMaster Fund was party to the Prior Investment Advisory Agreement and the Prior Administrative Services Agreement with CCA. On August 10, 2017, CCA resigned as the Master Fund's investment advisor and administrator, and the Board of Trustees selected Guggenheim to perform the Master Fund's investment advisory and administrative responsibilities, both events concurrently effective on September 11, 2017. The Master Fund is currently party to the Investment Advisory Agreement and the Administrative Services Agreement with W. P. Carey. The advisorGuggenheim. Guggenheim earns asset managementinvestment advisory fees, performance-based incentive fees and is reimbursed for the costs of providing administrative services.
Our investment process is a collaborative effort between W. P. Carey and Guggenheim and benefits from the combined business and specific industry knowledge, transaction expertise, and deal-sourcing capabilities of both Advisors. Through their services to the Company, W. P. Carey will be responsible for the overall management of our activities and Guggenheim will be responsible for the day-to-day management of our investment portfolio. W. P. Carey will provide its services under the Investment Advisory Agreement and the Administrative Services Agreement, and Guggenheim will provide its services under the Investment Sub-Advisory Agreement with W. P. Carey. The activities of both of our Advisors will be subject to the supervision and oversight of our Board of Trustees.
Under the terms of the Investment Advisory Agreement, and the Investment Sub-Advisory Agreement, our Advisors areGuggenheim is responsible for performing the following:following tasks:
determining the composition and allocation of ourthe Master Fund's portfolio, the nature and timing of the changes to ourits portfolio and the manner of implementing such strategies;
identifying, evaluating, negotiating and structuring the investments we make;made by the Master Fund;
performing due diligence on prospective portfolio companies;
executing, closing, servicing and monitoring the investments we make;made by the Master Fund;
arrangement of debt financing;
determining the securities and other assets that wethe Master Fund will purchase, retain or sell; and
providing usthe Master Fund with such other investment advisory, research, and related services as wethe Master Fund may, from time to time, reasonably require for the investment of ourits capital.
Guggenheim is primarily responsible for initially identifying, evaluating, negotiating, and structuring ourthe Master Fund's investments. These activities will be carried out by its investment teams and are subject to the oversight of Guggenheim’s senior investment personnel. Each investment that we make will require the approval of both our Advisors. Certain affiliated co-investment transactions, to the extent permitted by an SEC exemptive order, may require the additional approval of our Independent Trustees Committee.
During 20162019 and 2015,2018 the Master Fund paid W. P. Carey $3.5incurred $6.9 million and $0.4$7.2 million in management fees, respectively, in asset management fees.which were payable to Guggenheim.
W. P. CareyGuggenheim also oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, investor relations and other administrative services. W. P. Carey willGuggenheim also perform,performs, or overseeoversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our shareholders and reports filed with the SEC. In addition, W. P. Carey will assistGuggenheim assists us in calculating our net asset value, overseeingoversees the preparation and filing of tax returns, the printing and dissemination of reports to our shareholders and generally overseeingoversees the payment of our expenses and the performance of administrative and professional services rendered to us by others.
For providing these services, facilities and personnel, we reimburse W. P. CareyGuggenheim for administrative expenses it incurs in performing its obligations. The amount of this reimbursement is set at the lesser of (i) W. P. Carey’sGuggenheim’s actual costs and (ii) the amount that we would be required to pay for comparable administrative services in the same geographic location. W. P. CareyGuggenheim is required to allocate the cost of such services to us based on objective factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our Board of Trustees assesses the reasonableness of such reimbursements based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party providers known to be available. In addition, our Board of Trustees considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our Board of Trustees compares the total amount paid to W. P. CareyGuggenheim for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs. We will not reimburse W. P. CareyGuggenheim for any services for which it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of W. P. Carey. Guggenheim.
During 20162019 and 2015, $0.32018, $0.8 million and less than $0.1$0.6 million, respectively, was paid to W. P. CareyGuggenheim to cover personnel expenses, which amount includes both cash compensation and employee benefits, excludes amounts paid by the AdvisorGuggenheim to itstheir respective executive officers (which are not reimbursed by us), and includes an allocation of office rental expenses and of certain other overhead expenses.
Each of the Investment Advisory Agreement the Investment Sub-Advisory Agreement, and the Administrative Services Agreement, were initially approved by our Board of Trustees on February 23, 2015. Unlessunless earlier terminated as described below, each agreement will remain in effect for a period of two years, from the date of execution and will remain in effect from year-to-year thereafter shall continue automatically for successive one-year periods, if approved annually by (i) a majority of our Independent Trustees, and either(ii) our Board of Trustees or the holders of a majority of our outstanding voting securities.securities in the case of the Investment Advisory Agreement and (iii) our Board of Trustees in the case of the Administrative Services Agreement.
Each of the Investment Advisory Agreement, the Investment Sub-Advisory Agreement and the Administrative Services Agreement will automatically terminate in the event of its assignment. In accordance with the 1940 Act, the CompanyMaster Fund may terminate the Investment Advisory Agreement and the Administrative Services Agreement with W. P. Carey, and cause W. P. Carey to terminate the Investment Sub-Advisory Agreement with Guggenheim upon 60 days’ written notice. The decision to terminate any agreement may be made by a majority of our Independent Trustees or the holders of a majority of our outstanding Shares. In addition, W. P. Carey and Guggenheim have agreed that, in the event that one of them is removed (other than for cause), or either the Investment Advisory Agreement or the Investment Sub-Advisory Agreement is not renewed, the other will also terminate its agreement with the Company.
W. P. CareyGuggenheim will be permitted to voluntarily terminate the Investment Advisory Agreement andand/or the Administrative Services Agreement, and Guggenheim will be permitted to voluntarily terminate the Investment Sub-Advisory Agreement, upon 120 days’ prior written notice. W. P. Carey may not terminate the Investment Sub-Advisory Agreement without the consent of our Independent Trustees or the holders of a majority of our outstanding Shares.
Under the Investment Advisory Agreement, the Master Fund expects, to the extent permitted by applicable law and in the discretion of the Board of Trustees, to indemnify W. P. CareyGuggenheim and certain of its affiliates.
Additionally, as a BDC, the Master Fund must offer managerial assistance to our EPCs.its eligible portfolio companies (“EPCs”). This managerial assistance may include monitoring the operations of ourthe Master Fund's portfolio companies, participating in board and management meetings, consulting with and advising officers of ourthe Master Fund's EPCs and providing other organizational and financial guidance. Our Advisors or our administrator makeGuggenheim makes available such managerial assistance, on ourthe Master Fund's behalf, to ourits EPCs, whether or not they request this assistance. The Master Fund may receive fees for these services and will reimburse our AdvisorsGuggenheim for their allocated costs in providing such assistance, subject to review and approval by ourits Board of Trustees.
Indebtedness to Related Party
In 2015, the Master Fund's Board of Trustees and WPC's board of directors approved unsecured loans to the Master Fund of up to $50.0 million in the aggregate. The unpaid principal balance and accrued interest thereon was due and payable on December 30, 2015. On December 17, 2015, the Company repaid all outstanding balances under the Promissory Notes.
Policies and Procedures Withwith Respect to Related Party Transactions
The Boards of the Company and the Master Fund (including all of the Independent Trustees) have approved policies and procedures for the oversight, review and approval of transactions involving the Company or the Master Fund and persons related to the Company or the Master Fund. For example, the Board of the Master Fund has approved procedures for the calculation of management and incentive fees payable to the AdvisorsGuggenheim and for the reimbursement of organizational and offering expenses paid by the Advisors.Guggenheim. The Company has also adopted a Code of Ethics, prohibiting its Access Persons (as that term is defined under the 1940 Act) and other related parties from engaging in any business transaction or arrangement for personal profit that is not in the best interests of the Company or its shareholders in violation of the fiduciary duty owed to the Company and its shareholders.
Further, the Audit Committee is required by its charter to review with both the Company's management and its independent accountants all related-party transactions or dealings with parties related to the Company, and the Independent Trustees Committee reviews and approves the payment of reimbursements to the Advisor in its role as administrator for certain costs allocated to the Company pursuant to the Administrative Services Agreement.
Trustee Independence
We define Independent Trustees as those trustees who (i) are not “interested persons” of us as defined in Section 2(a)(19) of the 1940 Act, and (ii) meet the independence requirements of Section 10A(m)(3) of the Exchange Act, and the rules and regulations of the SEC thereunder and under the Securities Act. A list of our interested and independent trustees is presented in Item 10. Directors, Executive Officers and Corporate Governance. Item 14. Principal AccountantAccounting Fees and Services.
The following table summarizes the audit fees and non-audit related fees accrued or paid to PricewaterhouseCoopersErnst & Young LLP (the "Independent Accountant") for professional services performed for the Company's fiscal years ended December 31, 20162019 and December 31, 2015:2018:
|
| | | | | | | | | | | | | | | | |
| Fiscal Year | | Audit Fees | | Audit-Related Fees (1) | | Tax Fees (2) | | All Other Fees |
| 2016 | | $ | 90,500 |
| | $ | 19,500 |
| | $ | 7,200 |
| | $ | — |
|
| 2015 | | $ | 52,500 |
| | $ | 17,500 |
| | $ | 7,000 |
| | $ | — |
|
|
| | | | | | | | | | | | |
| Fiscal Year | | Audit and Quarterly Review Fees | | Audit-Related Fees (1) | | Tax Fees (2) |
| 2019 | | $ | 61,000 |
| | $ | — |
| | $ | 7,430 |
|
| 2018 | | 60,000 |
| | — |
| | 7,250 |
|
__________________________
The following table summarizes the audit-related fees and non-audit related fees accrued or paid to the Independent Accountant for professional services performed for our former investment adviser, the Master Fund, and our affiliated Feeder Funds in fiscal years ended December 31, 2019 and December 31, 2018.
|
| | | | | | | | |
| | | GCIF | | GCIF-2019 |
| Fiscal Year | | Audit-Related and Tax Fees (1)(2) | | Audit-Related and Tax Fees (1)(2) |
| 2019 | | $ | 17,425 |
| | $ | 22,430 |
|
| 2018 | | 17,000 |
| | 49,717 |
|
_______________________
| |
| (1) | Audit-Related Fees: This category consists of those fees accrued or billed to the Companynamed entity by the Independent Accountantindependent accountant in connection with the periodic review of the Company's Registration Statement filings with the SEC.named entity's registration statements. |
| |
| (2) | Tax Fees: This category consists of fees accrued or billed to the Companynamed entity by the Independent Accountant for tax compliance services and the preparation of income tax returns. |
Audit Committee's Pre-Approval Policy on Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm
The Company maintains an Audit Committee charter that, among other things, mandates that the Audit Committee:
appoint and retain each year a firm or firms of independent accountants to audit the accounts and records of the Companies, to approve the terms of compensation of such Independent Accountant and to terminate such Independent Accountant as they deem appropriate;
pre-approve the engagement of the Independent Accountant to render audit and/or permissible non-audit services (including the fees charged and proposed to be charged by the Independent Accountant), subject to the de minimis exceptions under Section 10A(i)(1)(B) of the Exchange Act, and as otherwise required by law; and
pre-approve non-audit services (subject to the de minimis exceptions under Section 10A(i)(1)(B) of the Exchange Act) rendered by the Independent Accountant to the Company's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser), and to any entity controlling, controlled by or under common control with its investment adviser that provides ongoing
services to the Company if the scope of the non-audit related services under the engagement relates directly to the operations and financial reporting of the Company.
All of the audit audit-related and non-audit services described aboveprovided by the independent registered public accounting firm for which fees were incurred by us and our affiliates for fiscal years ended December 31, 20162019 and December 31, 20152018 were pre-approved by the Audit Committee in accordance with its pre-approval policy.
In 2016, the Independent Accountant provided tax services to W. P. Carey and the related tax service fees were $6,000. In 2016, the Independent Accountant was paid (i) $16,475 for tax services to the Master Fund, (ii) $26,700 for audit-related and tax services to CCIF-I, and (iii) $18,000 for audit-related services to CCIF 2018T. All of these arrangements were pre-approved by the Audit Committee.
In 2015, the Independent Accountant provided tax services to W. P. Carey and the related tax service fees were $6,000. In 2015, the Independent Accountant was paid (i) $16,000 for tax services to the Master Fund, and (ii) $17,000 for audit-related and tax services to CCIF-I. All of these arrangements were pre-approved by the Audit Committee.
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules.
|
| |
Financial Statement SchedulesStatements | Page |
ReportReports of Independent Registered Public Accounting FirmFirms | |
Statements of Assets and Liabilities as of December 31, 20162019 and December 31, 2015 (audited)2018 | |
Statements of Operations for the YearYears Ended December 31, 20162019, 2018 and for the period from July 24, 2015 (inception) to December 31, 2015 (audited)2017 | |
Statements of Changes in Net Assets for the YearYears Ended December 31, 20162019, 2018 and for the period from July 24, 2015 (inception) to December 31, 2015 (audited)2017 | |
Statements of Cash Flows for the YearYears Ended December 31, 20162019, 2018 and for the period from July 24, 2015 (inception) to December 31, 2015 (audited)2017 | |
Notes to Financial Statements (audited) | |
|
| |
CareyGuggenheim Credit Income Fund Consolidated Financial Statement SchedulesStatements | Page |
ReportReports of Independent Registered Public Accounting FirmFirms | |
Consolidated Statements of Assets and Liabilities as of December 31, 20162019 and 2015 (audited)2018 | |
Consolidated Statements of Operations for the Years Ended December 31, 20162019, 2018 and 2015 (audited)2017 | |
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 20162019, 2018 and 2015 (audited)2017 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 20162019, 2018 and 2015 (audited)2017 | |
Consolidated Schedules of Investments for the Years Ended December 31, 20162019 and 2015 (audited)2018 | |
Notes to Consolidated Financial Statements (audited) | |
c. The following exhibits are filed or incorporated as part of this Report. |
| | | |
| 3.1 |
| | |
| | | |
| 3.2 |
| | |
| | |
| 3.3 |
| | |
| | |
| 3.4 |
| | |
| | | |
| 4.1 |
| | Distribution Reinvestment Plan of the Registrant. (Incorporated(Incorporated by reference to Exhibit (e) filed with Pre-Effective Amendment No. 3 to the Registrant's registration statement on Form N-2 (File No. 333-198882) filed on May 4, 2015.) |
| | | |
| 10.1 |
| | |
| | |
| 10.2 |
| | |
| | |
| 10.3 |
| | |
| | | |
| 10.4 |
| | Second Amended and Restated Dealer Manager Agreement by and among the Registrant, Carey Credit Income Fund and Carey Financial, LLC. (Filed herewith.)
|
| | |
10.5 |
| | |
| | |
| 10.5 |
| | |
| | | |
| 10.6 |
| | |
| | | |
| 10.7 |
| | |
| | |
| 10.8 |
| | |
| | | |
10.810.9 |
| | |
| | |
| 10.10 |
| | |
| | |
| 10.11 |
| | |
| | | |
| 14.1 |
| | Code of Ethics of the Registrant. (Incorporated(Incorporated by reference to Exhibit 99(r)(1)14.1 filed with Carey Credit Income Fund 2018 T's Pre-Effective Amendment No. 2 to the Registration Statement onRegistrant's Form N-28-K (File No. 333-211613)814-01091) as filed on September 21, 2016.January 7, 2020.) |
| | |
14.2 |
| | Code of Ethics of Carey Credit Advisors, LLC. (Incorporated by reference to Exhibit 99(r)(2) filed with Carey Credit Income Fund's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-211613) filed on September 21, 2016.)
|
| | |
14.3 |
| | Code of Ethics of Guggenheim Partners Investment Management, LLC. (Incorporated by reference to Exhibit 99(r)(3) filed with Carey Credit Income Fund 2018 T's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-211613) filed on September 21, 2016.)
|
| | | |
| 31.1 |
| | |
| | | |
| 31.2 |
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|
| | | |
| | | |
| 32 |
| | |
| * These exhibit items were effective during a portion of the reporting period; however, as of the date of this filing, these items are no longer effective with respect to the registrant. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | |
| | | | |
| | | | CAREYGUGGENHEIM CREDIT INCOME FUND 2016 T |
| | | |
| Date: | April 17, 2017March 13, 2020 | By: | /s/ Mark J. DeCesaris Matthew S. Bloom |
| | | | MARK J. DECESARISMATTHEW S. BLOOM |
| | | | Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | |
| Date: | April 17, 2017March 13, 2020 | By: | /s/ PaulBrian S. Saint-PierreWilliams |
| | | | PAULBRIAN S. SAINT-PIERREWILLIAMS |
| | | | Chief Financial Officer |
| | | | (Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | |
| Signature | Title | Date |
/s/ Mark J. DeCesarisMatthew S. Bloom | | |
Mark J. DeCesarisMatthew S. Bloom | Chief Executive Officer, President and Trustee | April 17, 2017March 13, 2020 |
| | (Principal Executive Officer) | |
| | | |
/s/ PaulBrian S. Saint-PierreWilliams | | |
PaulBrian S. Saint-PierreWilliams | Chief Financial Officer | April 17, 2017March 13, 2020 |
| | (Principal Financial Officer) | |
| | | |
/s/ Jeffrey B. AbramsKevin H. Gundersen | | |
Jeffrey B. AbramsKevin H. Gundersen | Trustee | April 17, 2017March 13, 2020 |
| | | |
| /s/ Marc S. Goodman | | |
| Marc S. Goodman | Trustee | April 17, 2017March 13, 2020 |
| | | |
| /s/ Eric Rosenblatt | | |
| Eric Rosenblatt | Trustee | April 17, 2017March 13, 2020 |
| | | �� |
| /s/ Peter E. Roth | | |
| Peter E. Roth | Trustee | April 17, 2017March 13, 2020 |
Item 8. Consolidated Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees and Shareholders of CareyGuggenheim Credit Income Fund:Fund
Opinion on the Financial Statements
In our opinion,We have audited the accompanying consolidated statements of assets and liabilities including the consolidated schedules of investments, and the related consolidated statements of operations, of changes in net assets and of cash flows present fairly, in all material respects, the financial position of CareyGuggenheim Credit Income Fund and its subsidiary (the “Master Fund”), including the consolidated schedules of investments, as of December 31, 20162019 and December 31, 2015, and2018, the resultsrelated consolidated statements of their operations, their changes in net assets and their cash flows for each of the two years in the period ended December 31, 20162019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Master Fund at December 31, 2019 and 2018, and the results of its operations, changes in its net assets and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principlesU.S. generally accepted in the United States of America. accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Master Fund’s management. Our responsibility is to express an opinion on thesethe Master Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Master Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements 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 the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Master Fund is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Master Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
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 test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our procedures included confirmation of investments owned as of December 31, 2019 and 2018, by correspondence with the custodian, brokers or the underlying investees, or by other appropriate auditing procedures where replies from brokers or underlying investees were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits which included confirmation of investments at December 31, 2016 and December 31, 2015 by correspondence with the custodian, and brokers, and the application of alternative auditing procedures where replies have not been received, provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the auditor of one or more investment companies in the Guggenheim Credit Income Funds business development company group since 2018.
New York, NY
March 13, 2020
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Guggenheim Credit Income Fund
Opinion on the Financial Statements
We have audited the consolidated statements of operations, of changes in net assets and of cash flows of Guggenheim Credit Income Fund and its subsidiary (the “Company”) for the year ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 20, 201712, 2018
We served as the Company’s auditor from 2015 to 2017.
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share amounts)data)
| | | | | | | As of December 31, |
| | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 |
| Assets | | | | | | |
| Investments at fair value (amortized cost of $272,996 and $83,914, respectively) | $ | 275,084 |
| | $ | 78,226 |
| |
| Investments at fair value (amortized cost of $385,802 and $384,784, respectively) | | $ | 372,193 |
| | $ | 374,114 |
|
| Cash | 6,593 |
| | 3,380 |
| 1,454 |
| | 2,555 |
|
| Restricted cash | 19,575 |
| | 6,545 |
| 7,512 |
| | 7,587 |
|
| Deferred offering costs | 68 |
| | — |
| |
| Collateral deposits for foreign currency forward contracts | | — |
| | 160 |
|
| Interest and dividend income receivable | 1,557 |
| | 530 |
| 2,622 |
| | 2,518 |
|
| Principal receivable | 2,521 |
| | 23 |
| — |
| | 7,701 |
|
| Prepaid and deferred expenses | 34 |
| | 22 |
| |
| Receivable from related parties | | 35 |
| | 36 |
|
| Prepaid expenses and other assets | | 284 |
| | 177 |
|
| Total assets | $ | 305,432 |
| | $ | 88,726 |
| $ | 384,100 |
| | $ | 394,848 |
|
| | | | | | | |
| Liabilities | | | | | | |
| Credit facility payable, net of financing costs | $ | 124,505 |
| | $ | 37,038 |
| $ | 170,862 |
| | $ | 148,482 |
|
| Unrealized depreciation on foreign currency forward contracts | | 87 |
| | 384 |
|
| Payable for investments purchased | 1,093 |
| | 4,230 |
| — |
| | 4,736 |
|
| Accrued investment advisory fee | 489 |
| | 148 |
| |
| Accrued performance-based incentive fee | 536 |
| | — |
| |
| Unrealized depreciation on derivative instruments | 8 |
| | — |
| |
| Payable to related party | 33 |
| | 35 |
| |
| Trustees fees payable | — |
| | — |
| |
| Accrued professional services fees | 436 |
| | 450 |
| |
| Accrued management fee | | 576 |
| | 590 |
|
| Payable to related parties | | 195 |
| | 177 |
|
| Distributions payable | | — |
| | 3,394 |
|
| Collateral payable for foreign currency forward contracts | | 320 |
| | — |
|
| Accounts payable, accrued expenses and other liabilities | 266 |
| | 121 |
| 863 |
| | 853 |
|
| Total liabilities | 127,366 |
| | 42,022 |
| 172,903 |
| | 158,616 |
|
| | | | |
| Commitments and contingencies (Note 8. Commitments and Contingencies) | | | | |
| Net Assets | $ | 178,066 |
| | $ | 46,704 |
| $ | 211,197 |
| | $ | 236,232 |
|
| | | | | | | |
| Components of Net Assets: | | | | | | |
| Common Shares, $0.001 par value, 1,000,000,000 shares authorized, 21,016,797 and 5,840,060 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively | $ | 21 |
| | $ | 6 |
| |
| Common shares, $0.001 par value, 1,000,000,000 shares authorized, 27,157,534 and 29,195,002 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | | $ | 27 |
| | $ | 29 |
|
| Paid-in-capital in excess of par value | 176,411 |
| | 52,339 |
| 229,996 |
| | 246,083 |
|
| Accumulated undistributed (distributions in excess of) net investment income | (445 | ) | | 15 |
| |
| Accumulated undistributed net realized gain | — |
| | 32 |
| |
| Net unrealized appreciation (depreciation) | 2,079 |
| | (5,688 | ) | |
Accumulated loss, net of distributions (1) | | (18,826 | ) | | (9,880 | ) |
| Net assets | $ | 178,066 |
| | $ | 46,704 |
| $ | 211,197 |
| | $ | 236,232 |
|
| Net asset value per Common Share | $ | 8.47 |
| | $ | 8.00 |
| $ | 7.78 |
| | $ | 8.09 |
|
_______________________
See Notes to Consolidated Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)data)
| | | | Year Ended | | Year Ended | For the Year Ended December 31, |
| | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 | | 2017 |
| Investment Income | | | | | | | | |
| Interest income | $ | 12,120 |
| | $ | 3,228 |
| $ | 34,652 |
| | $ | 33,366 |
| | $ | 30,207 |
|
| Dividend income | 37 |
| | 99 |
| 1,059 |
| | 856 |
| | — |
|
| Fee income | 251 |
| | 28 |
| 396 |
| | 537 |
| | 702 |
|
| Total investment income | 12,408 |
| | 3,355 |
| 36,107 |
| | 34,759 |
| | 30,909 |
|
| Operating Expenses | | | | | | | | |
| Interest expense (related party) | — |
| | 188 |
| |
| Interest expense | 3,354 |
| | 70 |
| 8,552 |
| | 7,885 |
| | 6,535 |
|
| Management fee | | 6,889 |
| | 7,195 |
| | 7,396 |
|
| Performance-based incentive fee | | 11 |
| | (1,346 | ) | | 818 |
|
| Administrative services | 121 |
| | 66 |
| 198 |
| | 209 |
| | 194 |
|
| Related party reimbursements | 384 |
| | 97 |
| |
| Investment advisory fee | 3,473 |
| | 1,274 |
| |
| Performance-based incentive fee | 536 |
| | — |
| |
| Custody services | 77 |
| | 27 |
| 95 |
| | 106 |
| | 85 |
|
| Trustees fees | 367 |
| | 103 |
| 310 |
| | 383 |
| | 467 |
|
| Related party reimbursements | | 818 |
| | 645 |
| | 471 |
|
| Professional services fees | 1,065 |
| | 576 |
| 917 |
| | 893 |
| | 976 |
|
| Insurance | 143 |
| | 126 |
| |
| Organization expenses | 228 |
| | — |
| |
| Offering expenses | 52 |
| | — |
| |
| Advisor transition costs | | — |
| | — |
| | 798 |
|
| Other expenses | 30 |
| | 7 |
| 251 |
| | 232 |
| | 249 |
|
| Total expenses before investment advisory fee waiver | 9,830 |
| | 2,534 |
| |
| Investment advisory fee waiver | — |
| | (872 | ) | |
| Net expenses | 9,830 |
| | 1,662 |
| |
| Total expenses before incentive fee waiver and reimbursement of advisor transition costs | | 18,041 |
| | 16,202 |
| | 17,989 |
|
| Incentive fee waiver | | — |
| | — |
| | (20 | ) |
| Reimbursement of advisor transition costs | | — |
| | — |
| | (798 | ) |
| Total expenses | | 18,041 |
| | 16,202 |
| | 17,171 |
|
| Net investment income | 2,578 |
| | 1,693 |
| 18,066 |
| | 18,557 |
| | 13,738 |
|
| Realized and unrealized gain (loss) on investments: | | | | |
| Net realized gains on: | | | | |
| Realized and unrealized gains (losses): | | | | | | |
| Net realized gains (losses) on: | | | | | | |
| Investments | 560 |
| | 42 |
| (6,321 | ) | | 4,819 |
| | 4,790 |
|
| Foreign currency forward contracts | | (873 | ) | | 2,316 |
| | (1,327 | ) |
| Foreign currency transactions | 3 |
| | — |
| 86 |
| | 10 |
| | (119 | ) |
| Net realized gains | 563 |
| | 42 |
| |
| Net realized gains (losses) | | (7,108 | ) | | 7,145 |
| | 3,344 |
|
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | |
| Investments | 7,775 |
| | (5,688 | ) | (2,939 | ) | | (13,574 | ) | | 817 |
|
| Derivative instruments | (8 | ) | | — |
| |
| Foreign currency forward contracts | | 297 |
| | (185 | ) | | (191 | ) |
| Foreign currency transactions | | (16 | ) | | 17 |
| | — |
|
| Net change in unrealized appreciation (depreciation) | 7,767 |
| | (5,688 | ) | (2,658 | ) | | (13,742 | ) | | 626 |
|
| Net realized and unrealized gains (losses) | $ | 8,330 |
| | $ | (5,646 | ) | (9,766 | ) | | (6,597 | ) | | 3,970 |
|
| Net increase (decrease) in net assets resulting from operations | $ | 10,908 |
| | $ | (3,953 | ) | |
| Net increase in net assets resulting from operations | | $ | 8,300 |
| | $ | 11,960 |
| | $ | 17,708 |
|
| Per Common Share information: | | | | | | | | |
| Net investment income per Common Share outstanding - basic and diluted | $ | 0.21 |
| | $ | 0.30 |
| $ | 0.63 |
| | $ | 0.64 |
| | $ | 0.50 |
|
| $ | 0.88 |
| | $ | (0.71 | ) | |
| Weighted average Common Shares outstanding (basic and diluted) | 12,370,464 |
| | 5,571,531 |
| |
| Earnings per Common Share - basic and diluted | | $ | 0.29 |
| | $ | 0.41 |
| | $ | 0.64 |
|
| Weighted average Common Shares outstanding - basic and diluted | | 28,730,579 |
| | 29,163,651 |
| | 27,524,615 |
|
| Distribution per Common Share | | $ | 0.60 |
| | $ | 0.84 |
| | $ | 0.59 |
|
See Notes to Consolidated Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share and per share amounts)data)
|
| | | | | | | |
| | Year Ended | | Year Ended |
| | December 31, 2016 | | December 31, 2015 |
| Operations | | | |
| Net investment income | $ | 2,578 |
| | $ | 1,693 |
|
| Net realized gains | 563 |
| | 42 |
|
| Net change in unrealized appreciation (depreciation) | 7,767 |
| | (5,688 | ) |
| Net increase (decrease) in net assets resulting from operations | 10,908 |
| | (3,953 | ) |
| Shareholder distributions: | | | |
| Distributions from net investment income | (2,593 | ) | | (1,693 | ) |
| Distributions from realized gains | (595 | ) | | (10 | ) |
| Distributions in excess of net investment income | (497 | ) | | — |
|
| Net decrease in net assets resulting from shareholder distributions | (3,685 | ) | | (1,703 | ) |
| Capital share transactions: | | | |
| Issuance of Common Shares | 124,139 |
| | 2,360 |
|
| Net increase in net assets resulting from capital share transactions | 124,139 |
| | 2,360 |
|
| Total increase (decrease) in net assets | 131,362 |
| | (3,296 | ) |
| Net assets at beginning of period | 46,704 |
| | 50,000 |
|
| Net assets at end of period | $ | 178,066 |
| | $ | 46,704 |
|
| Capital share activity: | | | |
| Common Shares outstanding at the beginning of the year | 5,840,060 |
| | 5,555,556 |
|
| Common Shares issued from subscriptions | 15,176,737 |
| | 284,504 |
|
| Common Shares outstanding at the end of the year | 21,016,797 |
| | 5,840,060 |
|
| Distributions per Common Share | $ | 0.24 |
| | $ | 0.30 |
|
| Undistributed (Distributions in excess of) net investment income at the end of year | (445 | ) | | 15 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Common Shares | | Paid-in-Capital in Excess of Par Value | | Accumulated Earnings (Loss), net of Distributions (2) | | |
| | Shares | | Amount | | | | Total |
| Balance at December 31, 2016 | 21,016,797 |
| | $ | 21 |
| | $ | 176,411 |
| | $ | 1,634 |
| | $ | 178,066 |
|
| Operations: | | | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | 13,738 |
| | 13,738 |
|
| Net realized gains | — |
| | — |
| | — |
| | 3,344 |
| | 3,344 |
|
| Net change in unrealized appreciation | — |
| | — |
| | — |
| | 626 |
| | 626 |
|
| Net increase in net assets resulting from operations | — |
| | — |
| | — |
| | 17,708 |
| | 17,708 |
|
| Shareholder distributions: | | | | | | | | | |
| Distributions from earnings | — |
| | — |
| | — |
| | (16,678 | ) | | (16,678 | ) |
| Net decrease in net assets resulting from shareholder distributions | — |
| | — |
| | — |
| | (16,678 | ) | | (16,678 | ) |
| Capital share transactions: | | | | | | | | | |
| Issuance of Common Shares | 8,285,299 |
| | 8 |
| | 70,668 |
| | — |
| | 70,676 |
|
| Repurchase of Common Shares | (151,000 | ) | | — |
| (1) | (1,291 | ) | | — |
| | (1,291 | ) |
| Net increase in net assets resulting from capital share transactions | 8,134,299 |
| | 8 |
| | 69,377 |
| | — |
| | 69,385 |
|
| Reclassification of permanent book-to-tax differences | — |
| | — |
| | (67 | ) | | 67 |
| | — |
|
| Net increase for the period | 8,134,299 |
| | 8 |
| | 69,310 |
| | 1,097 |
| | 70,415 |
|
| Balance at December 31, 2017 | 29,151,096 |
| | $ | 29 |
| | $ | 245,721 |
| | $ | 2,731 |
| | $ | 248,481 |
|
| Operations: | | | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | 18,557 |
| | 18,557 |
|
| Net realized gains | — |
| | — |
| | — |
| | 7,145 |
| | 7,145 |
|
| Net change in unrealized depreciation | — |
| | — |
| | — |
| | (13,742 | ) | | (13,742 | ) |
| Net increase in net assets resulting from operations | — |
| | — |
| | — |
| | 11,960 |
| | 11,960 |
|
| Shareholder distributions: | | | | | | | | | |
| Distributions from earnings | — |
| | — |
| | — |
| | (24,572 | ) | | (24,572 | ) |
| Net decrease in net assets resulting from shareholder distributions | — |
| | — |
| | — |
| | (24,572 | ) | | (24,572 | ) |
| Capital share transactions: | | | | | | | | | |
| Issuance of Common Shares | 118,906 |
| | — |
| (1) | 1,000 |
| | — |
| | 1,000 |
|
| Repurchase of Common Shares | (75,000 | ) | | — |
| (1) | (637 | ) | | — |
| | (637 | ) |
| Net increase in net assets resulting from capital share transactions | 43,906 |
| | — |
| | 363 |
| | — |
| | 363 |
|
| Reclassification of permanent book-to-tax differences | — |
| | — |
| | (1 | ) | | 1 |
| | — |
|
| Net increase (decrease) for the period | 43,906 |
| | — |
| | 362 |
| | (12,611 | ) | | (12,249 | ) |
| Balance at December 31, 2018 | 29,195,002 |
| | $ | 29 |
| | $ | 246,083 |
| | $ | (9,880 | ) | | $ | 236,232 |
|
| Operations: | | | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | 18,066 |
| | 18,066 |
|
| Net realized losses | — |
| | — |
| | — |
| | (7,108 | ) | | (7,108 | ) |
| Net change in unrealized depreciation | — |
| | — |
| | — |
| | (2,658 | ) | | (2,658 | ) |
| Net increase in net assets resulting from operations | — |
| | — |
| | — |
| | 8,300 |
| | 8,300 |
|
| Shareholder distributions: | | | | | | | | | |
| Distributions from earnings | — |
| | — |
| | — |
| | (17,246 | ) | | (17,246 | ) |
| Net decrease in net assets resulting from shareholder distributions | — |
| | — |
| | — |
| | (17,246 | ) | | (17,246 | ) |
| Capital share transactions: | | | | | | | | | |
| Issuance of Common Shares | 124,070 |
| | — |
| (1) | 1,000 |
| | — |
| | 1,000 |
|
| Repurchase of Common Shares | (2,161,538 | ) | | (2 | ) | | (17,087 | ) | | — |
| | (17,089 | ) |
| Net decrease in net assets resulting from capital share transactions | (2,037,468 | ) | | (2 | ) | | (16,087 | ) | | — |
| | (16,089 | ) |
| Net decrease for the period | (2,037,468 | ) | | (2 | ) | | (16,087 | ) | | (8,946 | ) | | (25,035 | ) |
| Balance at December 31, 2019 | 27,157,534 |
| | $ | 27 |
| | $ | 229,996 |
| | $ | (18,826 | ) | | $ | 211,197 |
|
_____________________
| |
| (1) | Amount is less than $1,000. |
See Notes to Consolidated Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | Year Ended | | Year Ended | For the Year Ended December 31, |
| | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 | | 2017 |
| Operating activities | | | | | | | | |
| Net increase (decrease) in net assets resulting from operations | $ | 10,908 |
| | $ | (3,953 | ) | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: | | | | |
| Paid-in-kind dividend income | (37 | ) | | (98 | ) | |
| Amortization of premium/accretion of discount on investments, net | (683 | ) | | (65 | ) | |
| Net increase in net assets resulting from operations | | $ | 8,300 |
| | $ | 11,960 |
| | $ | 17,708 |
|
| Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities: | | | | | | |
| Capitalized paid-in-kind income | | (1,071 | ) | | (906 | ) | | (288 | ) |
| Amortization of premium/accretion of discount, net | | (1,624 | ) | | (1,425 | ) | | (1,294 | ) |
| Proceeds from sales of investments | 44,048 |
| | 17,771 |
| 37,828 |
| | 48,526 |
| | 56,581 |
|
| Proceeds from paydowns on investments | 35,769 |
| | 678 |
| 35,563 |
| | 136,799 |
| | 92,021 |
|
| Purchase of investments | (267,620 | ) | | (102,158 | ) | |
| Net realized gain on investments | (560 | ) | | (42 | ) | |
| Net receipt of settlement of derivatives | | 3,962 |
| | 5,600 |
| | — |
|
| Net payment of settlement of derivatives | | (4,835 | ) | | (3,284 | ) | | (1,327 | ) |
| Net realized (gains) losses on derivatives | | 873 |
| | (2,316 | ) | | 1,327 |
|
| Purchases of investments | | (78,035 | ) | | (193,429 | ) | | (238,763 | ) |
| Net realized (gains) losses on investments | | 6,321 |
| | (4,819 | ) | | (4,790 | ) |
| Net change in unrealized (appreciation) depreciation on investments | (7,775 | ) | | 5,688 |
| 2,939 |
| | 13,574 |
| | (817 | ) |
| Unrealized depreciation on derivative instruments | 8 |
| | — |
| |
| Net change in unrealized (appreciation) depreciation on foreign currency forward contracts | | (297 | ) | | 185 |
| | 191 |
|
| Amortization of deferred financing costs | 460 |
| | 19 |
| 380 |
| | 439 |
| | 483 |
|
| (Increase) decrease in operating assets: | | | — |
| | | | | |
| Deferred offering costs | (68 | ) | | — |
| |
| Interest and dividend income receivable | (1,027 | ) | | (530 | ) | (104 | ) | | (306 | ) | | (655 | ) |
| Principal receivable | (2,498 | ) | | (23 | ) | 7,701 |
| | (7,587 | ) | | 2,407 |
|
| Prepaid and deferred expenses | (12 | ) | | (22 | ) | |
| Receivable from related parties | | 1 |
| | 94 |
| | (130 | ) |
| Prepaid expenses and other assets | | (107 | ) | | — |
| | (75 | ) |
| Increase (decrease) in operating liabilities: | | | | | | | | |
| Payable for investments purchased | (3,137 | ) | | 4,230 |
| (4,736 | ) | | 4,736 |
| | (1,093 | ) |
| Accrued investment advisory fee | 341 |
| | 148 |
| |
| Accrued management fee | | (14 | ) | | (6 | ) | | 107 |
|
| Accrued performance-based incentive fee | 536 |
| | — |
| — |
| | (1,334 | ) | | 798 |
|
| Payable to related party | (2 | ) | | 35 |
| |
| Accrued professional services fees | 212 |
| | 224 |
| |
| Trustee fees payable | — |
| | — |
| |
| Payable to related parties | | 18 |
| | 9 |
| | 135 |
|
| Collateral payable for foreign currency forward contracts | | 320 |
| | — |
| | — |
|
| Accounts payable, accrued expenses and other liabilities | 145 |
| | 121 |
| 10 |
| | (68 | ) | | 219 |
|
| Net cash used in operating activities | (190,992 | ) | | (77,977 | ) | |
| Net cash provided by (used in) operating activities | | 13,393 |
| | 6,442 |
| | (77,255 | ) |
| Financing activities | | | | | | | | |
| Issuance of Common Shares | 124,139 |
| | 2,360 |
| 1,000 |
| | 1,000 |
| | 70,676 |
|
| Promissory notes payable to related party borrowings | — |
| | 33,000 |
| |
| Promissory notes payable to related party repayment | — |
| | (33,000 | ) | |
| Credit Facility Borrowings | 87,000 |
| | 39,000 |
| |
| Repurchase of Common Shares | | (17,089 | ) | | (637 | ) | | (1,291 | ) |
| Credit facility borrowings | | 27,000 |
| | — |
| | 24,000 |
|
| Credit facility repayments | | (5,000 | ) | | — |
| | — |
|
| Payment of financing costs | (219 | ) | | (1,755 | ) | — |
| | (945 | ) | | — |
|
| Distributions paid | (3,685 | ) | | (1,703 | ) | (20,640 | ) | | (21,178 | ) | | (16,678 | ) |
| Net cash provided by financing activities | 207,235 |
| | 37,902 |
| |
| Net increase (decrease) in restricted and unrestricted cash | 16,243 |
| | (40,075 | ) | |
| Net cash provided by (used in) financing activities | | (14,729 | ) | | (21,760 | ) | | 76,707 |
|
| Net decrease in restricted and unrestricted cash | | (1,336 | ) | | (15,318 | ) | | (548 | ) |
| Restricted and unrestricted cash, beginning of year | 9,925 |
| | 50,000 |
| 10,302 |
| | 25,620 |
| | 26,168 |
|
| Restricted and unrestricted cash, end of year | $ | 26,168 |
| | $ | 9,925 |
| $ | 8,966 |
| | $ | 10,302 |
| | $ | 25,620 |
|
| Reconciliation of restricted and unrestricted cash | | | | | | | | |
| Cash | 6,593 |
| | 3,380 |
| 1,454 |
| | 2,555 |
| | 1,294 |
|
| Restricted cash | 19,575 |
| | 6,545 |
| 7,512 |
| | 7,587 |
| | 24,326 |
|
| Collateral deposits for foreign currency forward contracts | | — |
| | 160 |
| | — |
|
| Total restricted and unrestricted cash | $ | 26,168 |
| | $ | 9,925 |
| $ | 8,966 |
| | $ | 10,302 |
| | $ | 25,620 |
|
| Supplemental disclosure of cash flow information and non-cash financing activities: | | | | | | | | |
| Cash paid for interest | $ | 2,752 |
| | $ | 188 |
| $ | 8,048 |
| | $ | 7,418 |
| | $ | 5,928 |
|
| Financing cost payable | $ | — |
| | $ | 226 |
| |
See Notes to Consolidated Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2016 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Industry | | Interest Rate (4) | | Base Rate Floor (4) | | Maturity Date | | Principal Amount/
No. Shares (5) | | Cost (6) | | Fair Value | | % of Net Assets |
| Senior Secured Loans - First Lien - 104.1% | | | | | | | | | | | | | | |
| Accuride International Inc. | | (12) | | Automotive | | L+7.00% |
| | 1.00 | % | | 11/10/2023 | | 12,000 |
| | $ | 11,580 |
| | $ | 11,760 |
| | 6.7 | % |
| Advanced Integration Technology | | (12) | | Aerospace & Defense | | L+5.50% |
| | 1.00 | % | | 7/22/2021 | | 7,980 |
| | 7,757 |
| | 8,020 |
| | 4.5 | % |
| American Academy Holdings, LLC | | (12)(16) | | Healthcare & Pharmaceuticals | | L+5.25% |
| | 1.00 | % | | 5/17/2021 | | 4,484 |
| | 4,444 |
| | 4,445 |
| | 2.5 | % |
| Bay Club Company | | (12) | | Hotel, Gaming & Leisure | | L+6.50% |
| | 1.00 | % | | 8/24/2022 | | 6,517 |
| | 6,330 |
| | 6,574 |
| | 3.7 | % |
| Bay Club Company (Bridge Loan) | | (12) | | Hotel, Gaming & Leisure | | L+6.50% |
| | 1.00 | % | | 8/24/2017 | | 1,450 |
| | 1,430 |
| | 1,443 |
| | 0.8 | % |
| BBB Industries, Inc. | | (12)(16) | | Automotive | | L+5.00% |
| | 1.00 | % | | 11/3/2021 | | 4,975 |
| | 4,871 |
| | 4,984 |
| | 2.8 | % |
| Belk Inc. | | (12) | | Retail | | L+4.75% |
| | 1.00 | % | | 12/12/2022 | | 4,464 |
| | 3,987 |
| | 3,865 |
| | 2.2 | % |
| Bioplan USA, Inc. | | (12) | | Containers, Packaging & Glass | | L+4.75% |
| | 1.00 | % | | 9/23/2021 | | 5,960 |
| | 5,310 |
| | 5,766 |
| | 3.2 | % |
| Blue Harvest Fisheries | | (12)(16) | | Beverage, Food & Tobacco | | L+7.00% |
| | 1.00 | % | | 7/29/2022 | | 6,866 |
| | 6,769 |
| | 6,770 |
| | 3.8 | % |
| C-III Capital Partners | | (10)(12)(16) | | Banking, Finance, Insurance & Real Estate | | L+5.00% |
| | 1.00 | % | | 8/8/2021 | | 3,120 |
| | 3,076 |
| | 3,077 |
| | 1.7 | % |
| C-III Capital Partners | | (10)(12)(16) | | Banking, Finance, Insurance & Real Estate | | L+7.92% |
| | 1.00 | % | | 8/8/2021 | | 4,680 |
| | 4,504 |
| | 4,507 |
| | 2.5 | % |
| Chefs' Warehouse, Inc. | | (10)(12) | | Beverage, Food & Tobacco | | L+4.75% |
| | 1.00 | % | | 6/22/2022 | | 3,893 |
| | 3,830 |
| | 3,919 |
| | 2.2 | % |
| Chefs' Warehouse, Inc.(Delayed Draw) | | (10)(12) | | Beverage, Food & Tobacco | | L+4.75% |
| | 1.00 | % | | 6/22/2022 | | 179 |
| | 169 |
| | 181 |
| | 0.1 | % |
| Cvent, Inc. | | (12) | | Technology | | L+5.00% |
| | 1.00 | % | | 6/16/2023 | | 5,400 |
| | 5,340 |
| | 5,468 |
| | 3.1 | % |
| Dominion Marine Media | | (12)(16) | | Media: Advertising, Printing & Publishing | | L+5.75% |
| | 1.00 | % | | 9/9/2022 | | 7,000 |
| | 6,922 |
| | 6,922 |
| | 3.9 | % |
| Dominion Marine Media (Revolver) | | (7)(16) | | Media: Advertising, Printing & Publishing | | L+5.75% |
| | 1.00 | % | | 8/10/2021 | | 1,000 |
| | (118 | ) | | (11 | ) | | — | % |
| Generation Brands | | (12) | | Construction & Building | | L+5.00% |
| | 1.00 | % | | 6/7/2022 | | 4,975 |
| | 4,930 |
| | 4,997 |
| | 2.8 | % |
| Give & Go Prepared Foods Corp. | | CN(9)(10)(12) | | Beverage, Food & Tobacco | | L+5.50% |
| | 1.00 | % | | 7/12/2023 | | 7,980 |
| | 7,829 |
| | 8,010 |
| | 4.5 | % |
| GlobalLogic Holdings Inc. | | (12) | | Technology | | L+4.50% |
| | 1.00 | % | | 6/30/2022 | | 857 |
| | 844 |
| | 858 |
| | 0.5 | % |
| Greenway Health, LLC | | (12) | | Technology | | L+5.00% |
| | 1.00 | % | | 11/4/2020 | | 4,812 |
| | 4,636 |
| | 4,788 |
| | 2.7 | % |
| Humanetics | | (11)(12)(16) | | Automotive | | L+6.00% |
| | 1.00 | % | | 7/12/2022 | | 8,605 |
| | 8,380 |
| | 8,441 |
| | 4.7 | % |
| Humanetics (Revolver) | | (7)(16) | | Automotive | | L+6.00% |
| | 1.00 | % | | 7/12/2022 | | 400 |
| | (10 | ) | | (8 | ) | | — | % |
| Implus Footcare, LLC | | (12)(16) | | Consumer Goods: Non-Durable | | L+6.00% |
| | 1.00 | % | | 4/30/2021 | | 4,925 |
| | 4,865 |
| | 4,872 |
| | 2.7 | % |
| Implus Footcare, LLC | | (12)(16) | | Consumer Goods: Non-Durable | | L+6.25% |
| | 1.00 | % | | 4/30/2021 | | 955 |
| | 941 |
| | 953 |
| | 0.5 | % |
| Integro Insurance Brokers | | (12) | | Banking, Finance, Insurance & Real Estate | | L+5.75% |
| | 1.00 | % | | 10/28/2022 | | 2,771 |
| | 2,674 |
| | 2,743 |
| | 1.5 | % |
Integro Insurance Brokers (Delayed Draw)
| | (12) | | Banking, Finance, Insurance & Real Estate | | L+5.75% |
| | 1.00 | % | | 10/7/2022 | | 150 |
| | 145 |
| | 149 |
| | 0.1 | % |
| Mavis Tire Supply LLC | | (12)(16) | | Automotive | | L+5.25% |
| | 1.00 | % | | 11/2/2020 | | 2,955 |
| | 2,921 |
| | 2,923 |
| | 1.6 | % |
| Med Intermediate (MyEyeDr) | | (12)(16) | | Retail | | L+6.25% |
| | 1.00 | % | | 8/14/2021 | | 4,841 |
| | 4,796 |
| | 4,803 |
| | 2.7 | % |
| Med Intermediate (MyEyeDr) (Delayed Draw) | | (7)(12)(16) | | Retail | | L+6.25% |
| | 1.00 | % | | 8/16/2021 | | 1,631 |
| | (24 | ) | | (13 | ) | | — | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| INVESTMENTS | | | | | | | | | | | | | | | | | | |
| Debt investments - 170.0% | | | | | | | | | | | | | | | | | | |
| Aerospace & Defense | | | | | | | | | | | | | | | | |
| National Technical Systems | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 7.94% | | 6/12/2021 | | 3,434 |
| | $ | 3,420 |
| | $ | 3,365 |
| | 1.6 | % |
| Tronair, Inc | | (15) | | Senior Secured Loans - First Lien | | L+4.75% | | 6.66% | | 9/8/2023 | | 3,880 |
| | 3,854 |
| | 3,512 |
| | 1.7 | % |
| Total Aerospace & Defense | | | | | | | | | | | | 7,274 |
| | 6,877 |
| | 3.3 | % |
| Automotive | | | | | | | | | | | | | | | | |
| Accuride Corporation | | | | Senior Secured Loans - First Lien | | L+5.25% | | 7.35% | | 11/17/2023 | | 11,640 |
| | 11,366 |
| | 9,254 |
| | 4.4 | % |
| American Tire Distributors Inc. | | | | Senior Secured Loans - First Lien | | L+7.50% | | 9.30% | | 8/30/2024 | | 2,970 |
| | 2,674 |
| | 2,666 |
| | 1.3 | % |
| BBB Industries | | | | Senior Secured Loans - First Lien | | L+4.50% | | 6.30% | | 8/1/2025 | | 1,975 |
| | 1,958 |
| | 1,928 |
| | 0.9 | % |
| EnTrans International, LLC | | | | Senior Secured Loans - First Lien | | L+6.00% | | 7.80% | | 11/1/2024 | | 3,700 |
| | 3,543 |
| | 3,588 |
| | 1.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Mavis Tire Express Services Corp. | | | | Senior Secured Loans - First Lien | | L+3.25% | | 5.05% | | 3/20/2025 | | 3,231 |
| | 3,218 |
| | 3,158 |
| | 1.5 | % |
| Mavis Tire Express Services Corp. (Revolver) | | (9)(13)(15) | | Senior Secured Loans - First Lien | | L+3.25% | | 5.04% | | 3/20/2023 | | 28 |
| | 10 |
| | 11 |
| | — | % |
| Mavis Tire Express Services Corp. (Delayed Draw) | | (9) | | Senior Secured Loans - First Lien | | L+3.25% | | 5.05% | | 3/20/2025 | | 92 |
| | 92 |
| | 90 |
| | — | % |
| | | | | | | | | | | | | | | 3,320 |
| | 3,259 |
| | 1.5 | % |
| | | | | | | | | | | | | | | | | | | |
| Wesco Group | | (15) | | Senior Secured Loans - First Lien | | L+4.25% | | 6.36% | | 6/14/2024 | | 1,247 |
| | 1,234 |
| | 1,243 |
| | 0.6 | % |
| Total Automotive | | | | | | | | | | | | 24,095 |
| | 21,938 |
| | 10.4 | % |
| Banking, Finance, Insurance & Real Estate | | | | | | | | | | | | | | | | |
| Gladman Developments Ltd. | | UK(10)(11)(13)(14)(15) | | Senior Secured Loans - First Lien | | G+9.50% | | 10.30% | | 8/16/2024 | | £ | 2,405 |
| | 3,007 |
| | 3,137 |
| | 1.5 | % |
| Gladman Developments Ltd. (Delayed Draw) | | UK(9)(10)(11)(13)(14)(15) | | Senior Secured Loans - First Lien | | G+9.50% | | 10.30% | | 8/16/2024 | | £ | 740 |
| | 944 |
| | 954 |
| | 0.5 | % |
| | | | | | | | | | | | | | | 3,951 |
| | 4,091 |
| | 2.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Hunt Companies, Inc. | | (11) | | Senior Secured Bonds | | N/A | | 6.25% | | 2/15/2026 | | 2,000 |
| | 2,000 |
| | 1,974 |
| | 0.9 | % |
| JZ Capital Partners Ltd. | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+5.75% | | 7.88% | | 6/14/2021 | | 375 |
| | 370 |
| | 374 |
| | 0.2 | % |
| Total Banking, Finance, Insurance & Real Estate | | | | | | | | | | 6,321 |
| | 6,439 |
| | 3.1 | % |
| Beverage, Food & Tobacco | | | | | | | | | | | | | | | | |
| Addo Foods Group | | UK(10)(11)(14)(15) | | Senior Secured Loans - First Lien | | G+8.00% | | 9.00% | | 4/19/2024 | | £ | 9,995 |
| | 12,232 |
| | 12,879 |
| | 6.1 | % |
| | | | | | | | | | | | | | | | | | | |
| CTI Foods Holdings Co., LLC (First Out) | | (14)(15) | | Senior Secured Loans - First Lien | | L+7.00% | | 9.26% | | 5/3/2024 | | 1,962 |
| | 1,962 |
| | 1,962 |
| | 0.9 | % |
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2016 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Industry | | Interest Rate (4) | | Base Rate Floor (4) | | Maturity Date | | Principal Amount/
No. Shares (5) | | Cost (6) | | Fair Value | | % of Net Assets |
| Med Intermediate (MyEyeDr) (Term Loan B) | | (12)(16) | | Retail | | L+6.25% |
| | 1.00 | % | | 8/16/2021 | | 1,269 |
| | 1,248 |
| | 1,256 |
| | 0.7 | % |
| Moxie Liberty LLC | | (12) | | Utilities: Electric | | L+6.50% |
| | 1.00 | % | | 8/21/2020 | | 2,981 |
| | 2,910 |
| | 2,948 |
| | 1.7 | % |
| Moxie Patriot LLC | | (12) | | Utilities: Electric | | L+5.75% |
| | 1.00 | % | | 12/21/2020 | | 636 |
| | 613 |
| | 633 |
| | 0.4 | % |
| MRP Generation Holdings LLC | | (10)(12) | | Utilities: Electric | | L+7.00% |
| | 1.00 | % | | 10/18/2022 | | 4,988 |
| | 4,695 |
| | 4,950 |
| | 2.8 | % |
| National Technical Systems, Inc. | | (12)(16) | | Aerospace & Defense | | L+6.25% |
| | 1.00 | % | | 6/14/2021 | | 4,092 |
| | 4,052 |
| | 3,990 |
| | 2.2 | % |
| National Technical Systems, Inc. (Delayed Draw) | | (7)(12)(16) | | Aerospace & Defense | | L+6.25% |
| | 1.00 | % | | 6/11/2021 | | 765 |
| | — |
| | (19 | ) | | — | % |
| Onyx CenterSource | | (12)(16) | | Technology | | L+6.75% |
| | 1.00 | % | | 12/20/2021 | | 7,233 |
| | 7,199 |
| | 7,199 |
| | 4.1 | % |
| Onyx CenterSource (Revolver) | | (7)(16) | | Technology | | L+6.75% |
| | 1.00 | % | | 12/20/2021 | | 329 |
| | (41 | ) | | (2 | ) | | — | % |
| Panda Hummel LLC | | (12) | | Utilities: Electric | | L+6.00% |
| | 1.00 | % | | 10/27/2022 | | 2,700 |
| | 2,605 |
| | 2,604 |
| | 1.5 | % |
| Parts Town, LLC | | (12)(16) | | Beverage, Food & Tobacco | | L+6.50% |
| | 1.00 | % | | 6/23/2022 | | 6,983 |
| | 6,983 |
| | 6,983 |
| | 3.9 | % |
| Parts Town, LLC (Revolver) | | (7)(13)(16) | | Beverage, Food & Tobacco | | P+5.50% |
| | — | % | | 6/23/2022 | | 1,000 |
| | 5 |
| | 5 |
| | — | % |
| Pelican Products, Inc. | | (12) | | Containers, Packaging & Glass | | L+4.25% |
| | 1.00 | % | | 4/10/2020 | | 5,018 |
| | 4,833 |
| | 5,002 |
| | 2.8 | % |
| Pet Holdings ULC | | CN(9)(10)(12) | | Retail | | L+5.50% |
| | 1.00 | % | | 6/1/2023 | | 4,489 |
| | 4,419 |
| | 4,506 |
| | 2.5 | % |
| Pet Holdings ULC (Delayed Draw) | | CN(7)(9)(10)(12) | | Retail | | L+5.50% |
| | 1.00 | % | | 6/1/2023 | | 500 |
| | — |
| | 2 |
| | — | % |
| QLIK Technologies Inc. | | (10)(12)(16) | | Technology | | L+8.25% |
| | 1.00 | % | | 8/22/2022 | | 7,980 |
| | 7,820 |
| | 7,835 |
| | 4.4 | % |
| Reddy Ice | | (12)(13) | | Beverage, Food & Tobacco | | L+5.50% |
| | 1.25 | % | | 5/1/2019 | | 3,654 |
| | 3,493 |
| | 3,584 |
| | 2.0 | % |
| Ryan LLC | | (12) | | Services: Business | | L+5.75% |
| | 1.00 | % | | 8/7/2020 | | 1,989 |
| | 1,966 |
| | 1,978 |
| | 1.1 | % |
| SiteOne Landscape Supply, Inc. | | (12) | | Construction & Building | | L+4.50% |
| | 1.00 | % | | 4/29/2022 | | 4,963 |
| | 4,914 |
| | 5,012 |
| | 2.8 | % |
| TIBCO Software Inc. | | (12) | | Technology | | L+5.50% |
| | 1.00 | % | | 12/4/2020 | | 1,714 |
| | 1,721 |
| | 1,724 |
| | 1.0 | % |
| Tronair Inc. | | (12) | | Aerospace & Defense | | L+4.75% |
| | 1.00 | % | | 9/8/2023 | | 3,960 |
| | 3,922 |
| | 3,940 |
| | 2.2 | % |
| Sub Total Senior Secured Loans - First Lien | | | | | | | | 193,068 |
| | $ | 182,485 |
| | $ | 185,336 |
| | 104.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Senior Secured Loans - Second Lien - 24.9% | | | | | | | | | | | | | | |
| Advanced Computer Software | | UK(9)(10)(12) | | Technology | | L+9.50% |
| | 1.00 | % | | 1/31/2023 | | 4,100 |
| | 3,734 |
| | 3,726 |
| | 2.1 | % |
| CTI Foods | | (12) | | Beverage, Food & Tobacco | | L+7.25% |
| | 1.00 | % | | 6/28/2021 | | 5,000 |
| | 4,640 |
| | 4,550 |
| | 2.6 | % |
| Cvent, Inc. | | (12)(16) | | Technology | | L+10.00% |
| | 1.00 | % | | 5/29/2024 | | 5,385 |
| | 5,070 |
| | 5,184 |
| | 2.9 | % |
| Greenway Health, LLC | | (12) | | Technology | | L+8.25% |
| | 1.00 | % | | 11/4/2021 | | 5,000 |
| | 4,791 |
| | 4,875 |
| | 2.7 | % |
| Planview, Inc. | | (12)(16) | | Technology | | L+9.50% |
| | 1.00 | % | | 8/9/2022 | | 8,000 |
| | 7,848 |
| | 7,852 |
| | 4.4 | % |
| ProQuest LLC | | (12) | | Media: Broadcasting & Subscription | | L+9.00% |
| | 1.00 | % | | 12/15/2022 | | 1,312 |
| | 1,286 |
| | 1,273 |
| | 0.7 | % |
| SRS Distribution Inc. | | (12) | | Construction & Building | | L+8.75% |
| | 1.00 | % | | 2/24/2023 | | 5,000 |
| | 4,907 |
| | 5,167 |
| | 2.9 | % |
| Tronair Inc. | | (12)(16) | | Aerospace & Defense | | L+8.75% |
| | 1.00 | % | | 9/6/2024 | | 4,000 |
| | 3,864 |
| | 3,864 |
| | 2.2 | % |
| WIRB-Copernicus Group | | (12)(16) | | Healthcare & Pharmaceuticals | | L+9.00% |
| | 1.00 | % | | 8/12/2022 | | 8,000 |
| | 7,850 |
| | 7,849 |
| | 4.4 | % |
| Sub Total Senior Secured Loans - Second Lien | | | | | | | | 45,797 |
| | $ | 43,990 |
| | $ | 44,340 |
| | 24.9 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| CTI Foods Holdings Co., LLC (Last Out) | | (13)(14)(15) | | Senior Secured Loans - First Lien | | L+9.00% | | 10.91% | | 5/3/2024 | | 770 |
| | 770 |
| | 731 |
| | 0.3 | % |
| | | | | | | | | | | | | | | 2,732 |
| | 2,693 |
| | 1.2 | % |
| | | | | | | | | | | | | | | | | | | |
| Kar Nut Products Co. | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 6.20% | | 3/31/2023 | | 897 |
| | 891 |
| | 891 |
| | 0.4 | % |
| Kar Nut Products Co. | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 6.20% | | 3/31/2023 | | 833 |
| | 827 |
| | 827 |
| | 0.4 | % |
| | | | | | | | | | | | | | | 1,718 |
| | 1,718 |
| | 0.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Topps Company | | (15) | | Senior Secured Loans - First Lien | | L+5.25% | | 7.19% | | 10/2/2022 | | 4,988 |
| | 4,963 |
| | 4,981 |
| | 2.4 | % |
| Total Beverage, Food & Tobacco | | | | | | | | | | | | 21,645 |
| | 22,271 |
| | 10.5 | % |
| Capital Equipment | | | | | | | | | | | | | | | | |
| Cleaver Brooks, Inc. | | | | Senior Secured Bonds | | N/A | | 7.88% | | 3/1/2023 | | 2,000 |
| | 2,000 |
| | 1,995 |
| | 0.9 | % |
| Total Capital Equipment | | | | | | | | | | | | 2,000 |
| | 1,995 |
| | 0.9 | % |
| Chemicals, Plastics & Rubber | | | | | | | | | | | | | | | | |
| Aceto Chemicals | | (15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.62% | | 4/29/2025 | | 5,174 |
| | 5,142 |
| | 5,144 |
| | 2.4 | % |
| Aceto Chemicals (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 4/29/2025 | | — |
| | (90 | ) | | (89 | ) | | — | % |
| | | | | | | | | | | | | | | 5,052 |
| | 5,055 |
| | 2.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Drew Marine Group Inc. | | (15) | | Senior Secured Loans - First Lien | | L+4.25% | | 6.19% | | 6/26/2026 | | 995 |
| | 981 |
| | 981 |
| | 0.5 | % |
| Ilpea Parent, Inc. | | IT(10)(11) | | Senior Secured Loans - First Lien | | L+4.75% | | 6.46% | | 3/2/2023 | | 5,496 |
| | 5,447 |
| | 5,468 |
| | 2.6 | % |
| Neon Holdings Inc | | | | Senior Secured Bonds | | N/A | | 10.13% | | 4/1/2026 | | 1,500 |
| | 1,475 |
| | 1,493 |
| | 0.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Seal For Life Industries US LLC (Revolver) | | (9)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+6.00% | | 8.20% | | 7/24/2024 | | 260 |
| | 185 |
| | 186 |
| | 0.1 | % |
| Seal For Life Industries US LLC | | (11)(15) | | Senior Secured Loans - First Lien | | E+6.00% | | 8.26% | | 7/23/2025 | | 6,991 |
| | 6,870 |
| | 6,889 |
| | 3.2 | % |
| | | | | | | | | | | | | | | 7,055 |
| | 7,075 |
| | 3.3 | % |
| Total Chemicals, Plastics & Rubber | | | | | | | | | | | | 20,010 |
| | 20,072 |
| | 9.5 | % |
| Construction & Building | | | | | | | | | | | | | | | | |
| GAL Manufacturing | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.20% | | 6/26/2023 | | 5,428 |
| | 5,368 |
| | 5,396 |
| | 2.5 | % |
| GAL Manufacturing | | (15) | | Senior Secured Loans - Second Lien | | L+8.25% | | 10.45% | | 6/26/2024 | | 6,000 |
| | 5,910 |
| | 5,865 |
| | 2.8 | % |
| GAL Manufacturing (Revolver) | | (9)(13)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.09% | | 6/24/2022 | | 173 |
| | 145 |
| | 146 |
| | 0.1 | % |
| | | | | | | | | | | | | | | 11,423 |
| | 11,407 |
| | 5.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Springs Window Fashions, LLC | | | | Senior Secured Loans - First Lien | | L+4.25% | | 5.95% | | 6/15/2025 | | 1,744 |
| | 1,730 |
| | 1,743 |
| | 0.8 | % |
| Springs Window Fashions, LLC | | | | Senior Secured Loans - Second Lien | | L+8.50% | | 10.20% | | 6/15/2026 | | 1,756 |
| | 1,679 |
| | 1,668 |
| | 0.8 | % |
| | | | | | | | | | | | | | | 3,409 |
| | 3,411 |
| | 1.6 | % |
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2016 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Industry | | Interest Rate (4) | | Base Rate Floor (4) | | Maturity Date | | Principal Amount/
No. Shares (5) | | Cost (6) | | Fair Value | | % of Net Assets |
| | | | | | | | | | | | | | | | | | | |
| Senior Secured Bonds - 6.5% | | | | | | | | | | | | | | |
| BreitBurn Energy Partners LP | | (10)(12)(16)(17) | | Energy: Oil & Gas | | 9.25 | % | | — | % | | 5/18/2020 | | 3,250 |
| | 3,152 |
| | 3,023 |
| | 1.7 | % |
| Epicor Software Corp. | | (12)(16) | | Technology | | L+8.25% |
| | 1.00 | % | | 5/21/2023 | | 5,000 |
| | 4,869 |
| | 4,885 |
| | 2.7 | % |
| KeHE Distributors, LLC | | (12) | | Beverage, Food & Tobacco | | 7.63 | % | | — | % | | 8/15/2021 | | 500 |
| | 494 |
| | 497 |
| | 0.3 | % |
| New Day Aluminum LLC | | (12)(14)(16) | | Metals & Mining | | 4.00%
6.00% PIK
6.00% Max PIK |
| | — | % | | 10/28/2020 | | 24 |
| | — |
| | 24 |
| | — | % |
| Terraform Global Operating LLC | | (10)(12) | | Utilities: Electric | | 9.75 | % | | — | % | | 8/15/2022 | | 3,000 |
| | 2,890 |
| | 3,202 |
| | 1.8 | % |
| Sub Total Senior Secured Bonds | | | | | | | | 11,774 |
| | $ | 11,405 |
| | $ | 11,631 |
| | 6.5 | % |
| | | | | | | | | | | | | | | | | | | |
| Subordinated Debt - 18.8% | | | | | | | | | | | | | | |
| Alltech | | (12)(15)(16) | | Healthcare & Pharmaceuticals | | L+6.75% |
| | 1.00 | % | | 7/9/2023 | | 15,003 |
| | 14,799 |
| | 14,805 |
| | 8.3 | % |
| Blue Harvest Fisheries | | (16) | | Beverage, Food & Tobacco | | 10.00 | % | | — | % | | 8/17/2036 | | 337 |
| | 337 |
| | 337 |
| | 0.2 | % |
| Bumble Bee Seafoods | | (14) | | Beverage, Food & Tobacco | | 9.63% PIK
9.63% Max PIK |
| | — | % | | 3/15/2018 | | 1,240 |
| | 1,231 |
| | 1,206 |
| | 0.7 | % |
| Ferrellgas, L.P. | | (10)(12) | | Energy: Oil & Gas | | 6.50 | % | | — | % | | 5/1/2021 | | 350 |
| | 330 |
| | 347 |
| | 0.2 | % |
| Ferrellgas, L.P. | | (10)(12) | | Energy: Oil & Gas | | 6.75 | % | | — | % | | 1/15/2022 | | 1,800 |
| | 1,707 |
| | 1,782 |
| | 1.0 | % |
| Ferrellgas, L.P. | | (10)(12) | | Energy: Oil & Gas | | 6.75 | % | | — | % | | 6/15/2023 | | 1,355 |
| | 1,254 |
| | 1,331 |
| | 0.7 | % |
| Fiber Composites LLC | | (12)(14)(16) | | Construction & Building | | 12.50%
0.00% PIK
1.00% Max PIK |
| | — | % | | 6/29/2022 | | 5,430 |
| | 5,321 |
| | 5,410 |
| | 3.0 | % |
| Hanger, Inc. | | (10)(12) | | Healthcare & Pharmaceuticals | | 11.50 | % | | — | % | | 8/1/2019 | | 4,000 |
| | 3,929 |
| | 4,000 |
| | 2.2 | % |
| MDC Partners Inc. | | (10)(12) | | Services: Business | | 6.50 | % | | — | % | | 5/1/2024 | | 925 |
| | 816 |
| | 833 |
| | 0.5 | % |
| SandRidge Energy Inc. | | (10) | | Energy: Oil & Gas | | — | % | | — | % | | 10/3/2020 | | 226 |
| | 254 |
| | 282 |
| | 0.2 | % |
| StandardAero | | (12) | | Aerospace & Defense | | 10.00 | % | | — | % | | 7/15/2023 | | 2,380 |
| | 2,367 |
| | 2,505 |
| | 1.4 | % |
| TIBCO Software Inc. | | (12) | | Technology | | 11.38 | % | | — | % | | 12/1/2021 | | 660 |
| | 670 |
| | 660 |
| | 0.4 | % |
| Sub Total Subordinated Debt | | | | | | | | 33,706 |
| | $ | 33,015 |
| | $ | 33,498 |
| | 18.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Equity / Other - 0.2% | | | | | | | | | | | | | | |
| Blue Harvest Fisheries | | (16) | | Beverage, Food & Tobacco | | — | % | | — | % | | | | — |
| | 13 |
| | 13 |
| | — | % |
| BreitBurn Energy Partners LP | | (8)(10)(16)(18) | | Energy: Oil & Gas | | 8.00 | % | | — | % | | | | 251 |
| | 1,886 |
| | 40 |
| | — | % |
| SandRidge Energy Inc. | | (10)(18) | | Energy: Oil & Gas | | — | % | | — | % | | | | 10 |
| | 202 |
| | 226 |
| | 0.2 | % |
| Sub Total Equity / Other | | | | | | | | 261 |
| | $ | 2,101 |
| | $ | 279 |
| | 0.2 | % |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Total Construction & Building | | | | | | | | | | | | 14,832 |
| | 14,818 |
| | 7.0 | % |
| Consumer Goods: Non-Durable | | | | | | | | | | | | | | | | |
| Galls LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.37% | | 1/31/2025 | | 3,620 |
| | 3,590 |
| | 3,591 |
| | 1.7 | % |
| Galls LLC (Delayed Draw B) | | (9)(15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.25% | | 1/31/2025 | | 533 |
| | 528 |
| | 528 |
| | 0.3 | % |
| Galls LLC (Revolver) | | (9)(13)(15) | | Senior Secured Loans - First Lien | | P+5.25% | | 10.00% | | 1/31/2024 | | 487 |
| | 430 |
| | 434 |
| | 0.2 | % |
| Total Consumer Goods: Non-Durable | | | | | | | | | | | | 4,548 |
| | 4,553 |
| | 2.2 | % |
| Consumer Goods: Durable | | | | | | | | | | | | | | | | |
| PlayPower, Inc. | | | | Senior Secured Loans - First Lien | | L+5.50% | | 7.30% | | 4/29/2026 | | 1,294 |
| | 1,281 |
| | 1,284 |
| | 0.6 | % |
| Total Consumer Goods: Durable | | | | | | | | | | | | 1,281 |
| | 1,284 |
| | 0.6 | % |
| Containers, Packaging & Glass | | | | | | | | | | | | | | | | |
| Bioplan USA, Inc. | | | | Senior Secured Loans - First Lien | | L+4.75% | | 6.45% | | 9/23/2021 | | 5,239 |
| | 5,010 |
| | 4,610 |
| | 2.2 | % |
| Husky Injection Molding Systems Ltd. | | CN(10)(11) | | Senior Secured Loans - First Lien | | L+3.00% | | 4.70% | | 3/28/2025 | | 1,980 |
| | 1,854 |
| | 1,952 |
| | 0.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Resource Label Group LLC | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 6.60% | | 5/26/2023 | | 3,449 |
| | 3,426 |
| | 3,121 |
| | 1.5 | % |
| Resource Label Group LLC | | (15) | | Senior Secured Loans - Second Lien | | L+8.50% | | 10.60% | | 11/26/2023 | | 3,000 |
| | 2,969 |
| | 2,550 |
| | 1.2 | % |
| | | | | | | | | | | | | | | 6,395 |
| | 5,671 |
| | 2.7 | % |
| Total Containers, Packaging & Glass | | | | | | | | | | | | 13,259 |
| | 12,233 |
| | 5.8 | % |
| Energy: Oil & Gas | | | | | | | | | | | | | | | | |
| Basic Energy Services Inc | | (13) | | Senior Secured Bonds | | N/A | | 10.75% | | 10/15/2023 | | 2,000 |
| | 1,985 |
| | 1,430 |
| | 0.7 | % |
| Navajo Nation Oil and Gas | | (15) | | Senior Secured Loans - First Lien | | L+7.50% | | 9.60% | | 6/14/2022 | | 3,438 |
| | 3,415 |
| | 3,417 |
| | 1.6 | % |
| Penn Virginia | | (11)(15) | | Senior Secured Loans - Second Lien | | L+7.00% | | 8.71% | | 9/29/2022 | | 3,000 |
| | 2,961 |
| | 2,955 |
| | 1.4 | % |
| Permian Production Partners | | (15)(18) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 5/20/2024 | | 3,800 |
| | 3,680 |
| | 1,805 |
| | 0.8 | % |
| Total Energy: Oil & Gas | | | | | | | | | | | | 12,041 |
| | 9,607 |
| | 4.5 | % |
| Healthcare & Pharmaceuticals | | | | | | | | | | | | | | | | |
| Alegeus Technologies LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.28% | | 9/5/2024 | | 8,000 |
| | 7,938 |
| | 7,969 |
| | 3.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Alltech | | (13)(15) | | Senior Unsecured Debt | | L+10.25% | | 11.95% | | 7/21/2023 | | 14,375 |
| | 14,257 |
| | 14,258 |
| | 6.8 | % |
| Alltech | | (13)(15) | | Senior Unsecured Debt | | E+10.25% | | 11.25% | | 7/21/2023 | | € | 601 |
| | 622 |
| | 669 |
| | 0.3 | % |
| | | | | | | | | | | | | | | 14,879 |
| | 14,927 |
| | 7.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Cambrex Corporation | | | | Senior Secured Loans - First Lien | | L+5.00% | | 6.70% | | 11/20/2026 | | 2,500 |
| | 2,450 |
| | 2,498 |
| | 1.2 | % |
| Endo Pharmaceuticals Finance Co. | | IR(10)(11)(13) | | Senior Unsecured Debt | | N/A | | 6.00% | | 7/15/2023 | | 4,965 |
| | 4,104 |
| | 3,587 |
| | 1.7 | % |
| WIRB-Copernicus Group | | (15) | | Senior Secured Loans - Second Lien | | L+8.25% | | 9.87% | | 8/15/2023 | | 12,000 |
| | 11,823 |
| | 12,120 |
| | 5.7 | % |
| Total Healthcare & Pharmaceuticals | | | | | | | | | | | | 41,194 |
| | 41,101 |
| | 19.5 | % |
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2016 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Industry | | Interest Rate (4) | | Base Rate Floor (4) | | Maturity Date | | Principal Amount/
No. Shares (5) | | Cost (6) | | Fair Value | | % of Net Assets |
| TOTAL INVESTMENTS - 154.5% | | (19) | | | | | | | | | | | | $ | 272,996 |
| | $ | 275,084 |
| | 154.5 | % |
| | | | | | | | | | | | | | | | | | | |
| Derivative Instruments - 0.0% | | | | | | | | | | | | | | | | | | |
| Forward currency forward contracts | | (10) | | | | | | | | | | | | $ | — |
| | $ | (8 | ) | | — | % |
| Total Derivative Instruments | | | | | | | | | | | | | | $ | — |
| | $ | (8 | ) | | — | % |
| |
(1) | Security may be an obligation of one or more entities affiliated with the named portfolio company. |
| |
(2) | All debt and equity investments are income producing unless otherwise noted. |
| |
(3) | All investments are non-controlled/non-affiliated investments as defined by the 1940 Act; non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments. |
| |
(4) | The periodic interest rate for all floating rate loans is indexed to London Interbank Offered Rate ("LIBOR" or "LIBO rate"), (denoted as "L") unless otherwise noted (i.e. PRIME). Pursuant to the terms of the underlying credit agreements, the base interest rates typically reset annually, semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these floating rate loans, the Consolidated Schedule of Investments presents the applicable margin over LIBOR based on each respective credit agreement. Unless otherwise noted the base interest rate floor (e.g. 1.00%) for each floating rate loan indexed to LIBOR exceeded all of the relevant LIBOR indices as of the most recent interest rate reset date. As of December 31, 2016, LIBO rates ranged between 0.77167% for 1-month LIBOR to 1.31767% for 6-month LIBOR. |
| |
(5) | The principal amount (par amount) for all debt securities is denominated in thousands of U.S. dollars. Equity investments are recorded as number of shares owned. |
| |
(6) | Cost represents amortized cost for debt securities, and cost plus capitalized PIK for preferred stock; currency amounts are presented in thousands of U.S. dollars. |
| |
(7) | The investment is either a delayed draw loan or a revolving credit facility whereby some or all of the investment commitment is undrawn as of December 31, 2016 (see Note 8. Commitments and Contingencies). |
| |
(8) | The preferred stock investment contains a PIK provision, whereby the security issuer has the option to pay preferred dividends with the issuance of additional identical securities in the initial three year period after issuance. Since the initial investment date through March 2016, all dividend payments have been paid with the issuance of additional shares of preferred stock. The security issuer ceased paying PIK dividends in April 2016. |
| |
(9) | A portfolio company domiciled in a foreign country. The regulatory jurisdiction of security issuance may be a different country than the domicile of the portfolio company. |
| |
(10) | The investment is not a qualifying asset as defined in Section 55(a) of the 1940 Act. As of December 31, 2016, qualifying assets represented 82% of total assets. Under the 1940 Act we may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. |
| |
(11) | Investment position or portion thereof unsettled as of December 31, 2016. |
| |
(12) | Security or portion thereof was pledged as collateral supporting the amounts outstanding under a credit facility as of December 31, 2016; (see Note 7. Borrowings). |
| |
(13) | The base interest rate on these investments, or a portion thereof, was based on PRIME rate, which as of December 31, 2016 was 3.75%. The current base interest rate for these investments may be different from the reference rate on December 31, 2016. |
| |
(14) | The underlying credit agreement or indenture contains a PIK provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments. |
| |
(15) | Investment or a portion thereof is denominated in a currency other than U.S. Dollars. |
| |
(16) | Investment classified as Level 3 in the fair value hierarchy (see Note 2). |
| |
(17) | Investment was on non-accrual status as of December 31, 2016, meaning that the Company has ceased recognizing interest income on these investments. |
| |
(18) | Non-income producing security. |
| |
(19) | As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4.4 million; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2.3 million; the net unrealized appreciation was $2.1 million, the aggregate cost of securities for Federal income purposes was $273.0 million. |
Abbreviations: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Hotel, Gaming & Leisure | | | | | | | | | | | | | | | | |
| Playtika Holding | | (11) | | Senior Secured Loans - First Lien | | L+6.00% | | 7.80% | | 12/31/2024 | | 2,000 |
| | 1,960 |
| | 2,025 |
| | 1.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Stadium Management Group | | | | Senior Secured Loans - First Lien | | L+3.00% | | 4.70% | | 1/23/2025 | | 2,358 |
| | 2,356 |
| | 2,371 |
| | 1.1 | % |
| Stadium Management Group | | | | Senior Secured Loans - Second Lien | | L+7.00% | | 8.70% | | 1/23/2026 | | 2,400 |
| | 2,395 |
| | 2,428 |
| | 1.1 | % |
| | | | | | | | | | | | | | | 4,751 |
| | 4,799 |
| | 2.2 | % |
| Total Hotel, Gaming & Leisure | | | | | | | | | | | | 6,711 |
| | 6,824 |
| | 3.2 | % |
| Media: Advertising, Printing & Publishing | | | | | | | | | | | | | | | | |
| Boats Group | | (15) | | Senior Secured Loans - First Lien | | L+4.25% | | 5.95% | | 5/17/2024 | | 5,722 |
| | 5,665 |
| | 5,722 |
| | 2.7 | % |
| Boats Group | | (15) | | Senior Secured Loans - Second Lien | | L+8.00% | | 9.80% | | 11/18/2024 | | 3,338 |
| | 3,306 |
| | 3,372 |
| | 1.6 | % |
| Boats Group (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 9/12/2022 | | — |
| | (44 | ) | | (41 | ) | | — | % |
| | | | | | | | | | | | | | | 8,927 |
| | 9,053 |
| | 4.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Houghton Mifflin Harcourt Publishers, Inc. | | (11) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.04% | | 11/19/2024 | | 2,500 |
| | 2,400 |
| | 2,500 |
| | 1.2 | % |
| | | | | | | | | | | | | | | | | | | |
| McGraw-Hill Global Education Holdings | | | | Senior Secured Loans - First Lien | | L+4.00% | | 5.70% | | 5/4/2022 | | 1,943 |
| | 1,930 |
| | 1,863 |
| | 0.9 | % |
| McGraw-Hill Global Education Holdings | | (13)(14)(15) | | Senior Unsecured Debt | | N/A | | 11.00% | | 4/20/2022 | | 2,000 |
| | 1,968 |
| | 1,871 |
| | 0.9 | % |
| McGraw-Hill Global Education Holdings | | (13) | | Senior Unsecured Debt | | N/A | | 7.88% | | 5/15/2024 | | 1,340 |
| | 1,302 |
| | 1,152 |
| | 0.5 | % |
| | | | | | | | | | | | | | | 5,200 |
| | 4,886 |
| | 2.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Trader Interactive | | (15) | | Senior Secured Loans - First Lien | | L+6.50% | | 8.30% | | 6/15/2024 | | 8,113 |
| | 8,070 |
| | 8,023 |
| | 3.8 | % |
| Trader Interactive (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 6/15/2023 | | — |
| | (31 | ) | | (30 | ) | | — | % |
| | | | | | | | | | | | | | | 8,039 |
| | 7,993 |
| | 3.8 | % |
| Total Media: Advertising, Printing & Publishing | | | | | | | | | | 24,566 |
| | 24,432 |
| | 11.6 | % |
| Retail | | | | | | | | | | | | | | | | |
| At Home Group | | (11)(15) | | Senior Secured Loans - First Lien | | L+3.50% | | 5.43% | | 6/3/2022 | | 318 |
| | 291 |
| | 278 |
| | 0.1 | % |
| Belk, Inc. | | | | Senior Secured Loans - First Lien | | L+6.75% | | 8.80% | | 12/12/2022 | | 1,146 |
| | 1,083 |
| | 807 |
| | 0.4 | % |
| Beverages and More, Inc. | | (13) | | Senior Secured Bonds | | N/A | | 11.50% | | 6/15/2022 | | 900 |
| | 758 |
| | 617 |
| | 0.3 | % |
| Blue Nile, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.50% | | 8.41% | | 2/17/2023 | | 10,500 |
| | 10,316 |
| | 4,568 |
| | 2.2 | % |
| Buddys Newco, LLC | | (13)(15) | | Senior Secured Loans - First Lien | | L+8.00% | | 10.21% | | 7/10/2024 | | 3,900 |
| | 3,827 |
| | 4,088 |
| | 1.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Pet Holdings ULC | | CN(10)(11)(15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.60% | | 7/5/2022 | | 4,340 |
| | 4,306 |
| | 4,080 |
| | 1.9 | % |
| Pet Holdings ULC (Delayed Draw) | | CN(10)(11)(15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.60% | | 7/5/2022 | | 489 |
| | 489 |
| | 460 |
| | 0.2 | % |
CN = Canada; UK = United Kingdom
PIK = Payment-In-Kind
See Notes to Consolidated Financial Statements
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2015 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Industry | | Interest Rate (4) | | Base Rate Floor (4) | | Maturity Date | | Principal Amount/ No. Shares (5) | | Cost (6) | | Fair Value | | % of Net Assets |
| Senior Secured Loans - First Lien - 118.6% | | | | | | | | | | | | | | |
| Acrisure, LLC | | (12) | | Banking, Finance, Insurance & Real Estate | | L+5.50% |
| | 1.00 | % | | 5/19/2022 | | 1,532 |
| | $ | 1,518 |
| | $ | 1,473 |
| | 3.2 | % |
| Acrisure, LLC (Delayed Draw) | | (12) | | Banking, Finance, Insurance & Real Estate | | L+5.50% |
| | 1.00 | % | | 5/19/2022 | | 160 |
| | 158 |
| | 153 |
| | 0.3 | % |
| Asurion, LLC | | (12) | | Telecommunications | | L+3.50% |
| | 0.75 | % | | 7/8/2020 | | 1,836 |
| | 1,840 |
| | 1,681 |
| | 3.6 | % |
| Belk Inc. | | (11) | | Retail | | L+4.75% |
| | 1.00 | % | | 12/12/2022 | | 1,500 |
| | 1,335 |
| | 1,327 |
| | 2.8 | % |
| Bioplan USA, Inc. | | (12) | | Containers, Packaging & Glass | | L+4.75% |
| | 1.00 | % | | 9/23/2021 | | 248 |
| | 213 |
| | 215 |
| | 0.5 | % |
| Ceridian HCM Holding Inc. | | (12) | | Services: Business | | L+3.50% |
| | 1.00 | % | | 9/15/2020 | | 2,643 |
| | 2,625 |
| | 2,270 |
| | 4.8 | % |
| Data Device Corp | | (12) | | Aerospace & Defense | | L+6.00% |
| | 1.00 | % | | 7/15/2020 | | 4,975 |
| | 4,917 |
| | 4,963 |
| | 10.6 | % |
| Gogo Inc. | | (10)(12) | | Telecommunications | | L+9.75% |
| | 1.50 | % | | 3/21/2018 | | 1,887 |
| | 1,889 |
| | 1,906 |
| | 4.1 | % |
| Gogo Inc. | | (10)(12) | | Telecommunications | | L+6.50% |
| | 1.00 | % | | 3/21/2018 | | 1,147 |
| | 1,132 |
| | 1,113 |
| | 2.4 | % |
| Hub International Holdings Inc. | | (12) | | Banking, Finance, Insurance & Real Estate | | L+3.00% |
| | 1.00 | % | | 10/2/2020 | | 2,878 |
| | 2,875 |
| | 2,724 |
| | 5.8 | % |
| Implus Footcare, LLC | | (12) | | Consumer Goods: Non-Durable | | L+6.00% |
| | 1.00 | % | | 4/30/2021 | | 4,975 |
| | 4,902 |
| | 4,909 |
| | 10.5 | % |
| Integro Insurance Brokers | | (12) | | Banking, Finance, Insurance & Real Estate | | L+5.75% |
| | 1.00 | % | | 10/31/2022 | | 2,131 |
| | 2,047 |
| | 2,083 |
| | 4.4 | % |
| Integro Insurance Brokers (Delayed Draw) | | (12) | | Banking, Finance, Insurance & Real Estate | | L+5.75% |
| | 1.00 | % | | 10/31/2022 | | 819 |
| | 787 |
| | 801 |
| | 1.7 | % |
| Mavis Tire Supply Corp | | (12) | | Automotive | | L+5.25% |
| | 1.00 | % | | 11/2/2020 | | 2,985 |
| | 2,943 |
| | 2,944 |
| | 6.3 | % |
| Med Intermediate (MyEyeDr) | | (12) | | Retail | | L+6.25% |
| | 1.00 | % | | 8/14/2021 | | 3,934 |
| | 3,896 |
| | 3,897 |
| | 8.3 | % |
| Med Intermediate (MyEyeDr) (Delayed Draw) | | (12) | | Retail | | L+6.25% |
| | 1.00 | % | | 8/14/2021 | | 956 |
| | 946 |
| | 947 |
| | 2.0 | % |
| Mitel US Holdings, Inc. | | CN(9)(10)(12) | | Telecommunications | | L+4.50% |
| | 1.00 | % | | 4/29/2022 | | 1,542 |
| | 1,556 |
| | 1,527 |
| | 3.3 | % |
| Moxie Liberty LLC | | (12) | | Utilities: Electric | | L+6.50% |
| | 1.00 | % | | 8/21/2020 | | 1,000 |
| | 962 |
| | 930 |
| | 2.0 | % |
| Moxie Patriot LLC | | (12) | | Utilities: Electric | | L+5.75% |
| | 1.00 | % | | 12/19/2020 | | 650 |
| | 621 |
| | 601 |
| | 1.3 | % |
| National Technical Systems, Inc | | (12) | | Aerospace & Defense | | L+6.00% |
| | 1.00 | % | | 6/12/2021 | | 4,225 |
| | 4,175 |
| | 4,184 |
| | 9.0 | % |
| National Technical Systems, Inc (Delayed Draw) | | (7) | | Aerospace & Defense | | L+6.00% |
| | 1.00 | % | | 6/14/2021 | | 765 |
| | — |
| | (7 | ) | | — | % |
| Noranda Aluminum Acquisition Corp | | (12) | | Metals & Mining | | L+4.50% |
| | 1.25 | % | | 2/28/2019 | | 1,558 |
| | 1,463 |
| | 806 |
| | 1.7 | % |
| P.F. Changs China Bistro, Inc. | | (12) | | Beverage, Food & Tobacco | | L+3.25% |
| | 1.00 | % | | 7/2/2019 | | 1,902 |
| | 1,890 |
| | 1,817 |
| | 3.9 | % |
| Panda Hummel LLC | | (12) | | Utilities: Electric | | L+6.00% |
| | 1.00 | % | | 10/27/2022 | | 2,700 |
| | 2,594 |
| | 2,551 |
| | 5.5 | % |
| Ryan LLC | | (12) | | Services: Business | | L+5.75% |
| | 1.00 | % | | 8/7/2020 | | 2,243 |
| | 2,210 |
| | 2,184 |
| | 4.7 | % |
| Taxware, LLC | | (12) | | High Tech Industries | | L+6.50% |
| | 1.00 | % | | 4/1/2022 | | 4,278 |
| | 4,239 |
| | 4,326 |
| | 9.3 | % |
| TIBCO Software Inc | | (12) | | High Tech Industries | | L+5.50% |
| | 1.00 | % | | 12/4/2020 | | 1,731 |
| | 1,740 |
| | 1,578 |
| | 3.4 | % |
| ZEP Inc. | | (12) | | Chemicals, Plastics & Rubber | | L+4.75% |
| | 1.00 | % | | 6/27/2022 | | 1,496 |
| | 1,489 |
| | 1,492 |
| | 3.2 | % |
| Sub Total Senior Secured Loan - First Lien | | | | | | | | 58,696 |
| | 56,962 |
| | 55,395 |
| | 118.6 | % |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| | | | | | | | | | | | | | | 4,795 |
| | 4,540 |
| | 2.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Save-a-Lot | | (13) | | Senior Secured Loans - First Lien | | L+6.00% | | 8.10% | | 12/5/2023 | | 4,064 |
| | 2,261 |
| | 1,488 |
| | 0.7 | % |
| Sears Outlet | | (11)(13)(15) | | Senior Secured Loans - First Lien | | L+6.50% | | 8.43% | | 10/23/2023 | | 2,625 |
| | 2,575 |
| | 2,644 |
| | 1.3 | % |
| Smart & Final Stores LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 8.55% | | 6/20/2025 | | 3,980 |
| | 3,605 |
| | 3,850 |
| | 1.8 | % |
| Total Retail | | | | | | | | | | | | 29,511 |
| | 22,880 |
| | 10.8 | % |
| Services: Business | | | | | | | | | | | | | | | | |
| 24-7 Intouch | | CN(10)(11) | | Senior Secured Loans - First Lien | | L+4.25% | | 5.95% | | 8/25/2025 | | 3,950 |
| | 3,715 |
| | 3,851 |
| | 1.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Alexander Mann Solutions (GBP Term Loan) | | UK(10)(11)(13) | | Senior Secured Loans - First Lien | | G+5.00% | | 5.71% | | 6/16/2025 | | £ | 2,060 |
| | 2,546 |
| | 2,603 |
| | 1.2 | % |
| Alexander Mann Solutions (USD Term Loan) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+5.50% | | 6.80% | | 6/16/2025 | | 890 |
| | 850 |
| | 863 |
| | 0.4 | % |
| Alexander Mann Solutions (Revolver) | | UK(9)(10)(11)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 12/16/2024 | | — |
| | (45 | ) | | (45 | ) | | — | % |
| | | | | | | | | | | | | | | 3,351 |
| | 3,421 |
| | 1.6 | % |
| | | | | | | | | | | | | | | | | | | |
| Capstone Logistics, LLC | | | | Senior Secured Loans - First Lien | | L+4.50% | | 6.21% | | 10/7/2021 | | 4,755 | | 4,730 |
| | 4,687 |
| | 2.2 | % |
| Clarion (Comet Bidco) | | UK(10)(11)(13) | | Senior Secured Loans - First Lien | | L+5.00% | | 7.12% | | 9/30/2024 | | 5,881 | | 5,790 |
| | 5,779 |
| | 2.7 | % |
| HealthChannels, Inc. | | | | Senior Secured Loans - First Lien | | L+4.50% | | 6.24% | | 4/3/2025 | | 2,857 | | 2,805 |
| | 2,810 |
| | 1.3 | % |
| Lifelong Learner Holdings T/L | | (15) | | Senior Secured Loans - First Lien | | L+5.75% | | 7.49% | | 10/16/2026 | | 2,866 | | 2,831 |
| | 2,834 |
| | 1.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Park Place Technologies | | | | Senior Secured Loans - First Lien | | L+4.00% | | 5.80% | | 3/29/2025 | | 2,672 | | 2,662 |
| | 2,663 |
| | 1.3 | % |
| Park Place Technologies | | | | Senior Secured Loans - Second Lien | | L+8.00% | | 9.80% | | 3/29/2026 | | 3,404 | | 3,383 |
| | 3,378 |
| | 1.6 | % |
| | | | | | | | | | | | | | | 6,045 |
| | 6,041 |
| | 2.9 | % |
| | | | | | | | | | | | | | | | | | | |
| PSI Services LLC | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+5.75% | | 7.69% | | 10/4/2025 | | 30 | | 30 |
| | (6 | ) | | — | % |
| PSI Services LLC | | (9)(15) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 10/4/2026 | | — |
| | — |
| | — |
| | — | % |
| PSI Services LLC | | (9)(15) | | Senior Secured Loans - First Lien | | L+5.75% | | 7.63% | | 10/4/2026 | | 429 | | 429 |
| | 422 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 459 |
| | 416 |
| | 0.2 | % |
| | | | | | | | | | | | | | | | | | | |
| SLR Consulting | | UK(10)(11)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 5.79% | | 6/23/2025 | | 1,588 | | 1,551 |
| | 1,554 |
| | 0.7 | % |
| SLR Consulting (Delayed Draw) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 5.18% | | 5/23/2025 | | 494 |
| | 512 |
| | 508 |
| | 0.3 | % |
| | | | | | | | | | | | | | | 2,063 |
| | 2,062 |
| | 1.0 | % |
| | | | | | | | | | | | | | | | | | | |
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2015 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Industry | | Interest Rate (4) | | Base Rate Floor (4) | | Maturity Date | | Principal Amount/ No. Shares (5) | | Cost (6) | | Fair Value | | % of Net Assets |
| Senior Secured Loans - Second Lien - 21.8% | | | | | | | | | | | | | | |
| Atkore International | | (11)(12) | | Metals & Mining | | L+6.75% |
| | 1.00 | % | | 10/9/2021 | | 3,925 |
| | 3,442 |
| | 3,439 |
| | 7.4 | % |
| Genoa Healthcare | | (12) | | Healthcare & Pharmaceuticals | | L+7.75% |
| | 1.00 | % | | 4/28/2023 | | 500 |
| | 495 |
| | 470 |
| | 1.0 | % |
| ProQuest LLC | | (11) | | Media: Broadcasting & Subscription | | L+9.00% |
| | 1.00 | % | | 12/15/2022 | | 1,600 |
| | 1,568 |
| | 1,576 |
| | 3.4 | % |
| TransFirst Holdings Inc. | | (12) | | High Tech Industries | | L+8.00% |
| | 1.00 | % | | 11/11/2022 | | 4,770 |
| | 4,712 |
| | 4,687 |
| | 10.0 | % |
| Sub Total Senior Secured Loans - Second Lien | | | | | | | | 10,795 |
| | 10,217 |
| | 10,172 |
| | 21.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Senior Secured Bonds - 20.4% | | | | | | | | | | | | | | |
| Breitburn Energy Partners LP | | (10)(12) | | Energy: Oil & Gas | | 9.25 | % | | | | 5/18/2020 | | 3,250 |
| | 3,164 |
| | 1,966 |
| | 4.2 | % |
| Epicor Software Corp. | | (12) | | High Tech Industries | | L+8.25% |
| | 1.00 | % | | 6/1/2023 | | 5,000 |
| | 4,856 |
| | 4,861 |
| | 10.4 | % |
| SandRidge Energy, Inc. | | (10)(12) | | Energy: Oil & Gas | | 8.75 | % | | | | 6/1/2020 | | 1,000 |
| | 1,000 |
| | 304 |
| | 0.7 | % |
| Terraform Global Operating LLC | | (10)(12) | | Utilities: Electric | | 9.75 | % | | | | 8/15/2022 | | 3,000 |
| | 2,876 |
| | 2,392 |
| | 5.1 | % |
| Sub Total Senior Secured Bonds | | | | | | | | 12,250 |
| | 11,896 |
| | 9,523 |
| | 20.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Subordinated Debt - 5.7% | | | | | | | | | | | | | | |
| StandardAero | | (12) | | Aerospace & Defense | | 10.00 | % | | | | 7/15/2023 | | 1,000 |
| | 987 |
| | 993 |
| | 2.1 | % |
| TIBCO Software Inc | | (11)(12) | | High Tech Industries | | 11.38 | % | | | | 12/1/2021 | | 2,000 |
| | 2,004 |
| | 1,672 |
| | 3.6 | % |
| Sub Total Subordinated Debt | | | | | | | | 3,000 |
| | 2,991 |
| | 2,665 |
| | 5.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Equity / Other - 1.0% | | | | | | | | | | | | | | |
| Breitburn Energy Partners LP - Series B Preferred Units | | (8)(10) | | Energy: Oil & Gas | | 8.00 | % | | | | | | 246 |
| | 1,848 |
| | 471 |
| | 1.0 | % |
| Sub Total Equity / Other | | | | | | | | 246 |
| | 1,848 |
| | 471 |
| | 1.0 | % |
| TOTAL INVESTMENTS - 167.5% | | (13) | | | | | | | | | | | | $ | 83,914 |
| | $ | 78,226 |
| | 167.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Teneo Holdings LLC | | | | Senior Secured Loans - First Lien | | L+5.25% | | 6.99% | | 7/12/2025 | | 3,990 | | 3,802 |
| | 3,805 |
| | 1.8 | % |
| YAK Access, LLC | | | | Senior Secured Loans - Second Lien | | L+10.00% | | 11.79% | | 7/10/2026 | | 5,000 | | 4,688 |
| | 4,409 |
| | 2.1 | % |
| Total Services: Business | | | | | | | | | | | | 40,279 |
| | 40,115 |
| | 19.0 | % |
| Technology | | | | | | | | | | | | | | | | |
| Advicent Solutions | | (15) | | Senior Secured Loans - First Lien | | L+8.25% | | 10.35% | | 2/28/2022 | | 6,983 | | 6,904 |
| | 5,795 |
| | 2.7 | % |
| Alfresco Software | | (15) | | Senior Secured Loans - First Lien | | L+8.50% | | 10.64% | | 9/9/2024 | | 3,287 | | 3,223 |
| | 3,229 |
| | 1.5 | % |
| | | | | | | | | | | | | | | | | | | |
| Acquia Inc. | | (13)(15) | | Senior Secured Loans - First Lien | | L+7.00% | | 8.91% | | 10/31/2025 | | 1,789 |
| | 1,754 |
| | 1,776 |
| | 0.8 | % |
| Acquia Inc. | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 10/31/2025 | | — |
| | (4 | ) | | (26 | ) | | — | % |
| | | | | | | | | | | | | | | 1,750 |
| | 1,750 |
| | 0.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Apptio, Inc. (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 12/3/2024 | | — |
| | (35 | ) | | (34 | ) | | — | % |
| Apptio, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+7.25% | | 8.96% | | 1/10/2025 | | 4,900 | | 4,841 |
| | 4,855 |
| | 2.3 | % |
| | | | | | | | | | | | | | | 4,806 |
| | 4,821 |
| | 2.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Bluefin Holding, LLC (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 9/6/2024 | | — |
| | (13 | ) | | (12 | ) | | — | % |
| Bluefin Holding, LLC (Term Loan) | | (15) | | Senior Secured Loans - First Lien | | L+4.25% | | 6.36% | | 9/4/2026 | | 868 | | 866 |
| | 860 |
| | 0.4 | % |
| | | | | | | | | | | | | | | 853 |
| | 848 |
| | 0.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Causeway Technologies | | UK(10)(11)(15) | | Senior Secured Loans - First Lien | | G+6.25% | | 7.03% | | 6/8/2024 | | £ | 2,638 |
| | 3,346 |
| | 3,450 |
| | 1.7 | % |
| Causeway Technologies | | UK(10)(11)(15) | | Senior Secured Loans - First Lien | | G+6.25% | | 7.01% | | 6/8/2024 | | £ | 338 |
| | 426 |
| | 447 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 3,772 |
| | 3,897 |
| | 1.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Cologix Holdings | | | | Senior Secured Loans - First Lien | | L+3.75% | | 5.45% | | 3/20/2024 | | 2,000 |
| | 1,931 |
| | 1,990 |
| | 0.9 | % |
| Cvent, Inc. | | | | Senior Secured Loans - First Lien | | L+3.75% | | 5.55% | | 11/29/2024 | | 1,975 |
| | 1,952 |
| | 1,976 |
| | 0.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Datix Bidco Limited | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 6.76% | | 4/28/2025 | | 1,931 |
| | 1,900 |
| | 1,916 |
| | 0.9 | % |
| Datix Bidco Limited | | (15) | | Senior Secured Loans - Second Lien | | L+7.75% | | 9.68% | | 4/27/2026 | | 462 |
| | 454 |
| | 458 |
| | 0.2 | % |
| Datix Bidco 1L TL B3 | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 6.76% | | 4/28/2025 | | 3,048 |
| | 3,006 |
| | 3,025 |
| | 1.5 | % |
| Datix Bidco 2L TL TRANCHE 3 | | (15) | | Senior Secured Loans - Second Lien | | L+7.75% | | 9.68% | | 4/27/2026 | | 4,696 |
| | 4,631 |
| | 4,656 |
| | 2.2 | % |
| | | | | | | | | | | | | | | 9,991 |
| | 10,055 |
| | 4.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Kerridge Commercial Systems (USD Term Loan) | | UK(10)(11)(15) | | Senior Secured Loans - First Lien | | L+4.25% | | 6.35% | | 1/22/2024 | | 634 |
| | 625 |
| | 630 |
| | 0.3 | % |
| Kerridge Commercial Systems (GBP Term Loan) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | G+4.25% | | 5.01% | | 1/22/2024 | | £ | 528 |
| | 729 |
| | 695 |
| | 0.3 | % |
CAREYGUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Kerridge Commercial Systems (Euro Delayed Draw) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | E+4.75% | | 4.75% | | 1/22/2024 | | € | 97 |
| | 118 |
| | 108 |
| | 0.1 | % |
| Kerridge Commercial Systems (GBP Delayed Draw) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | G+4.25% | | 5.01% | | 1/22/2024 | | £ | 325 |
| | 421 |
| | 427 |
| | 0.2 | % |
| Kerridge Commercial Systems (Bidco) Limited | | (11)(13)(15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.19% | | 1/22/2024 | | 2,200 |
| | 2,167 |
| | 2,184 |
| | 1.0 | % |
| | | | | | | | | | | | | | | 4,060 |
| | 4,044 |
| | 1.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Lytx, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 8.45% | | 8/31/2023 | | 6,482 |
| | 6,379 |
| | 6,473 |
| | 3.1 | % |
| Lytx, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 8.45% | | 8/31/2023 | | 1,453 |
| | 1,422 |
| | 1,451 |
| | 0.7 | % |
| Lytx, Inc. (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 8/31/2022 | | — |
| | (25 | ) | | (25 | ) | | — | % |
| | | | | | | | | | | | | | | 7,776 |
| | 7,899 |
| | 3.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Ministry Brands | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 5.86% | | 12/2/2022 | | 953 |
| | 948 |
| | 953 |
| | 0.5 | % |
| Ministry Brands (Delayed Draw) | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 5.86% | | 12/2/2022 | | 507 |
| | 505 |
| | 507 |
| | 0.2 | % |
| Ministry Brands (Delayed Draw) | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 5.86% | | 12/2/2022 | | 184 |
| | 184 |
| | 184 |
| | 0.1 | % |
| | | | | | | | | | | | | | | 1,637 |
| | 1,644 |
| | 0.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Onyx CenterSource | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.36% | | 12/20/2021 | | 6,652 |
| | 6,639 |
| | 6,640 |
| | 3.1 | % |
| Onyx CenterSource (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 12/20/2021 | | — |
| | (16 | ) | | (16 | ) | | — | % |
| | | | | | | | | | | | | | | 6,623 |
| | 6,624 |
| | 3.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Planview, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+5.25% | | 6.95% | | 1/27/2023 | | 6,152 |
| | 6,114 |
| | 6,121 |
| | 2.9 | % |
| Planview, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+5.25% | | 6.95% | | 1/27/2023 | | 391 |
| | 391 |
| | 389 |
| | 0.2 | % |
| Planview, Inc. | | (15) | | Senior Secured Loans - Second Lien | | L+9.75% | | 11.45% | | 7/27/2023 | | 4,388 |
| | 4,330 |
| | 4,386 |
| | 2.1 | % |
| | | | | | | | | | | | | | | 10,835 |
| | 10,896 |
| | 5.2 | % |
| | | | | | | | | | | | | | | | | | | |
| Velocity Holdings US | | (15) | | Senior Secured Loans - First Lien | | L+7.00% | | 8.90% | | 12/12/2023 | | 5,428 |
| | 5,335 |
| | 5,339 |
| | 2.5 | % |
| Velocity Holdings US | | (15) | | Senior Secured Loans - First Lien | | L+7.00% | | 8.90% | | 12/12/2023 | | 1,145 |
| | 1,115 |
| | 1,127 |
| | 0.6 | % |
| Velocity Holdings US (Revolver) | | (13)(15) | | Senior Secured Loans - First Lien | | L+7.00% | | 9.05% | | 12/12/2022 | | 462 |
| | 424 |
| | 428 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 6,874 |
| | 6,894 |
| | 3.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Wind River Systems | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 8.45% | | 6/24/2024 | | 5,534 |
| | 5,435 |
| | 5,467 |
| | 2.6 | % |
| Total Technology | | | | | | | | | | | | 78,422 |
| | 77,829 |
| | 36.9 | % |
| Telecommunications | | | | | | | | | | | | | | | | |
| Firstlight Fiber | | | | Senior Secured Loans - First Lien | | L+3.50% | | 5.20% | | 7/23/2025 | | 2,231 |
| | 2,221 |
| | 2,237 |
| | 1.0 | % |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Firstlight Fiber | | | | Senior Secured Loans - Second Lien | | L+7.50% | | 9.30% | | 7/23/2026 | | 2,500 |
| | 2,476 |
| | 2,481 |
| | 1.2 | % |
| | | | | | | | | | | | | | | 4,697 |
| | 4,718 |
| | 2.2 | % |
| Total Telecommunications | | | | | | | | | | | | 4,697 |
| | 4,718 |
| | 2.2 | % |
| Transportation: Cargo | | | | | | | | | | | | | | | | |
| Flexi-Van Leasing Corp | | | | Senior Secured Bonds | | N/A | | 10.00% | | 2/15/2023 | | 4,975 |
| | 4,778 |
| | 4,714 |
| | 2.2 | % |
| Total Transportation: Cargo | | | | | | | | | | | | 4,778 |
| | 4,714 |
| | 2.2 | % |
| Utilities: Electric | | | | | | | | | | | | | | | | |
| BHI Energy | | (15) | | Senior Secured Loans - Second Lien | | L+8.75% | | 10.95% | | 2/28/2025 | | 6,000 |
| | 5,908 |
| | 5,925 |
| | 2.8 | % |
| Moxie Liberty, LLC | | | | Senior Secured Loans - First Lien | | L+6.50% | | 8.60% | | 8/21/2020 | | 2,892 |
| | 2,878 |
| | 2,583 |
| | 1.2 | % |
| Total Utilities: Electric | | | | | | | | | | | | 8,786 |
| | 8,508 |
| | 4.0 | % |
| Utilities: Oil & Gas | | | | | | | | | | | | | | | | |
| SeaPort | | (15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.21% | | 10/31/2025 | | 5,940 |
| | 5,784 |
| | 5,881 |
| | 2.8 | % |
| Total Utilities: Oil & Gas | | | | | | | | | | | | 5,784 |
| | 5,881 |
| | 2.8 | % |
| Total Debt Investments | | | | | | | | | | | | | | $ | 372,034 |
| | $ | 359,089 |
| | 170.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Equity investments - 6.2% | | | | | | | | | | | | | | | | | | |
| Banking, Finance, Insurance & Real Estate | | | | | | | | | | | | | | | | |
| Four Springs Capital Trust (Preferred Equity) | | (11)(13)(14)(15) | | Equity and Other | | N/A | | 16.75% | | | | 237,576 |
| | $ | 4,700 |
| | $ | 4,752 |
| | 2.3 | % |
| Total Banking, Finance, Insurance & Real Estate | | | | | | | | | | | | 4,700 |
| | 4,752 |
| | 2.3 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 (in thousands) |
| Derivative Counterparty | | Settlement Date | | Amount Purchased | | Amount Sold | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Foreign Currency Forward Contracts | | | | | | | | | | | |
| JPMorgan Chase Bank | | 1/14/2020 | | € | 772 |
| | $ | 694 |
| | — |
| | $ | (7 | ) | | — | % |
| JPMorgan Chase Bank | | 1/14/2020 | | £ | 24,936 |
| | $ | 18,878 |
| | — |
| | $ | (80 | ) | | — | % |
| | | | | | | | | | | $ | (87 | ) | | — | % |
_______________________
| |
| (1) | Security may be an obligation of one or more entities affiliated with the named portfolio company. |
| |
| (2) | All debt and equity investments are income producing unless otherwise noted. |
| |
| (3) | All investments are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940 Act; non-controlled/non-affiliated(the "1940 Act"). The provisions of the 1940 Act classify investments arebased on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when we own 25% or less of the portfolio company’s voting securities and “controlled” when we own more than 25% of the portfolio company’s voting securities. The provisions of the 1940 Act also classify investments further based on the level of ownership that are neither controlled investments nor affiliated investments.we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as “non-affiliated” when we own less than 5% of a portfolio company’s voting securities and “affiliated” when we own 5% or more of a portfolio company’s voting securities. |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| |
| (4) | The periodic interest rate for all floating rate loans is indexed to London Interbank Offered Rate ("LIBOR" or "LIBO rate"), (denoted as "L"), Euro Interbank Offered Rate ("EURIBOR") (denoted as "E"), British Pound Sterling LIBOR ("GBP LIBOR") (denoted as "G") or Prime Rate (denoted as "P"). Pursuant to the terms of the underlying credit agreements, the base interest rates typically reset annually, semi-annually, quarterly or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these floating rate loans, the Consolidated Schedule of Investments presents the applicable margin over LIBOR, EURIBOR, GBP LIBOR or Prime based on each respective credit agreement. The base interest rate floor (e.g. 1.00%) for each floating rate loan indexed to LIBOR exceeded all of the relevant LIBOR indices as of the most recent interest rate reset date. As of December 31, 2015,2019, LIBO rates ranged between 0.430%1.76% for 1-month LIBOR to 1.178% 1.91%for 12-month3-month LIBOR. |
| |
| (5) | TheFor portfolio companies with multiple interest rate contracts under a single credit agreement, the interest rate shown is a weighted average current interest rate in effect at December 31, 2019. |
| |
| (6) | Unless noted otherwise, the principal amount (par amount) for all debt securities is denominated in thousands of U.S. dollars. Equity investments are recorded as number of shares owned. |
| |
(6)(7) | Cost represents amortized cost, inclusive of any capitalized paid-in-kind income ("PIK"), for debt securities, and cost plus capitalized PIK, if any, for preferred stock; currency amounts are presented in thousands.stock. |
| |
(7)(8) | As of December 31, 2019, the aggregate gross unrealized appreciation for all securities, including foreign currency forward contracts, in which there was an excess of value over tax cost was $4.8 million; the aggregate gross unrealized depreciation for all securities, including foreign currency forward contracts, in which there was an excess of tax cost over value was $17.6 million; the net unrealized depreciation was $12.8 million; the aggregate cost of securities for Federal income tax purposes was $384.9 million. |
| |
| (9) | The investment is either a delayed draw loan or a revolving credit facility whereby some or all of the investment commitment is undrawn as of December 31, 20152019 (see Note 8. Commitments and Contingencies). |
| |
(8) | The preferred stock investment contains a PIK provision, whereby the security issuer has the option to pay preferred dividends with the issuance of additional identical securities in the initial three year period after issuance. All dividend payments in the current period have been paid with the issuance of additional shares of preferred stock. |
| |
(9)(10) | A portfolio company domiciled in a foreign country. The regulatory jurisdiction of security issuance may be a different country than the domicile of the portfolio company. |
| |
(10)(11) | The investment is not a qualifying asset as defined in Section 55(a) of the 1940 Act. As of December 31, 2015, 82%2019, qualifying assets represented 79% of total assets. Under the 1940 Act we may not acquire any non-qualifying assets representedunless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. |
| |
(11)(12) | Investment position or portion thereof unsettled as of December 31, 2015.2019. |
| |
(12)(13) | SecurityThe investment position, or a portion thereof, was held within Hamilton and wasnot pledged as collateral supporting the amounts outstanding under Hamilton Credit Facilityour credit facility as of December 31, 2015;2019; (see Note 7. Borrowings). |
| |
(13)(14) | The underlying credit agreement or indenture contains a PIK provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments. |
|
| | | | | | | |
| | Coupon Rate | PIK Component | Cash Component | PIK Option |
| Addo Foods Group | G+ 8.00% |
| 0.75 | % | G+7.25% |
| The Portfolio Company may elect PIK up to 0.75% |
| CTI Foods Holdings Co., LLC (First Out) | L+7.00% |
| 3.00 | % | L+4.00% |
| The Portfolio Company may elect PIK up to 3.00% |
| CTI Foods Holdings Co., LLC (Last Out) | L+9.00% |
| 6.00 | % | L+3.00% |
| The Portfolio Company may elect PIK up to 6.00% |
| Four Springs Capital Trust | 16.75 | % | 16.75 | % | — | % | The Portfolio Company may elect PIK up to 16.75% |
| Gladman Developments Ltd. | G+9.50% |
| 2.75 | % | G+6.75% |
| The Portfolio Company may elect PIK up to 2.75% |
| Gladman Developments Ltd. (Delayed Draw) | G+9.50% |
| 2.75 | % | G+6.75% |
| The Portfolio Company may elect PIK up to 2.75% |
| Lytx, Inc. | 14.75 | % | 14.75 | % | — | % | The Portfolio Company may elect PIK up to 14.75% |
| McGraw-Hill Global Education Holdings | 11.00 | % | 11.75 | % | — | % | The Portfolio Company may elect partial PIK up to 50% of the interest of the period or full PIK of 11.75% |
| |
| (16) | Non-income producing security. |
| |
| (17) | The negative fair value is the result of the unfunded commitment being valued below par. The negative amortized cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| |
| (18) | Investment was on non-accrual status as of December 31, 2019, meaning that the Master Fund has ceased recognizing interest income on these investments. As of December 31, 2019, debt investments on non-accrual status represented 1.0% and 0.5% of total investments on an amortized cost basis and fair value basis, respectively. |
Abbreviations:
CN = Canada; UK = United Kingdom; IT = Italy; IR=Ireland
See Notes to Consolidated Financial Statements.
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| INVESTMENTS | | | | | | | | | | | | | | | | | | |
| Debt investments - 153.9% | | | | | | | | | | | | | | | | | | |
| Aerospace & Defense | | | | | | | | | | | | | | | | |
| Advanced Integration Technology | | (15) | | Senior Secured Loans - First Lien | | L+4.75% | | 7.46% | | 4/3/2023 | | 1,256 |
| | $ | 1,256 |
| | $ | 1,244 |
| | 0.5 | % |
| National Technical Systems | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.60% | | 6/12/2021 | | 3,470 |
| | 3,448 |
| | 3,331 |
| | 1.4 | % |
| Tronair, Inc | | (15) | | Senior Secured Loans - First Lien | | L+4.75% | | 7.56% | | 9/8/2023 | | 3,910 |
| | 3,879 |
| | 3,792 |
| | 1.6 | % |
| Total Aerospace & Defense | | | | | | | | | | | | 8,583 |
| | 8,367 |
| | 3.5 | % |
| Automotive | | | | | | | | | | | | | | | | |
| Accuride Corp. | | | | Senior Secured Loans - First Lien | | L+5.25% | | 8.05% | | 11/17/2023 | | 11,760 |
| | 11,425 |
| | 11,270 |
| | 4.8 | % |
| BBB Industries | | | | Senior Secured Loans - First Lien | | L+4.50% | | 6.88% | | 8/1/2025 | | 1,995 |
| | 1,976 |
| | 1,960 |
| | 0.8 | % |
| EnTrans International, LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.00% | | 8.52% | | 11/1/2024 | | 4,000 |
| | 3,804 |
| | 3,980 |
| | 1.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Mavis Tire Express Services Corp. | | (15) | | Senior Secured Loans - First Lien | | L+3.25% | | 5.75% | | 3/20/2025 | | 3,165 |
| | 3,151 |
| | 3,063 |
| | 1.3 | % |
| Mavis Tire Express Services Corp. (Delayed Draw) | | (15) | | Senior Secured Loans - First Lien | | L+3.25% | | 5.75% | | 3/20/2025 | | 76 |
| | 75 |
| | 73 |
| | — | % |
| Mavis Tire Express Services Corp. (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+3.25% | | N/A | | 2/28/2025 | | — |
| | (24 | ) | | (23 | ) | | — | % |
| Mavis Tire Express Services Corp. (Delayed Draw) | | (9)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 3/20/2025 | | — |
| | — |
| | (14 | ) | | — | % |
| | | | | | | | | | | | | | | 3,202 |
| | 3,099 |
| | 1.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Trico Group LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.50% | | 9.21% | | 2/2/2024 | | 5,366 |
| | 5,235 |
| | 5,272 |
| | 2.2 | % |
| WESCO Group | | (13)(15) | | Senior Secured Loans - First Lien | | L+4.25% | | 7.06% | | 6/14/2024 | | 1,260 |
| | 1,244 |
| | 1,246 |
| | 0.5 | % |
| Total Automotive | | | | | | | | | | | | 26,886 |
| | 26,827 |
| | 11.3 | % |
| Banking, Finance, Insurance & Real Estate | | | | | | | | | | | | | | | | |
| Gladman Developments Ltd. | | UK(10)(11)(13)(14)(15) | | Senior Secured Loans - First Lien | | G+6.75% | | 10.39% | | 8/16/2024 | | £ | 2,405 |
| | 2,999 |
| | 2,975 |
| | 1.3 | % |
| Gladman Developments Ltd. (Delayed Draw) | | UK(9)(10)(11)(13)(15)(17) | | Senior Secured Loans - First Lien | | G+6.75% | | N/A | | 8/16/2024 | | £ | — |
| | (31 | ) | | (49 | ) | | — | % |
| | | | | | | | | | | | | | | 2,968 |
| | 2,926 |
| | 1.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Hunt Companies, Inc. | | (11) | | Senior Secured Bonds | | N/A | | 6.25% | | 2/15/2026 | | 4,000 |
| | 4,000 |
| | 3,418 |
| | 1.4 | % |
| JZ Capital Partners Ltd. | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+5.75% | | 8.53% | | 6/14/2021 | | 375 |
| | 367 |
| | 371 |
| | 0.2 | % |
| Total Banking, Finance, Insurance & Real Estate | | | | | | | | | | 7,335 |
| | 6,715 |
| | 2.9 | % |
| Beverage, Food & Tobacco | | | | | | | | | | | | | | | | |
| Addo Foods Group | | UK(10)(11)(15) | | Senior Secured Loans - First Lien | | G+8.00% | | 9.00% | | 4/19/2024 | | £ | 10,000 |
| | 12,192 |
| | 12,380 |
| | 5.2 | % |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Blue Harvest Fisheries | | (15) | | Senior Secured Loans - First Lien | | L+7.00% | | 9.53% | | 7/29/2022 | | 4,800 |
| | 4,754 |
| | 4,757 |
| | 2.0 | % |
| | | | | | | | | | | | | | | | | | | |
| CTI Foods | | (12) | | Senior Secured Loans - First Lien | | L+3.50% | | 6.10% | | 6/29/2020 | | 5,370 |
| | 5,001 |
| | 4,077 |
| | 1.7 | % |
| CTI Foods | | (18) | | Senior Secured Loans - Second Lien | | L+7.25% | | 9.85% | | 6/28/2021 | | 5,000 |
| | 4,774 |
| | 533 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 9,775 |
| | 4,610 |
| | 1.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Kar Nut Products Co. | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 7.02% | | 3/31/2023 | | 907 |
| | 900 |
| | 896 |
| | 0.4 | % |
| Kar Nut Products Co. | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 7.02% | | 3/31/2023 | | 844 |
| | 836 |
| | 833 |
| | 0.4 | % |
| | | | | | | | | | | | | | | 1,736 |
| | 1,729 |
| | 0.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Parts Town, LLC | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.80% | | 12/9/2024 | | 4,208 |
| | 4,190 |
| | 4,123 |
| | 1.7 | % |
| Parts Town, LLC | | (13)(15) | | Senior Secured Loans - Second Lien | | L+8.00% | | 10.80% | | 12/8/2025 | | 4,250 |
| | 4,215 |
| | 4,208 |
| | 1.8 | % |
| | | | | | | | | | | | | | | 8,405 |
| | 8,331 |
| | 3.5 | % |
| Total Beverage, Food & Tobacco | | | | | | | | | | | | 36,862 |
| | 31,807 |
| | 13.4 | % |
| Capital Equipment | | | | | | | | | | | | | | | | |
| Cleaver Brooks, Inc. | | | | Senior Secured Bonds | | N/A | | 7.88% | | 3/1/2023 | | 2,000 |
| | 2,000 |
| | 1,930 |
| | 0.8 | % |
| Great Lakes Dredge and Dock | | (11)(13) | | Senior Unsecured Debt | | N/A | | 8.00% | | 5/15/2022 | | 1,488 |
| | 1,514 |
| | 1,512 |
| | 0.7 | % |
| Total Capital Equipment | | | | | | | | | | | | 3,514 |
| | 3,442 |
| | 1.5 | % |
| Chemicals, Plastics & Rubber | | | | | | | | | | | | | | | | |
| Ilpea Parent, Inc | | IT(10)(11)(15) | | Senior Secured Loans - First Lien | | L+4.75% | | 7.28% | | 3/2/2023 | | 5,665 |
| | 5,602 |
| | 5,608 |
| | 2.4 | % |
| Total Chemicals, Plastics & Rubber | | | | | | | | | | | | 5,602 |
| | 5,608 |
| | 2.4 | % |
| Construction & Building | | | | | | | | | | | | | | | | |
| GAL Manufacturing | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.52% | | 6/26/2023 | | 5,483 |
| | 5,409 |
| | 5,325 |
| | 2.2 | % |
| GAL Manufacturing | | (13)(15) | | Senior Secured Loans - Second Lien | | L+8.25% | | 10.77% | | 6/26/2024 | | 6,000 |
| | 5,894 |
| | 5,847 |
| | 2.5 | % |
| GAL Manufacturing (Revolver) | | (9)(13)(15) | | Senior Secured Loans - First Lien | | L+4.25% | | N/A | | 6/24/2022 | | 49 |
| | 10 |
| | 11 |
| | — | % |
| | | | | | | | | | | | | | | 11,313 |
| | 11,183 |
| | 4.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Springs Window Fashions, LLC | | | | Senior Secured Loans - First Lien | | L+4.25% | | 6.72% | | 6/15/2025 | | 2,985 |
| | 2,957 |
| | 2,909 |
| | 1.2 | % |
| Springs Window Fashions, LLC | | | | Senior Secured Loans - Second Lien | | L+8.50% | | 10.97% | | 6/15/2026 | | 3,000 |
| | 2,856 |
| | 2,783 |
| | 1.2 | % |
| | | | | | | | | | | | | | | 5,813 |
| | 5,692 |
| | 2.4 | % |
| Total Construction & Building | | | | | | | | | | | | 17,126 |
| | 16,875 |
| | 7.1 | % |
| Consumer Goods: Non-Durable | | | | | | | | | | | | | | | | |
| Galls LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.77% | | 1/31/2025 | | 3,657 |
| | 3,621 |
| | 3,584 |
| | 1.5 | % |
| Galls LLC (Delayed Draw) | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.62% | | 1/31/2025 | | 411 |
| | 407 |
| | 403 |
| | 0.2 | % |
| Galls LLC (Revolver) | | (9)(13)(15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.49% | | 1/31/2024 | | 274 |
| | 207 |
| | 208 |
| | 0.1 | % |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Galls LLC (Delayed Draw) | | (9)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 1/31/2025 | | — |
| | — |
| | (14 | ) | | — | % |
| | | | | | | | | | | | | | | 4,235 |
| | 4,181 |
| | 1.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Implus Footcare, LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.55% | | 4/30/2021 | | 894 |
| | 887 |
| | 889 |
| | 0.4 | % |
| Implus Footcare, LLC | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.55% | | 4/30/2021 | | 4,610 |
| | 4,577 |
| | 4,583 |
| | 1.9 | % |
| | | | | | | | | | | | | | | 5,464 |
| | 5,472 |
| | 2.3 | % |
| Total Consumer Goods: Non-Durable | | | | | | | | | | | | 9,699 |
| | 9,653 |
| | 4.1 | % |
| Consumer Goods: Durable | | | | | | | | | | | | | | | | |
| Williams Scotsman International, Inc. | | (11)(13) | | Senior Secured Bonds | | N/A | | 7.88% | | 12/15/2022 | | 4,000 |
| | 4,129 |
| | 3,910 |
| | 1.7 | % |
| Total Consumer Goods: Durable | | | | | | | | | | | | 4,129 |
| | 3,910 |
| | 1.7 | % |
| Containers, Packaging & Glass | | | | | | | | | | | | | | | | |
| Bioplan USA, Inc. | | | | Senior Secured Loans - First Lien | | L+4.75% | | 7.27% | | 9/23/2021 | | 5,294 |
| | 4,944 |
| | 4,994 |
| | 2.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Resource Label Group LLC | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 7.15% | | 5/26/2023 | | 3,484 |
| | 3,457 |
| | 3,431 |
| | 1.4 | % |
| Resource Label Group LLC | | (15) | | Senior Secured Loans - Second Lien | | L+8.50% | | 11.15% | | 11/26/2023 | | 3,000 |
| | 2,962 |
| | 2,978 |
| | 1.3 | % |
| | | | | | | | | | | | | | | 6,419 |
| | 6,409 |
| | 2.7 | % |
| Total Containers, Packaging & Glass | | | | | | | | | | | | 11,363 |
| | 11,403 |
| | 4.8 | % |
| Energy: Oil & Gas | | | | | | | | | | | | | | | | |
| Basic Energy Services Inc | | (13) | | Senior Secured Bonds | | N/A | | 10.75% | | 10/15/2023 | | 2,000 |
| | 1,982 |
| | 1,709 |
| | 0.7 | % |
| Navajo Nation Oil and Gas | | (15) | | Senior Secured Loans - First Lien | | L+7.50% | | 10.30% | | 6/14/2022 | | 4,813 |
| | 4,770 |
| | 4,722 |
| | 2.0 | % |
| Penn Virginia | | (11)(13)(15) | | Senior Secured Loans - Second Lien | | L+7.00% | | 9.53% | | 9/29/2022 | | 3,000 |
| | 2,951 |
| | 3,000 |
| | 1.3 | % |
| Permian Production Partners | | (15) | | Senior Secured Loans - First Lien | | L+6.00% | | 8.51% | | 5/20/2024 | | 3,900 |
| | 3,756 |
| | 3,822 |
| | 1.6 | % |
| Total Energy: Oil & Gas | | | | | | | | | | | | 13,459 |
| | 13,253 |
| | 5.6 | % |
| Healthcare & Pharmaceuticals | | | | | | | | | | | | | | | | |
| Alegeus Technologies, LLC. | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 8.66% | | 9/5/2024 | | 8,000 |
| | 7,924 |
| | 7,860 |
| | 3.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Alltech | | (13)(15) | | Senior Unsecured Debt | | L+8.25% | | 10.77% | | 7/21/2023 | | 14,375 |
| | 14,230 |
| | 14,238 |
| | 6.0 | % |
| Alltech | | (13)(15) | | Senior Unsecured Debt | | E+8.25% | | 9.25% | | 7/21/2023 | | € | 601 |
| | 621 |
| | 682 |
| | 0.3 | % |
| | | | | | | | | | | | | | | 14,851 |
| | 14,920 |
| | 6.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Endo Pharmaceuticals Finance Co. | | IR(10)(11)(13) | | Senior Unsecured Debt | | N/A | | 5.38% | | 1/15/2023 | | 4,250 |
| | 3,480 |
| | 3,230 |
| | 1.4 | % |
| WIRB-Copernicus Group | | (15) | | Senior Secured Loans - Second Lien | | L+8.25% | | 10.77% | | 8/15/2023 | | 12,000 |
| | 11,798 |
| | 11,891 |
| | 5.0 | % |
| Total Healthcare & Pharmaceuticals | | | | | | | | | | | | 38,053 |
| | 37,901 |
| | 16.0 | % |
| Hotel, Gaming & Leisure | | | | | | | | | | | | | | | | |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Stadium Management Group | | | | Senior Secured Loans - First Lien | | L+3.00% | | 5.52% | | 1/23/2025 | | 2,382 |
| | 2,379 |
| | 2,315 |
| | 1.0 | % |
| Stadium Management Group | | (13) | | Senior Secured Loans - Second Lien | | L+7.00% | | 9.52% | | 1/23/2026 | | 2,400 |
| | 2,395 |
| | 2,372 |
| | 1.0 | % |
| | | | | | | | | | | | | | | 4,774 |
| | 4,687 |
| | 2.0 | % |
| Total Hotel, Gaming & Leisure | | | | | | | | | | | | 4,774 |
| | 4,687 |
| | 2.0 | % |
| Media: Advertising, Printing & Publishing | | | | | | | | | | | | | | | | |
| Boats Group | | (15) | | Senior Secured Loans - First Lien | | L+4.25% | | 6.77% | | 5/17/2024 | | 6,480 |
| | 6,413 |
| | 6,419 |
| | 2.7 | % |
| Boats Group | | (15) | | Senior Secured Loans - Second Lien | | L+8.00% | | 10.50% | | 11/18/2024 | | 4,000 |
| | 3,956 |
| | 3,922 |
| | 1.6 | % |
| Boats Group (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+4.25% | | N/A | | 9/9/2021 | | — |
| | (69 | ) | | (57 | ) | | — | % |
| | | | | | | | | | | | | | | 10,300 |
| | 10,284 |
| | 4.3 | % |
| | | | | | | | | | | | | | | | | | | |
| McGraw-Hill Global Education Holdings | | | | Senior Secured Loans - First Lien | | L+4.00% | | 6.52% | | 5/4/2022 | | 1,980 |
| | 1,961 |
| | 1,795 |
| | 0.7 | % |
| McGraw-Hill Global Education Holdings | | (13)(14)(15) | | Senior Unsecured Debt | | N/A | | 11.00% | | 4/20/2022 | | 2,000 |
| | 1,957 |
| | 1,746 |
| | 0.7 | % |
| McGraw-Hill Global Education Holdings | | (13) | | Senior Unsecured Debt | | N/A | | 7.88% | | 5/15/2024 | | 2,000 |
| | 1,933 |
| | 1,560 |
| | 0.7 | % |
| | | | | | | | | | | | | | | 5,851 |
| | 5,101 |
| | 2.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Trader Interactive | | (15) | | Senior Secured Loans - First Lien | | L+6.50% | | 9.02% | | 6/15/2024 | | 8,196 |
| | 8,147 |
| | 7,919 |
| | 3.4 | % |
| Trader Interactive (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+6.50% | | N/A | | 6/15/2023 | | — |
| | (39 | ) | | (39 | ) | | — | % |
| | | | | | | | | | | | | | | 8,108 |
| | 7,880 |
| | 3.4 | % |
| Total Media: Advertising, Printing & Publishing | | | | | | | | | | 24,259 |
| | 23,265 |
| | 9.8 | % |
| Retail | | | | | | | | | | | | | | | | |
| Belk, Inc. | | | | Senior Secured Loans - First Lien | | L+4.75% | | 7.36% | | 12/12/2022 | | 1,433 |
| | 1,331 |
| | 1,163 |
| | 0.5 | % |
| Blue Nile, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.50% | | 9.02% | | 2/17/2023 | | 11,100 |
| | 10,852 |
| | 11,072 |
| | 4.7 | % |
| Beverages and More, Inc. | | (13) | | Senior Secured Bonds | | N/A | | 11.50% | | 6/15/2022 | | 900 |
| | 717 |
| | 693 |
| | 0.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Pet Holdings ULC | | CN(10)(11)(15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.90% | | 7/5/2022 | | 4,385 |
| | 4,339 |
| | 4,319 |
| | 1.8 | % |
| Pet Holdings ULC (Delayed Draw) | | CN(10)(11)(15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.90% | | 7/5/2022 | | 494 |
| | 494 |
| | 487 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 4,833 |
| | 4,806 |
| | 2.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Welcome Break Limited | | UK(10)(11)(15) | | Senior Secured Loans - Second Lien | | G+8.00% | | 8.82% | | 1/30/2023 | | 1,540 |
| | 1,902 |
| | 1,943 |
| | 0.8 | % |
| Total Retail | | | | | | | | | | | | 19,635 |
| | 19,677 |
| | 8.3 | % |
| Services: Business | | | | | | | | | | | | | | | | |
| 24-7 Intouch | | CN(10)(11)(15) | | Senior Secured Loans - First Lien | | L+4.25% | | 6.76% | | 8/20/2025 | | 3,990 |
| | 3,720 |
| | 3,821 |
| | 1.6 | % |
| | | | | | | | | | | | | | | | | | | |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Alexander Mann Solutions (USD Term Loan) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+5.50% | | 7.97% | | 8/11/2025 | | 890 |
| | 844 |
| | 857 |
| | 0.4 | % |
| Alexander Mann Solutions (GBP Term Loan) | | UK(10)(11)(13) | | Senior Secured Loans - First Lien | | G+5.50% | | 6.23% | | 8/11/2025 | | £ | 2,060 |
| | 2,528 |
| | 2,539 |
| | 1.1 | % |
| Alexander Mann Solutions (Revolver) | | UK(9)(10)(11)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+5.50% | | N/A | | 8/9/2024 | | — |
| | (53 | ) | | (52 | ) | | — | % |
| | | | | | | | | | | | | | | 3,319 |
| | 3,344 |
| | 1.5 | % |
| | | | | | | | | | | | | | | | | | | |
| Capstone Logistics | | | | Senior Secured Loans - First Lien | | L+4.50% | | 7.02% | | 10/7/2021 | | 4,867 | | 4,838 |
| | 4,810 |
| | 2.0 | % |
| Clarion (Comet Bidco) | | UK(10)(11)(13) | | Senior Secured Loans - First Lien | | L+5.00% | | 7.71% | | 9/30/2024 | | 5,940 | | 5,832 |
| | 5,792 |
| | 2.5 | % |
| ECG Management Consultants | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 7.30% | | 6/20/2024 | | 1,522 | | 1,508 |
| | 1,499 |
| | 0.6 | % |
| HealthChannels, Inc. | | | | Senior Secured Loans - First Lien | | L+4.50% | | 6.88% | | 4/3/2025 | | 2,886 | | 2,827 |
| | 2,835 |
| | 1.2 | % |
| | | | | | | | | | | | | | | | | | | |
| Park Place Technologies | | (15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.52% | | 3/29/2025 | | 2,699 | | 2,688 |
| | 2,675 |
| | 1.1 | % |
| Park Place Technologies | | (13)(15) | | Senior Secured Loans - Second Lien | | L+8.00% | | 10.52% | | 3/29/2026 | | 3,404 | | 3,381 |
| | 3,387 |
| | 1.4 | % |
| | | | | | | | | | | | | | | 6,069 |
| | 6,062 |
| | 2.5 | % |
| | | | | | | | | | | | | | | | | | | |
| SLR Consulting | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.50% | | 5/23/2025 | | 1,588 | | 1,547 |
| | 1,498 |
| | 0.7 | % |
| SLR Consulting (Delayed Draw) | | UK(9)(10)(11)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+4.00% | | 1.40% | | 5/23/2025 | | — |
| | (8 | ) | | (29 | ) | | — | % |
| | | | | | | | | | | | | | | 1,539 |
| | 1,469 |
| | 0.7 | % |
| | | | | | | | | | | | | | | | | | | |
| YAK Access, LLC | | (13)(15) | | Senior Secured Loans - Second Lien | | L+10.00% | | 12.43% | | 7/10/2026 | | 5,000 | | 4,661 |
| | 4,050 |
| | 1.7 | % |
| Total Services: Business | | | | | | | | | | | | 34,313 |
| | 33,682 |
| | 14.3 | % |
| Technology | | | | | | | | | | | | | | | | |
| Advicent Solutions | | (15) | | Senior Secured Loans - First Lien | | L+8.25% | | 11.05% | | 2/28/2022 | | 7,054 | | 6,941 |
| | 6,945 |
| | 2.9 | % |
| Air Newco, LLC | | (11) | | Senior Secured Loans - First Lien | | L+4.75% | | 7.14% | | 5/31/2024 | | 2,805 | | 2,798 |
| | 2,784 |
| | 1.2 | % |
| Alfresco Software | | (15) | | Senior Secured Loans - First Lien | | L+8.50% | | 11.27% | | 9/9/2024 | | 3,311 | | 3,238 |
| | 3,232 |
| | 1.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Apptio, Inc. | | (9)(12)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 12/3/2024 | | — |
| | (41 | ) | | (40 | ) | | — | % |
| Apptio, Inc. | | (12)(15) | | Senior Secured Loans - First Lien | | L+7.25% | | 9.77% | | 12/3/2024 | | 3,916 | | 3,872 |
| | 3,872 |
| | 1.6 | % |
| | | | | | | | | | | | | | | 3,831 |
| | 3,832 |
| | 1.6 | % |
| | | | | | | | | | | | | | | | | | | |
| Bullhorn, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.40% | | 11/21/2022 | | 5,671 | | 5,643 |
| | 5,533 |
| | 2.3 | % |
| Bullhorn, Inc. (Delayed Draw) | | (13)(15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.40% | | 11/21/2022 | | 1,501 | | 1,494 |
| | 1,464 |
| | 0.6 | % |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Bullhorn, Inc. (Revolver) | | (13)(15) | | Senior Secured Loans - First Lien | | L+6.75% | | 0.50% | | 11/21/2022 | | 296 | | 266 |
| | 268 |
| | 0.1 | % |
| | | | | | | | | | | | | | | 7,403 |
| | 7,265 |
| | 3.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Causeway Technologies | | UK(10)(11)(12)(15) | | Senior Secured Loans - First Lien | | G+6.50% | | 7.41% | | 6/2/2024 | | 2,638 |
| | 3,335 |
| | 3,296 |
| | 1.4 | % |
| Causeway Technologies | | UK(10)(11)(12)(15) | | Senior Secured Loans - First Lien | | G+7.00% | | 7.00% | | 6/2/2024 | | 338 |
| | 426 |
| | 430 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 3,761 |
| | 3,726 |
| | 1.6 | % |
| | | | | | | | | | | | | | | | | | | |
| Cologix Holdings | | | | Senior Secured Loans - Second Lien | | L+7.00% | | 9.52% | | 3/20/2025 | | 3,000 |
| | 2,974 |
| | 2,925 |
| | 1.2 | % |
| Cvent, Inc. | | (13)(15) | | Senior Secured Loans - First Lien | | L+3.75% | | 6.27% | | 11/29/2024 | | 1,995 |
| | 1,968 |
| | 1,915 |
| | 0.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Datix Bidco Limited | | (15) | | Senior Secured Loans - First Lien | | L+4.50% | | 7.28% | | 4/28/2025 | | 1,931 |
| | 1,895 |
| | 1,899 |
| | 0.8 | % |
| Datix Bidco Limited | | (15) | | Senior Secured Loans - Second Lien | | L+7.75% | | 10.53% | | 9/24/2026 | | 462 |
| | 453 |
| | 451 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 2,348 |
| | 2,350 |
| | 1.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Kerridge Commercial Systems (USD Term Loan) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | L+4.75% | | 7.05% | | 1/22/2024 | | 634 |
| | 624 |
| | 622 |
| | 0.3 | % |
| Kerridge Commercial Systems (GBP Term Loan) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | G+4.25% | | 5.16% | | 1/22/2024 | | £ | 528 |
| | 728 |
| | 660 |
| | 0.3 | % |
| Kerridge Commercial Systems (Euro Delayed Draw) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | E+4.75% | | 4.75% | | 1/22/2024 | | € | 97 |
| | 117 |
| | 110 |
| | — | % |
| Kerridge Commercial Systems (GBP Term Loan) | | UK(10)(11)(13)(15) | | Senior Secured Loans - First Lien | | G+4.25% | | 5.16% | | 1/22/2024 | | £ | 325 |
| | 420 |
| | 412 |
| | 0.2 | % |
| | | | | | | | | | | | | | | 1,889 |
| | 1,804 |
| | 0.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Lytx, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.27% | | 8/31/2023 | | 6,549 |
| | 6,421 |
| | 6,394 |
| | 2.7 | % |
| Lytx, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.27% | | 8/31/2023 | | 1,468 |
| | 1,429 |
| | 1,433 |
| | 0.6 | % |
| Lytx, Inc. (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+6.75% | | N/A | | 8/31/2022 | | — |
| | (34 | ) | | (34 | ) | | — | % |
| | | | | | | | | | | | | | | 7,816 |
| | 7,793 |
| | 3.3 | % |
| | | | | | | | | | | | | | | | | | | |
| Ministry Brands | | (13)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.52% | | 12/2/2022 | | 963 |
| | 956 |
| | 963 |
| | 0.4 | % |
| Ministry Brands (Delayed Draw) | | (13)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.52% | | 12/2/2022 | | 512 |
| | 510 |
| | 512 |
| | 0.2 | % |
| Ministry Brands (Delayed Draw) | | (13)(15) | | Senior Secured Loans - First Lien | | L+4.00% | | 6.52% | | 12/2/2022 | | 186 |
| | 186 |
| | 186 |
| | 0.1 | % |
| | | | | | | | | | | | | | | 1,652 |
| | 1,661 |
| | 0.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Onyx CenterSource | | (15) | | Senior Secured Loans - First Lien | | L+6.25% | | 9.06% | | 12/20/2021 | | 6,993 |
| | 6,972 |
| | 6,993 |
| | 3.0 | % |
| Onyx CenterSource (Revolver) | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | L+6.25% | | N/A | | 12/20/2021 | | — |
| | (24 | ) | | (24 | ) | | — | % |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| | | | | | | | | | | | | | | 6,948 |
| | 6,969 |
| | 3.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Planview, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+5.25% | | 7.77% | | 1/27/2023 | | 6,215 |
| | 6,167 |
| | 6,215 |
| | 2.6 | % |
| Planview, Inc. | | (15) | | Senior Secured Loans - First Lien | | L+5.25% | | 7.77% | | 1/27/2023 | | 395 |
| | 395 |
| | 395 |
| | 0.2 | % |
| Planview, Inc. | | (15) | | Senior Secured Loans - Second Lien | | L+9.75% | | 12.27% | | 7/27/2023 | | 4,388 |
| | 4,328 |
| | 4,341 |
| | 1.9 | % |
| | | | | | | | | | | | | | | 10,890 |
| | 10,951 |
| | 4.7 | % |
| | | | | | | | | | | | | | | | | | | |
| Velocity Holdings US | | (15) | | Senior Secured Loans - First Lien | | L+7.00% | | 9.79% | | 12/12/2023 | | 5,483 |
| | 5,368 |
| | 5,341 |
| | 2.3 | % |
| Velocity Holdings US (Revolver) | | (9)(13)(15) | | Senior Secured Loans - First Lien | | L+7.00% | | 9.33% | | 12/12/2022 | | 346 |
| | 299 |
| | 299 |
| | 0.1 | % |
| | | | | | | | | | | | | | | 5,667 |
| | 5,640 |
| | 2.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Wind River Systems | | (9)(13)(15)(17) | | Senior Secured Loans - First Lien | | N/A | | N/A | | 3/17/2019 | | — |
| | (30 | ) | | (34 | ) | | — | % |
| Wind River Systems | | (13)(15) | | Senior Secured Loans - First Lien | | L+6.75% | | 9.57% | | 6/24/2024 | | 5,647 |
| | 5,482 |
| | 5,562 |
| | 2.4 | % |
| | | | | | | | | | | | | | | 5,452 |
| | 5,528 |
| | 2.4 | % |
| Total Technology | | | | | | | | | | | | 75,576 |
| | 75,320 |
| | 32.0 | % |
| Telecommunications | | | | | | | | | | | | | | | | |
| Firstlight Fiber | | | | Senior Secured Loans - First Lien | | L+3.50% | | 6.02% | | 7/23/2025 | | 2,253 |
| | 2,242 |
| | 2,240 |
| | 1.0 | % |
| Firstlight Fiber | | (13) | | Senior Secured Loans - Second Lien | | L+7.50% | | 10.02% | | 7/23/2026 | | 2,500 |
| | 2,476 |
| | 2,456 |
| | 1.0 | % |
| | | | | | | | | | | | | | | 4,718 |
| | 4,696 |
| | 2.0 | % |
| Total Telecommunications | | | | | | | | | | | | 4,718 |
| | 4,696 |
| | 2.0 | % |
| Transportation: Cargo | | | | | | | | | | | | | | | | |
| Flexi-Van Leasing Inc. | | | | Senior Secured Bonds | | N/A | | 10.00% | | 2/15/2023 | | 4,975 |
| | 4,730 |
| | 4,030 |
| | 1.7 | % |
| Total Transportation: Cargo | | | | | | | | | | | | 4,730 |
| | 4,030 |
| | 1.7 | % |
| Utilities: Electric | | | | | | | | | | | | | | | | |
| BHI Energy | | (15) | | Senior Secured Loans - Second Lien | | L+8.75% | | 11.63% | | 2/28/2025 | | 6,000 |
| | 5,895 |
| | 5,880 |
| | 2.5 | % |
| Moxie Patriot, LLC | | | | Senior Secured Loans - First Lien | | L+6.50% | | 9.30% | | 8/21/2020 | | 2,922 |
| | 2,888 |
| | 2,634 |
| | 1.1 | % |
| MRP Generation Holdings, LLC | | (15) | | Senior Secured Loans - First Lien | | L+7.00% | | 9.80% | | 10/18/2022 | | 4,888 |
| | 4,687 |
| | 4,668 |
| | 2.0 | % |
| Total Utilities: Electric | | | | | | | | | | | | 13,470 |
| | 13,182 |
| | 5.6 | % |
| | | | | | | | | | | | | | | | | | | |
| Utilities: Oil & Gas | | | | | | | | | | | | | | | | |
| Ferrellgas, LP | | (11) | | Senior Unsecured Debt | | N/A | | 6.75% | | 1/15/2022 | | 2,250 |
| | 2,219 |
| | 1,834 |
| | 0.8 | % |
| Ferrellgas, LP | | (11) | | Senior Unsecured Debt | | N/A | | 6.75% | | 6/15/2023 | | 1,855 |
| | 1,782 |
| | 1,493 |
| | 0.6 | % |
| | | | | | | | | | | | | | | 4,001 |
| | 3,327 |
| | 1.4 | % |
| | | | | | | | | | | | | | | | | | | |
| SeaPort | | (15) | | Senior Secured Loans - First Lien | | L+5.50% | | 8.03% | | 10/31/2025 | | 6,000 |
| | 5,823 |
| | 6,000 |
| | 2.5 | % |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
Portfolio Company (1) (2) (3) | | Footnotes | | Investment | | Spread
Above
Reference
Rate (4) | | Interest
Rate (4) (5) | | Maturity Date | | Principal / Par Amount / Shares (6) | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Total Utilities: Oil & Gas | | | | | | | | | | | | 9,824 |
| | 9,327 |
| | 3.9 | % |
| Total Debt Investments | | | | | | | | | | | | | | $ | 373,910 |
| | $ | 363,627 |
| | 153.9 | % |
| | | | | | | | | | | | | | | | | | | |
| Equity investments - 4.4% | | | | | | | | | | | | | | | | | | |
| Banking, Finance, Insurance & Real Estate | | | | | | | | | | | | | | | | |
| Four Springs Capital Trust (Preferred Equity) | | (11)(13)(14)(15) | | Equity and Other | | N/A | | 16.75% | | | | 201,713 |
| | $ | 3,983 |
| | $ | 4,034 |
| | 1.7 | % |
| Total Banking, Finance, Insurance & Real Estate | | | | | | | | | | | | 3,983 |
| | 4,034 |
| | 1.7 | % |
| Energy: Oil & Gas | | | | | | | | | | | | | | | | |
| Maverick Natural Resources, LLC (Common Equity) | | (15)(16) | | Equity and Other | | N/A | | N/A | | | | 4,625 |
| | 3,413 |
| | 3,222 |
| | 1.3 | % |
| SandRidge Energy, Inc. (Common Equity) | | (11)(13)(16) | | Equity and Other | | N/A | | N/A | | | | 21,224 |
| | 448 |
| | 162 |
| | 0.1 | % |
| Total Energy: Oil & Gas | | | | | | | | | | | | 3,861 |
| | 3,384 |
| | 1.4 | % |
| Technology | | | | | | | | | | | | | | | | |
| Alfresco Software (Common Equity) | | (13)(15)(16) | | Equity and Other | | N/A | | N/A | | | | 1,656 |
| | 165 |
| | 204 |
| | 0.1 | % |
| Lytx, Inc. (Preferred Equity) | | (13)(14)(15) | | Equity and Other | | N/A | | 14.75% | | | | 2,604 |
| | 2,604 |
| | 2,604 |
| | 1.1 | % |
| Velocity Holdings US (Class A Units) | | (13)(15)(16) | | Equity and Other | | N/A | | N/A | | | | 231 |
| | 231 |
| | 231 |
| | 0.1 | % |
| Wolfhound Parent Inc. | | (13)(15)(16) | | Equity and Other | | N/A | | N/A | | | | 1,975 |
| | 30 |
| | 30 |
| | — | % |
| Total Technology | | | | | | | | | | | | 3,030 |
| | 3,069 |
| | 1.3 | % |
| Total Equity Investments | | | | | | | | | | | | | | $ | 10,874 |
| | $ | 10,487 |
| | 4.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Total Investments - 158.3% | | | | | | | | | | | | | | $ | 384,784 |
| | $ | 374,114 |
| | 158.3 | % |
|
| | | | | | | | | | | | | | | | | | | | |
December 31, 2018 (in thousands) |
| Derivative Counterparty | | Settlement Date | | Amount Purchased | | Amount Sold | | Amortized Cost (7) (8) | | Fair Value | | % of Net Assets |
| Foreign Currency Forward Contracts | | | | | | | | | | | |
| JPMorgan Chase Bank | | 1/14/2019 | | £ | (108 | ) | | $ | (85 | ) | | — |
| | $ | 1 |
| | — | % |
| JPMorgan Chase Bank | | 1/14/2019 | | $ | 841 |
| | £ | 665 |
| | — |
| | $ | (7 | ) | | — | % |
| JPMorgan Chase Bank | | 1/14/2019 | | $ | 27,982 |
| | £ | 22,230 |
| | — |
| | $ | (373 | ) | | (0.2 | )% |
| JPMorgan Chase Bank | | 1/14/2019 | | $ | 795 |
| | € | 697 |
| | — |
| | $ | (5 | ) | | — | % |
| | | | | | | | | | | $ | (384 | ) | | (0.2 | )% |
_______________________
| |
| (1) | Security may be an obligation of one or more entities affiliated with the named portfolio company. |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| |
| (2) | All debt and equity investments are income producing unless otherwise noted. |
| |
| (3) | All investments are non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940 (the "1940 Act"). The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when we own 25% or less of the portfolio company’s voting securities and “controlled” when we own more than 25% of the portfolio company’s voting securities. The provisions of the 1940 Act also classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as “non-affiliated” when we own less than 5% of a portfolio company’s voting securities and “affiliated” when we own 5% or more of a portfolio company’s voting securities. |
| |
| (4) | The periodic interest rate for all floating rate loans is indexed to London Interbank Offered Rate ("LIBOR" or "LIBO rate") (denoted as "L"), Euro Interbank Offered Rate ("EURIBOR") (denoted as "E"), British Pound Sterling LIBOR ("GBP LIBOR") (denoted as "G") or Prime Rate (denoted as "P"). Pursuant to the terms of the underlying credit agreements, the base interest rates typically reset annually, semi-annually, quarterly or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these floating rate loans, the Consolidated Schedule of Investments presents the applicable margin over LIBOR, EURIBOR, GBP LIBOR or Prime based on each respective credit agreement. As of December 31, 2018, LIBO rates ranged between 2.50% for 1-month LIBOR to 2.81% for 3-month LIBOR. |
| |
| (5) | For portfolio companies with multiple interest rate contracts under a single credit agreement, the interest rate shown is a weighted average current interest rate in effect at December 31, 2018. |
| |
| (6) | Unless noted otherwise, the principal amount (par amount) for all debt securities is denominated in U.S. dollars. Equity investments are recorded as number of shares owned. |
| |
| (7) | Cost represents amortized cost, inclusive of any capitalized paid-in-kind income ("PIK"), for debt securities, and cost plus capitalized PIK, if any, for preferred stock. |
| |
| (8) | As of December 31, 2015,2018, the aggregate gross unrealized appreciation for all securities, including foreign currency forward contracts, in which there was an excess of value over tax cost was $0.2$1.6 million; the aggregate gross unrealized depreciation for all securities, including foreign currency forward contracts, in which there was an excess of tax cost over value was $5.9$12.7 million; the net unrealized depreciation was $5.7 million,$11.1 million; the aggregate cost of securities for Federal income tax purposes was $83.9$384.8 million. |
| |
| (9) | The investment is either a delayed draw loan or a revolving credit facility whereby some or all of the investment commitment is undrawn as of December 31, 2018 (see Note 8. Commitments and Contingencies). |
| |
| (10) | A portfolio company domiciled in a foreign country. The regulatory jurisdiction of security issuance may be a different country than the domicile of the portfolio company. |
| |
| (11) | The investment is not a qualifying asset as defined in Section 55(a) of the 1940 Act. As of December 31, 2018, qualifying assets represented 81% of total assets. Under the 1940 Act we may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. |
| |
| (12) | Investment position or portion thereof unsettled as of December 31, 2018. |
| |
| (13) | The investment position, or a portion thereof, was not pledged as collateral supporting the amounts outstanding under our credit facility as of December 31, 2018; (see Note 7. Borrowings). |
| |
| (14) | The underlying credit agreement or indenture contains a PIK provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments. |
|
| | | | | | | |
| | Coupon Rate | PIK Component | Cash Component | PIK Option |
| Four Springs Capital Trust | 16.75 | % | 16.75 | % | — | % | The Portfolio Company may elect PIK up to 16.75% |
| Gladman Developments Ltd. | G+9.50% |
| 2.75 | % | G+6.75% |
| The Portfolio Company may elect PIK up to 2.75% |
| Lytx, Inc. | 14.75 | % | 14.75 | % | — | % | The Portfolio Company may elect PIK up to 14.75% |
| McGraw-Hill Global Education Holdings | 11.00 | % | — | % | 11.00 | % | The Portfolio Company may elect partial PIK up to 50% of the interest of the period or full PIK of 11.75% |
| |
| (16) | Non-income producing security. |
GUGGENHEIM CREDIT INCOME FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
| |
| (17) | The negative fair value is the result of the unfunded commitment being valued below par. The negative amortized cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. |
| |
| (18) | Investment was on non-accrual status as of December 31, 2018, meaning that the Master Fund has ceased recognizing interest income on these investments. As of December 31, 2018, debt investments on non-accrual status represented 1.2% and 0.1% of total investments on an amortized cost basis and fair value basis, respectively. |
Abbreviations:
CN = CanadaCanada; UK = United Kingdom; IT = Italy; IR=Ireland
LIBOR (L) = London Interbank Offered Rate
PIK = Payment-In-Kind
See Notes to Consolidated Financial Statements.
CAREYGUGGENHEIM CREDIT INCOME FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, percentages and as otherwise indicated;
for example, with the word “million” or otherwise)
Note 1. Principal Business and Organization
CareyGuggenheim Credit Income Fund (the “Master Fund”) was formed as a Delaware statutory trust on September 5, 2014. The Master Fund's investment objectives are to provide its shareholders with current income, capital preservation and, to a lesser extent, long-term capital appreciation by investing primarily in privately-negotiated loans to private middle market U.S.United States (U.S.) companies. On April 1, 2015, the Master Fund elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Master Fund commenced investment operations on April 2, 2015.
The Master Fund is externally managed by Carey Credit Advisors, LLC (the "Advisor"serves as the master fund in a master fund/feeder fund structure. The Master Fund issues its shares ("Shares" or "Common Shares"), an affiliate to one or more affiliated feeder funds in a continuous series of W. P. Carey Inc. ("WPC"), and private placement transactions.
Guggenheim Partners Investment Management, LLC ("GPIM"Guggenheim" or the "Advisor") (collectively the "Advisors"), which areis responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investment opportunities, structuring investments and ongoing monitoring of the Master Fund’s investment portfolio. Both Advisors are registered as investment advisers with the U.S. Securities and Exchange Commission (“SEC”). The Advisor also provides the administrative services necessary for the operation of the Master Fund.
The Master Fund serves as the master fund in a master/feeder fund structure. The Master Fund issues its Common Shares to one or more affiliated feeder funds in a continuous series of private placement transactions.
As of December 31, 2016,2019, the Master Fund had one wholly ownedwholly-owned subsidiary, Hamilton Finance LLC ("Hamilton"), a special purpose financing subsidiary organized for the purpose of arranging secured debt financing, entering into credit agreements and borrowing money to invest in portfolio companies.
Note 2. Significant Accounting Policies
Basis of Presentation
Management has determined that the Master Fund meets the definition of an investment company and adheres to the accounting and reporting guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946 — Financial Services — Investment Companies ("ASC Topic 946").
The accompanying consolidated financial statements of the Master Fund and related financial information have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") and pursuant to the requirements for reporting on Form 10-K and Regulation S-X under the Securities Act of 1933, as amended.
Principles of Consolidation
As provided under ASC Topic 946, the Master Fund will generally not consolidate its investment in a company other than an investment in an investment company or an operating company whose business consists of providing substantially all of its services to the benefit of the Master Fund. Accordingly, the Master Fund consolidated the results of its wholly-owned subsidiary in its consolidated financial statements. All intercompany balances and transactions have been eliminated.
Reclassifications
Certain prior period amounts have beenmay be reclassified to conform to the current presentation, with no effect on our financial condition, results of operations or cash flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the reported amounts of income and expenses during the reported period and (iii) disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ materially from those estimates under different assumptions and conditions.
Cash
Cash consists of demand deposits held at a major U.S. financial institution and the amount recorded on the consolidated statements of assets and liabilities exceeds the Federal Deposit Insurance Corporation insured limit. Management believes the credit risk related to its demand deposits is minimal.
Notes to Consolidated Financial Statements
Restricted Cash
Restricted cash consists of cash collateral that has been pledged to cover obligations of the Master Fund according to its derivative contracts and demand deposits held at a major U.S. financial institution on behalf of Hamilton. Hamilton may be restricted in the distribution of cash to the Master Fund, as governed by the terms of the Hamilton Credit Facility (see Note 7. Borrowings). Management believes the credit risk related to its demand deposits is minimal. Valuation of Investments
The Master Fund measures the value of its investments in accordance with ASC Topic 820 — Fair Value Measurement (“ASC Topic 820”), issued by the FASB. Fair value is the price that would be received to sell an asset or paid to transfer a liability
Notes to Consolidated Financial Statements
in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable and willing and able to transact. In accordance with ASC Topic 820, the Master Fund considers its principal market to be the market that has the greatest volume and level of activity.
ASC Topic 820 defines hierarchical levels directly related to the amount of subjectivity associated with the inputs used to determine fair values of assets and liabilities. The hierarchical levels and types of inputs used to measure fair value for each level are described as follows:
Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and debt securities, publicly listed derivatives, money market/short-term investment funds and foreign currency are generally included in Level 1. The Master Fund does not adjust the quoted price for these investments.
Level 2 - Valuation inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from orderly transactions for similar investments in active markets between market participants and provided by reputable dealers or independent pricing services. In determining the value of a particular investment, independent pricing services may use certain information with respect to transactions in such investments, quotations from multiple dealers or brokers, pricing matrices, market transactions in comparable investments and various relationships between investments. Investments generally included in this category are corporate bonds and loans.
Level 3 - Valuation inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments generally included in this category are illiquid corporate bonds and loans and preferred stock investments that lack observable market pricing.
In certain cases, the inputs used to measure fair value may fall within different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Depending on the relative liquidity in the markets for certain investments, the Master Fund may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are severely limited, or not available, or otherwise not reliable. The Master Fund’s assessment of the significance of a particular input to the fair value measurement requires judgment, and the consideration of factors specific to the investment.
Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to the Master Fund’s portfolio investments for which market quotations are not readily available, the Master Fund’s Fund's board of trustees ("Board of TrusteesTrustees"), including our trustees who are not "interested persons" as defined in the 1940 Act (the "Independent Trustees"), is responsible for determining in good faith the fair value of the Master Fund’s portfolio investments in accordance with the valuation policy and procedures approved by the Board of Trustees, based on, among other things, the input of the Master Fund’s AdvisorsGuggenheim and management, its audit committee and independent third-party valuation firms. The Master Fund and the Board of Trustees conduct their fair value determination process on a quarterly basis and any other time when a decision regarding the fair value of the portfolio investments is required.
The valuation techniques used by the Master Fund for the assets that are classified as Level 3 in the fair value hierarchy are described below.
Notes to Consolidated Financial Statements
Senior Debt and Subordinated Debt: Senior debt and subordinated debt investments are valued at initial transaction price and are subsequently valued using (i) market data for similar instruments (e.g., recent transactions or indicative broker quotes), (ii) enterprise value coverage analysis, and/or (iii)(ii) valuation models. Valuation models may be based on investment yield analysis and discounted cash flow techniques, where the key inputs include risk-adjusted discount rates and required rates of return, based on the analysis of similar debt investments issued by similar issuers.
Equity/Other Investments: Equity/other investments are valued at initial transaction price and are subsequently valued using valuation models in the absence of readily observable market prices. Valuation models are generally based on (i) market and income (discounted cash flow) approaches, in which various internal and external factors are considered, and (ii) earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples analysis. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach include the weighted average cost of capital and investment terminal values derived from EBITDA multiples. An illiquidity discount may be applied where appropriate.
The Master Fund utilizes several valuation techniques that use unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. The valuation techniques, as well as the key unobservable inputs that have a significant impact on the Master Fund’s investments classified and valued as Level 3 in the valuation hierarchy, are described in Note 5. Fair Value of Financial Instruments. The unobservable inputs and assumptions may differ by asset and in the application of the Master Fund’s valuation methodologies. The reported fair value estimates could vary materially if the Master Fund had chosen to incorporate different unobservable pricing inputs and assumptions. Notes to Consolidated Financial Statements
The determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of investments may differ materially from the values that would have been determined had a readily available market value existed for such investments. Further, such investments are generally less liquid than publicly traded securities. If the Master Fund was required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, the Master Fund could realize significantly less value than the value recorded by the Master Fund.
Security Transactions and Realized/Unrealized Gains or Losses
Investments purchased on a secondary market basis are recorded on the trade date. Loan originations are recorded on the funding date. All investments sold are derecognized on the trade date. The Master Fund measures realized gains or losses from the repayment or sale of investments using the specific lot identification method. Realized gains or losses are measured by the difference between (i) the net proceeds from the repayment or sale, inclusive of any prepayment premiums and (ii) the amortized cost basis of the investment without regard to unrealized gainsappreciation or lossesdepreciation previously recognized and include investments charged off during the period, net of recoveries. Unrealized gainsappreciation or lossesdepreciation primarily measuremeasures the change in investment values, including the reversal of previously recorded unrealized gainsappreciation or lossesdepreciation when gains or losses are realized. The amortized cost basis of investments includes (i) the original cost, net of original issue discount and loan origination fees, if any, and (ii) adjustments for the accretion/amortization of market discounts and premiums. The Master Fund reports changes in fair value of investments as net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.
Interest Income
Interest income is recorded on an accrual basis and includes amortization of premiums to par value and accretion of discounts to par value. Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method.method, or straight-line method, as applicable. Loan origination, closing and other fees received by the Master Fund directly or indirectly from borrowers in connection with the closing of investments are accreted over the contractual life of the debt investment as interest income based on the effective interest method.
Notes to Consolidated Financial Statements
Certain of the Master Fund’s investments in debt securities may contain a contractual payment-in-kind (“PIK”("PIK") interest provision. The PIK provisions generally feature the obligation, or the option, at each interest payment date of making interest payments in (i) cash, (ii) additional securities or (iii) a combination of cash and additional securities. PIK interest, computed at the contractual rate specified in the investment’s credit agreement, is accrued as interest income and recorded as interest receivable up to the interest payment date. On the interest payment date, the Master Fund will capitalize the accrued interest receivable attributable to PIK as additional principal due from the borrower. When additional PIK securities are received on the interest payment date, they typically have the same terms, including maturity dates and interest rates, as the original securities issued. PIK interest generally becomes due on the investment's maturity date or call date.
If the portfolio company's valuation indicates the value of the PIK security is not sufficient to cover the contractual PIK interest, the Master Fund will not accrue additional PIK interest income and will record an allowance for any accrued PIK interest receivable as a reduction of interest income in the period the Master Fund determines it is not collectible.
Debt securities are placed on non-accrual status when principal or interest payments are at least 90 days past due or when there is reasonable doubt that principal or interest will be collected. Generally, accrued interest is reversed against interest income when a debt security is placed on non-accrual status. Interest payments received on debt securities on non-accrual status may be recognized as interest income or applied to principal based on management’s judgment. Debt securities on non-accrual status are restored to accrual status when past due principal and interest are paid, and, in management’s judgment, such securities are likely to remain current on interest payment obligations. The Master Fund may make exceptions to this treatment if the debt security has sufficient collateral value and is in the process of collection.
Dividend Income
Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) equity investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Master Fund will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
Fee Income
The Advisors,Guggenheim, or theirits affiliates, may provide financial advisory services to portfolio companies and in return may receive fees for capital structuring services. The Advisors areGuggenheim is obligated to remit to the Master Fund any earned capital structuring fees based on the pro rata portion of the Master Fund’s investment in originated co-investment transactions. These fees are generally non-recurring and are recognized as fee income by the Master Fund upon the earlier of the investment commitment date or investment closing date. The Master Fund may also receive fees for investment commitments, amendments to credit agreements
Notes to Consolidated Financial Statements
and other services rendered to portfolio companies. Such fees are recognized as fee income when earned or when the services are rendered.
Derivative Instruments
Derivative instruments includesolely consist of foreign currency forward contracts. The Master Fund recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements. DerivativeForeign currency forward contracts entered into by the Master Fund are not designated as hedging instruments, and as a result, the Master Fund presents changes in fair value through net change in unrealized appreciation (depreciation) on derivative instrumentsforeign currency forward contracts in the consolidated statements of operations. Realized gains and losses that occur upon the cash settlement of the derivative instrumentsforeign currency forward contracts are included in net realized gains (losses) on derivative instruments inforeign currency forward contracts on the consolidated statements of operations.
Foreign Currency Translation, Transactions and Gains/LossesGains (Losses)
Foreign currency amounts are translated into U.S. dollars on the following basis: (i) at the exchange rate on the last business day of the reporting period for the fair value of investment securities, other assets and liabilities; and (ii) at the prevailing exchange rate on the respective recording dates for the purchase and sale of investment securities, income, expenses, gains and losses.
Notes to Consolidated Financial Statements
Net assets and fair values are presented based on the applicable foreign exchange rates described above and the Master Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held; therefore, fluctuations related to foreign exchange rate conversions are included with the net realized gains (losses) and unrealized appreciation (depreciation) on investments.
Net realized gains or losses on foreign currency transactions arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded by the CompanyMaster Fund and the U.S. dollar equivalent of the amounts actually received or paid by the Company.Master Fund.
Unrealized appreciation (depreciation) from foreign currency translation for foreign currency forward contracts is included in net change in unrealized appreciation (depreciation) on derivative instrumentsforeign currency forward contracts in the consolidated statements of operations and is included with unrealized appreciation (depreciation) in accumulated earnings (loss), net of distributions on the consolidated statements of assets and liabilities.
ManagementInvestment Advisory Fees
The Master Fund incurs investment advisory fees including: (i) a base management fee (recorded as an investment advisory fee) and (ii) a performance-based incentive fee which includes (a) an incentive fee on income and (b) an incentive fee on capital gains, due to its AdvisorsGuggenheim pursuant to an investment advisory agreement between the Master Fund and Guggenheim (the "Investment Advisory Agreement") as described in Note 6. Related Party Agreements and Transactions. The two components of the performance-based incentive fee will be combined and expensed in the consolidated statements of operations and accrued in the consolidated statements of assets and liabilities as accrued performance-based incentive fee. Pursuant to the terms of the investment advisory agreement,Investment Advisory Agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement)Investment Advisory Agreement) based on the Master Fund’s realized capital gains on a cumulative basis from inception, net of all realized capital losses and unrealized depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. Although the terms of the investment advisory agreementInvestment Advisory Agreement do not provide for the inclusion of unrealized gains in the calculation of the incentive fee on capital gains, the Master Fund includes unrealized gains in the calculation of the incentive fee on capital gains in accordance with GAAP. Therefore the accrued amount, if any, represents an estimate of the incentive fees that may be payable to the AdvisorsGuggenheim if the Master Fund’s entire investment portfolio was liquidated at its fair value as of the date of the consolidated statements of assets and liabilities, even though the Advisors areGuggenheim is not entitled to any incentive fee based on unrealized gainsappreciation unless and until such unrealized gains are actuallyappreciation is realized. Deferred Financing Costs
Deferred financing costs represent fees and other direct incremental costs incurred in connection with the arrangement of the Master Fund's borrowings. These costs are presented in the consolidated statements of assets and liabilities as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense inon the consolidated statements of operations over the life of the borrowings.
Organization and Offering Expenses
Organization expenses are expensed on the Master Fund's consolidated statements of operations. Continuous offering expenses are capitalized on the Master Fund's consolidated statements of assets and liabilities as deferred offering costs and expensed to the Master Fund's consolidated statements of operations over a 12-month period.
Distributions
Distributions to the Master Fund's common shareholders are periodically declared by its Board of Trustees and recognized as a liability on the record date.
Earnings per Common Share
Earnings per Common Share is calculated based upon the weighted average number of Common Shares outstanding during the reporting period.
Notes to Consolidated Financial Statements
Federal Income Taxes
Beginning with its tax year ended December 31, 2015, the Master Fund has elected to be treated for federal income tax purposes, and thereafter intends to maintain its qualification, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes dividends in a timely manner out of assets legally available for distributions to its shareholders of an amount generally at least equal to 90% of its “Investment Company Taxable Income,” as defined in the Code. The Master Fund intends to distribute sufficient dividends to maintain its RIC status each year and it does not anticipate paying a material level of federal income taxes.
Notes to Consolidated Financial Statements
The Master Fund is generally subject to nondeductible federal excise taxes if it does not distribute dividends to its shareholders in respect of each calendar year of an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gain net income (i.e., capital gains in excess of capital losses), adjusted for certain ordinary losses, for the one-year period generally ending on October 31st of the calendar year and (iii) any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which the Master Fund paid no federal income tax. The Master Fund may, at its discretion, pay a 4% nondeductible federal excise tax on under-distribution of taxable ordinary income and capital gains.
New Accounting Standard
In November 2016,The Master Fund follows ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the FASB issued Accounting Standards Update 2016-18, Statementfinancial statements. ASC 740 requires the evaluation of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU 2016-18 requirestax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other expenses in the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The new guidance is effective for fiscaloperations. Management has reviewed all open tax years and interim periods withinconcluded that there is no effect to the Master Funds’ financial positions or results of operations and no tax liability was required to be recorded resulting from unrecognized tax benefits relating to uncertain income tax position taken or expected to be taken on a tax return. During this period, the Master Fund did not incur any material interest or penalties. Open tax years are those fiscal years beginning afterthat are open for examination by the relevant income taxing authority. As of December 15, 2017, with early adoption permitted.31, 2019, open U.S. Federal and state income tax years include the tax years ended December 31, 2016 through December 31, 2018. The Master Fund has elected earlyno examinations in progress. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
Recent Accounting Standards
Securities and Exchange Commission (“SEC”) Disclosure Update and Simplification:
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification (the "SEC Release"), amending certain disclosure requirements intended to facilitate the disclosure of information to investors and simplify compliance. The SEC Release is effective for all filings on or after November 5, 2018. The Company first adopted the SEC Release for the fiscal quarter ended March 31, 2019. The SEC Release required presentation changes to the Company's consolidated statements of assets and liabilities and consolidated statements of changes in net assets. Prior to adoption, the Company presented, in accordance with previous SEC rules, accumulated earnings (loss), net of ASU 2016-18distributions, on the consolidated statements of assets and liabilities, as three components: 1) accumulated undistributed (distributions in excess of) net investment income; 2) accumulated undistributed net realized gain (loss) and 3) net unrealized appreciation (depreciation) and presented distributions from earnings on the consolidated statements of changes in net assets as three components: 1) distributions from net investment income; 2) distributions from net realized gains and 3) distributions in excess of net investment income. In accordance with the SEC Release, accumulated earnings and distributions from earnings are shown in total on the consolidated statements of assets and liabilities and consolidated statements of changes in net assets, respectively. The changes in presentation have been retrospectively applied to comparative periods presented in the consolidated financial statements.
The following table provides the reconciliation of the components of distributions from earnings to conform to the current period presentation for the years ended December 31, 2018 and December 31, 2017:
|
| | | | | | |
| | December 31, 2018 | December 31, 2017 |
| Shareholder Distributions: | | |
| Distribution from net investment income | $ | (18,311 | ) | $ | (13,738 | ) |
| Distribution from realized gains | (6,261 | ) | (1,978 | ) |
| Distribution in excess of net investment income | — |
| (962 | ) |
| Distributions from earnings | $ | (24,572 | ) | $ | (16,678 | ) |
Notes to Consolidated Financial Statements
The following table presents a breakout of accumulated loss, net of distributions, as of December 31, 2016 and has applied this standard retroactively to all prior periods presented.2018:
|
| | | |
| | As of December 31, 2018 |
| Accumulated distributions in excess of net investment income | $ | (32 | ) |
| Accumulated undistributed net realized gain | 1,189 |
|
| Net unrealized depreciation | (11,037 | ) |
| Accumulated loss, net of distributions | $ | (9,880 | ) |
Note 3. Investments
The following two tables presenttable presents the composition of the investment portfolio at amortized cost and fair value as of December 31, 20162019 and December 31, 2015,2018, respectively, with corresponding percentages of total portfolio investments at fair value and net assets (in thousands):value:
|
| | | | | | | | | | | | | |
| | December 31, 2016 |
| | Investments at Amortized Cost | | Investments at Fair Value | | Percentage of Portfolio | | Percentage of Net Assets |
| Senior secured loans - first lien | $ | 182,485 |
| | $ | 185,336 |
| | 67.4 | % | | 104.1 | % |
| Senior secured loans - second lien | 43,990 |
| | 44,340 |
| | 16.1 |
| | 24.9 |
|
| Senior secured bonds | 11,405 |
| | 11,631 |
| | 4.2 |
| | 6.5 |
|
| Total senior debt | $ | 237,880 |
| | $ | 241,307 |
| | 87.7 | % | | 135.5 | % |
| Subordinated debt | 33,015 |
| | 33,498 |
| | 12.2 |
| | 18.8 |
|
| Equity / other | 2,101 |
| | 279 |
| | 0.1 |
| | 0.2 |
|
| Total investments | $ | 272,996 |
| | $ | 275,084 |
| | 100.0 | % | | 154.5 | % |
| | | | December 31, 2015 | December 31, 2019 | | December 31, 2018 |
| | Investments at Amortized Cost | | Investments at Fair Value | | Percentage of Portfolio | | Percentage of Net Assets | Amortized Cost | | Fair Value | | Percentage of Investments at Fair Value | | Amortized Cost | | Fair Value | | Percentage of Investments at Fair Value |
| Senior secured loans - first lien | $ | 56,962 |
| | $ | 55,395 |
| | 70.8 | % | | 118.6 | % | $ | 279,872 |
| | $ | 268,678 |
| | 72.2 | % | | $ | 260,745 |
| | $ | 258,675 |
| | 69.2 | % |
| Senior secured loans - second lien | 10,217 |
| | 10,172 |
| | 13.0 |
| | 21.8 |
| 56,913 |
| | 56,651 |
| | 15.2 |
| | 67,871 |
| | 62,967 |
| | 16.8 | % |
| Senior secured bonds | 11,896 |
| | 9,523 |
| | 12.2 |
| | 20.4 |
| 12,996 |
| | 12,223 |
| | 3.3 |
| | 17,558 |
| | 15,690 |
| | 4.2 | % |
| Senior unsecured debt | | 22,253 |
| | 21,537 |
| | 5.8 |
| | 27,736 |
| | 26,295 |
| | 7.0 | % |
| Total senior debt | $ | 79,075 |
| | $ | 75,090 |
| | 96.0 | % | | 160.8 | % | $ | 372,034 |
| | $ | 359,089 |
| | 96.5 | % | | $ | 373,910 |
| | $ | 363,627 |
| | 97.2 | % |
| Subordinated debt | 2,991 |
| | 2,665 |
| | 3.4 |
| | 5.7 |
| |
| Equity / other | 1,848 |
| | 471 |
| | 0.6 |
| | 1.0 |
| |
| Equity and other | | 13,768 |
| | 13,104 |
| | 3.5 |
| | 10,874 |
| | 10,487 |
| | 2.8 |
|
| Total investments | $ | 83,914 |
| | $ | 78,226 |
| | 100.0 | % | | 167.5 | % | $ | 385,802 |
| | $ | 372,193 |
| | 100.0 | % | | $ | 384,784 |
| | $ | 374,114 |
| | 100.0 | % |
Notes to Consolidated Financial Statements
As of December 31, 2016, approximately 5.9% of the investment portfolio measured at amortized cost and 5.9% of the investment portfolio measured at fair value were invested in portfolio companies with foreign domiciles, specifically Canada and the United Kingdom. As of December 31, 2015, approximately 1.9% of the investment portfolio measured at amortized cost and 2.0% of the investment portfolio measured at fair value respectively were invested in a Canadian portfolio company.
As of December 31, 2016, debt investments on non-accrual status represented 1.2% and 1.1% of total investments on an amortized cost basis and fair value basis, respectively. As of December 31, 2015, there were no debt investments on non-accrual status.
The following table presents the composition of the investment portfolio by industry classifications at amortized cost and fair value as of December 31, 20162019 and December 31, 2015,2018, respectively, with corresponding percentages of total portfolio investments at fair value (in thousands):value:
|
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| Industry Classification | Investments at Amortized Cost | | Investments at Fair Value | | Percentage of Portfolio | | Investments at Amortized Cost | | Investments at Fair Value | | Percentage of Portfolio |
| Technology | $ | 54,501 |
| | $ | 55,052 |
| | 20.0 | % | | $ | 17,549 |
| | $ | 17,125 |
| | 21.8 | % |
| Beverage, Food & Tobacco | 35,793 |
| | 36,055 |
| | 13.1 |
| | 1,890 |
| | 1,817 |
| | 2.3 |
|
| Healthcare & Pharmaceuticals | 31,022 |
| | 31,099 |
| | 11.3 |
| | 495 |
| | 470 |
| | 0.6 |
|
| Automotive | 27,742 |
| | 28,100 |
| | 10.2 |
| | 2,943 |
| | 2,944 |
| | 3.8 |
|
| Aerospace & Defense | 21,962 |
| | 22,300 |
| | 8.1 |
| | 10,079 |
| | 10,131 |
| | 13.0 |
|
| Construction & Building | 20,072 |
| | 20,586 |
| | 7.5 |
| | — |
| | — |
| | — |
|
| Retail | 14,426 |
| | 14,419 |
| | 5.3 |
| | 6,178 |
| | 6,171 |
| | 7.9 |
|
| Utilities: Electric | 13,713 |
| | 14,337 |
| | 5.2 |
| | 7,053 |
| | 6,475 |
| | 8.3 |
|
| Containers, Packaging & Glass | 10,143 |
| | 10,768 |
| | 3.9 |
| | 213 |
| | 215 |
| | 0.3 |
|
Banking, Finance, Insurance & Real Estate(1) | 10,399 |
| | 10,476 |
| | 3.8 |
| | 7,384 |
| | 7,234 |
| | 9.2 |
|
| Hotel, Gaming & Leisure | 7,760 |
| | 8,017 |
| | 2.9 |
| | — |
| | — |
| | — |
|
| Energy: Oil & Gas | 8,785 |
| | 7,031 |
| | 2.6 |
| | 6,012 |
| | 2,741 |
| | 3.5 |
|
| Media: Advertising, Printing & Publishing | 6,804 |
| | 6,911 |
| | 2.5 |
| | — |
| | — |
| | — |
|
| Consumer Goods: Non-Durable | 5,806 |
| | 5,825 |
| | 2.1 |
| | 4,902 |
| | 4,909 |
| | 6.3 |
|
| Services: Business | 2,782 |
| | 2,811 |
| | 1.0 |
| | 4,836 |
| | 4,453 |
| | 5.7 |
|
| Media: Broadcasting & Subscription | 1,286 |
| | 1,273 |
| | 0.5 |
| | 1,568 |
| | 1,576 |
| | 2.0 |
|
| Metals & Mining | — |
| | 24 |
| | — |
| | 4,905 |
| | 4,245 |
| | 5.4 |
|
| Chemicals, Plastics & Rubber | — |
| | — |
| | — |
| | 1,489 |
| | 1,493 |
| | 1.9 |
|
| Telecommunications | — |
| | — |
| | — |
| | 6,418 |
| | 6,227 |
| | 8.0 |
|
| Total | $ | 272,996 |
| | $ | 275,084 |
| | 100.0 | % | | $ | 83,914 |
| | $ | 78,226 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| Industry Classification | | Amortized Cost | |
Fair Value | | Percentage of Investments at Fair Value | | Amortized Cost | |
Fair Value | | Percentage of Investments at Fair Value |
| Technology | | $ | 81,806 |
| | $ | 81,726 |
| | 22.0 | % | | $ | 78,606 |
| | $ | 78,389 |
| | 21.0 | % |
| Healthcare & Pharmaceuticals | | 41,194 |
| | 41,101 |
| | 11.0 |
| | 38,053 |
| | 37,901 |
| | 10.1 |
|
| Services: Business | | 40,279 |
| | 40,115 |
| | 10.8 |
| | 34,313 |
| | 33,682 |
| | 9.0 |
|
| Beverage, Food & Tobacco | | 24,104 |
| | 24,555 |
| | 6.6 |
| | 36,862 |
| | 31,807 |
| | 8.5 |
|
| Media: Advertising, Printing & Publishing | | 24,566 |
| | 24,432 |
| | 6.6 |
| | 24,259 |
| | 23,265 |
| | 6.2 |
|
| Retail | | 29,511 |
| | 22,880 |
| | 6.1 |
| | 19,635 |
| | 19,677 |
| | 5.3 |
|
| Automotive | | 24,095 |
| | 21,938 |
| | 5.9 |
| | 26,886 |
| | 26,827 |
| | 7.2 |
|
| Chemicals, Plastics & Rubber | | 20,010 |
| | 20,072 |
| | 5.4 |
| | 5,602 |
| | 5,608 |
| | 1.5 |
|
| Construction & Building | | 14,832 |
| | 14,818 |
| | 4.0 |
| | 17,126 |
| | 16,875 |
| | 4.5 |
|
| Containers, Packaging & Glass | | 13,259 |
| | 12,233 |
| | 3.3 |
| | 11,363 |
| | 11,403 |
| | 3.0 |
|
| Energy: Oil & Gas | | 15,266 |
| | 11,778 |
| | 3.2 |
| | 17,320 |
| | 16,637 |
| | 4.4 |
|
Banking, Finance, Insurance & Real Estate (1) | | 11,021 |
| | 11,191 |
| | 3.0 |
| | 11,318 |
| | 10,749 |
| | 2.9 |
|
| Utilities: Electric | | 8,786 |
| | 8,508 |
| | 2.3 |
| | 13,470 |
| | 13,182 |
| | 3.5 |
|
| Aerospace & Defense | | 7,274 |
| | 6,877 |
| | 1.8 |
| | 8,583 |
| | 8,367 |
| | 2.2 |
|
| Hotel, Gaming & Leisure | | 6,711 |
| | 6,824 |
| | 1.8 |
| | 4,774 |
| | 4,687 |
| | 1.3 |
|
| Utilities: Oil & Gas | | 5,784 |
| | 5,881 |
| | 1.6 |
| | 9,824 |
| | 9,327 |
| | 2.5 |
|
| Telecommunications | | 4,697 |
| | 4,718 |
| | 1.3 |
| | 4,718 |
| | 4,696 |
| | 1.3 |
|
| Transportation: Cargo | | 4,778 |
| | 4,714 |
| | 1.3 |
| | 4,730 |
| | 4,030 |
| | 1.1 |
|
| Consumer goods: Non-durable | | 4,548 |
| | 4,553 |
| | 1.2 |
| | 9,699 |
| | 9,653 |
| | 2.6 |
|
| Capital Equipment | | 2,000 |
| | 1,995 |
| | 0.5 |
| | 3,514 |
| | 3,442 |
| | 0.9 |
|
| Consumer Goods: Durable | | 1,281 |
| | 1,284 |
| | 0.3 |
| | 4,129 |
| | 3,910 |
| | 1.0 |
|
| Total investments | | $ | 385,802 |
| | $ | 372,193 |
| | 100.0 | % | | $ | 384,784 |
| | $ | 374,114 |
| | 100.0 | % |
______________
| |
| (1) | Portfolio companies included in this classification may include insurance brokers that are not classified as insurance companies. |
The following table presents the geographic dispersion of the investment portfolio as a percentage of total investments at fair value as of December 31, 2019 and December 31, 2018.
|
| | | | | | |
| Geographic Dispersion | | December 31, 2019 | | December 31, 2018 |
| United States of America | | 85.5 | % | | 86.3 | % |
| United Kingdom | | 9.2 |
| | 9.0 |
|
| Canada | | 2.8 |
| | 2.3 |
|
| Italy | | 1.5 |
| | 1.5 |
|
| Ireland | | 1.0 |
| | 0.9 |
|
| Total investments | | 100.0 | % | | 100.0 | % |
Notes to Consolidated Financial Statements
Note 4. Derivative Instruments
The Master Fund may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Master Fund's investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract forward exchange rate and the forward market exchange rate on the last day of the period presented as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks arise as a result of the potential inability of the counterparties to meet the terms of their
Notes to Consolidated Financial Statements
contracts; the Master Fund attempts to limit counterparty risk by only dealing with well-known counterparties.counterparties and those that it believes have the financial resources to honor their obligations. The foreign currency forward contracts open at the end of the period are generally indicative of the volume of activity during the period.
As of December 31, 2016The following tables present the Master Fund's open foreign currency forward contracts were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Foreign Currency | | Settlement Date | | Counterparty | | Amount Transacted | | Value at Settlement | | Value at Period End | | Unrealized Appreciation (Depreciation) |
| EUR | | January 12, 2017 | | JP Morgan Chase Bank | | €592 Sold | | $ | 616 |
| | $ | 624 |
| | $ | (8 | ) |
The tables below display the Master Fund's foreign currency denominated debt investments and foreign currency forward contracts, summarized by foreign currency type as of December 31, 2016 (in thousands).2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Foreign Currency | | Settlement Date | | Statement Location | | Counterparty | | Amount Transacted | | Notional Value at Settlement | | Notional Value at Period End | | Fair Value |
| EUR | | January 14, 2020 | | Unrealized depreciation on foreign currency forward contracts | | JPMorgan Chase Bank, N.A. | | € | 694 |
| | $ | 772 |
| | $ | 779 |
| | $ | (7 | ) |
| GBP | | January 14, 2020 | | Unrealized depreciation on foreign currency forward contracts | | JPMorgan Chase Bank, N.A. | | £ | 18,878 |
| | 24,936 |
| | 25,016 |
| | (80 | ) |
| Total | | | | | | | | | | $ | 25,708 |
| | $ | 25,795 |
| | $ | (87 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Foreign Currency | | Settlement Date | | Statement Location | | Counterparty | | Amount Transacted | | Notional Value at Settlement | | Notional Value at Period End | | Fair Value |
| GBP | | January 14, 2019 | | Unrealized depreciation on foreign currency forward contracts | | JPMorgan Chase Bank, N.A. | | £ | (85 | ) | | $ | (108 | ) | | $ | (109 | ) | | $ | 1 |
|
| GBP | | January 14, 2019 | | Unrealized depreciation on foreign currency forward contracts | | JPMorgan Chase Bank, N.A. | | £ | 665 |
| | 841 |
| | 848 |
| | (7 | ) |
| GBP | | January 14, 2019 | | Unrealized depreciation on foreign currency forward contracts | | JPMorgan Chase Bank, N.A. | | £ | 22,230 |
| | 27,982 |
| | 28,355 |
| | (373 | ) |
| EUR | | January 14, 2019 | | Unrealized depreciation on foreign currency forward contracts | | JPMorgan Chase Bank, N.A. | | € | 697 |
| | 795 |
| | 800 |
| | (5 | ) |
| Total | | | | | | | | | | $ | 29,510 |
| | $ | 29,894 |
| | $ | (384 | ) |
The following table presents the net realized and unrealized gains and losses on derivative instruments recorded by the Master Fund for the years ended December 31, 2019, December 31, 2018 and December 31, 2017:
|
| | | | | | | | | | | | | | |
| | Debt Investments Denominated in Foreign Currencies
As of December 31, 2016 | | Hedges As of December 31, 2016 |
| | Par Value in Local Currency | | Par Value in U.S. Dollars | | Fair Value in U.S. Dollars | | Foreign Currency Hedge Amount in Local Currency | | Foreign Currency Hedge Amount in U.S. Dollars |
| EUR | 601 |
| | 627 |
| | 624 |
| | 592 |
| | 624 |
|
| Total | | | 627 |
| | 624 |
| | | | 624 |
|
|
| | | | | | | | | | | | | | |
| | | | | For the Years Ended December 31, |
| | | Statement Location | | 2019 | | 2018 | | 2017 |
| Net realized gains (losses) | | | | | | | | |
| Foreign currency forward contracts | | Net realized gains (losses) on foreign currency forward contracts | | $ | (873 | ) | | $ | 2,316 |
| | $ | (1,327 | ) |
| Net change in unrealized appreciation (depreciation) | | | | | | |
| Foreign currency forward contracts | | Net change in unrealized appreciation (depreciation) on foreign currency forward contracts | | 297 |
| | (185 | ) | | (191 | ) |
| Net realized and unrealized gains (losses) on foreign currency forward contracts | | $ | (576 | ) | | $ | 2,131 |
| | $ | (1,518 | ) |
AsNotes to Consolidated Financial Statements
For derivatives traded under an International Swaps and Derivatives Association Master Agreement ("ISDA Master Agreement"), the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Master Fund and/or the counterparty. Cash collateral that has been pledged, if any, to cover obligations of the Master Fund and cash collateral received from the counterparty, if any, is reported on the consolidated statements of assets and liabilities as collateral deposits (received) for foreign currency forward contracts. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold before a transfer is required. To the extent amounts due to the Master Fund from a counterparty are not fully collateralized, the Master Fund bears the risk of loss from counterparty non-performance.
The following table presents the Master Fund's derivative assets and liabilities by counterparty, net of amounts available for offset under a master netting agreement or similar arrangement, and net of related collateral received by the Master Fund for assets or pledged for liabilities as of December 31, 2015, the Master Fund had no foreign currency denominated debt investments2019 and no foreign currency forward contracts.December 31, 2018:
|
| | | | | | | | | | | | | | | | | | |
| As of | | Counterparty | | Gross Derivative Assets in Statement of Assets and Liabilities | | Gross Derivative Liabilities in Statement of Assets and Liabilities | | Collateral Pledged | | Net position of Derivative Assets, Liabilities and Pledged Collateral |
| December 31, 2019 | | JP Morgan Chase Bank, N.A. | | $ | — |
| | $ | (87 | ) | | $ | (320 | ) | | $ | (407 | ) |
| December 31, 2018 | | JP Morgan Chase Bank, N.A. | | $ | — |
| | $ | (384 | ) | | $ | 160 |
| | $ | (224 | ) |
Note 5. Fair Value of Financial Instruments
The following two tables present the segmentation of the investment portfolio at fair value, as of December 31, 20162019 and December 31, 20152018, according to the fair value hierarchy as described inNote 2. Significant Accounting Policies (in thousands): | | | | December 31, 2016 | December 31, 2019 |
| | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
| Investments | | | | | | | | | | | | | | |
| Senior secured loans - first lien | $ | — |
| | $ | 105,423 |
| | $ | 79,913 |
| | $ | 185,336 |
| $ | — |
| | $ | 80,704 |
| | $ | 187,974 |
| | $ | 268,678 |
|
| Senior secured loans - second lien | — |
| | 19,590 |
| | 24,750 |
| | 44,340 |
| — |
| | 14,364 |
| | 42,287 |
| | 56,651 |
|
| Senior secured bonds | — |
| | 3,699 |
| | 7,932 |
| | 11,631 |
| — |
| | 12,223 |
| | — |
| | 12,223 |
|
| Senior unsecured debt | | — |
| | 4,739 |
| | 16,798 |
| | 21,537 |
|
| Total senior debt | — |
| | $ | 128,712 |
| | $ | 112,595 |
| | $ | 241,307 |
| $ | — |
| | $ | 112,030 |
| | $ | 247,059 |
| | $ | 359,089 |
|
| Subordinated debt | — |
| | 12,946 |
| | 20,552 |
| | 33,498 |
| |
| Equity / other | 226 |
| | — |
| | 53 |
| | 279 |
| |
| Total Investments | $ | 226 |
| | $ | 141,658 |
| | $ | 133,200 |
| | $ | 275,084 |
| |
| Equity and other | | 90 |
| | — |
| | 13,014 |
| | 13,104 |
|
| Total investments | | $ | 90 |
| | $ | 112,030 |
| | $ | 260,073 |
| | $ | 372,193 |
|
| Percentage | 0.1 | % | | 51.5 | % | | 48.4 | % | | 100.0 | % | 0.0 | % | | 30.1 | % | | 69.9 | % | | 100.0 | % |
| Derivative Instruments | | | | | | | | | | | | | | |
| Foreign Currency Forward Contracts | $ | — |
| | $ | (8 | ) | | $ | — |
| | $ | (8 | ) | |
| Total Derivative Instruments | $ | — |
| | $ | (8 | ) | | $ | — |
| | $ | (8 | ) | |
| Foreign currency forward contracts | | $ | — |
| | $ | (87 | ) | | $ | — |
| | $ | (87 | ) |
Notes to Consolidated Financial Statements
| | | | December 31, 2015 | December 31, 2018 |
| | Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
| Investments | | | | | | | | |
| Senior secured loans - first lien | $ | — |
| | $ | 34,195 |
| | $ | 21,200 |
| | $ | 55,395 |
| $ | — |
| | $ | 54,117 |
| | $ | 204,558 |
| | $ | 258,675 |
|
| Senior secured loans - second lien | — |
| | 8,596 |
| | 1,576 |
| | 10,172 |
| — |
| | 11,069 |
| | 51,898 |
| | 62,967 |
|
| Senior secured bonds | — |
| | 2,696 |
| | 6,827 |
| | 9,523 |
| — |
| | 15,690 |
| | — |
| | 15,690 |
|
| Senior unsecured debt | | — |
| | 9,629 |
| | 16,666 |
| | 26,295 |
|
| Total senior debt | — |
| | 45,487 |
| | 29,603 |
| | 75,090 |
| $ | — |
| | $ | 90,505 |
| | $ | 273,122 |
| | $ | 363,627 |
|
| Subordinated debt | — |
| | 2,665 |
| | — |
| | 2,665 |
| |
| Equity / other | — |
| | — |
| | 471 |
| | 471 |
| |
| Total | $ | — |
| | $ | 48,152 |
| | $ | 30,074 |
| | $ | 78,226 |
| |
| Equity and other | | 162 |
| | — |
| | 10,325 |
| | 10,487 |
|
| Total investments | | $ | 162 |
| | $ | 90,505 |
| | $ | 283,447 |
| | $ | 374,114 |
|
| Percentage | — | % | | 61.6 | % | | 38.4 | % | | 100.0 | % | 0.0 | % | | 24.2 | % | | 75.8 | % | | 100.0 | % |
| Derivative Instruments | | | | | | | | |
| Foreign currency forward contracts | | $ | — |
| | $ | (384 | ) | | $ | — |
| | $ | (384 | ) |
Notes to Consolidated Financial Statements
Significant Level 3 Unobservable Inputs
The following table providestables present quantitative information related to the significant Level 3 unobservable inputs associated with the determination of fair value for certain investments as of December 31, 2016 (dollars in thousands):2019 and December 31, 2018:
| | | December 31, 2016 | |
| December 31, 2019 | | December 31, 2019 |
| Asset Category | No. of Investment Positions | Fair Value(1) | Valuation Techniques (2) | Unobservable Inputs | Range (Weighted Average)(3) | Impact to Valuation from an Increase in Input (4) | Fair
Value | Valuation Techniques (1) | Unobservable Inputs (2) | Weighted Average | Range (3) | Impact to Valuation from an Increase in Input (4) |
| Senior secured loans - first lien | 22 | $ | 79,913 |
| Market comparables | Market yield (%) | 6.49% - 10.20%
(7.75%) | Decrease | $ | 121,594 |
| Yield analysis | Yield | 8.44% | 4.64% - 12.05% | Decrease |
| | | | Market quotations(5) | Broker quote | 100.19 | Increase | $ | 5,722 |
| Transacted value | Potential transaction | 100.00 | Increase |
| | | | Cost(1) | 99.53 | Increase | $ | 14,656 |
| Yield analysis | Yield | 7.88% | 6.47% - 8.5% | Decrease |
| | | | Market comparables | EBITDA multiple | 16.3x | Increase | | Transacted value | Potential transaction | 101.73 | 100 - 105.57 | Increase |
| | | $ | 5,795 |
| Yield analysis | Yield | 20.23% | Decrease |
| | | | Transacted value | Bid | 61.27 | Increase |
| | | | Discounted cash flow | Discount Rate | 17.50% | Decrease |
| | | | Discounted cash flow | Perpetuity Growth Rate | (10.00)% | Increase |
| | | | Discounted cash flow | Terminal EBITDA Multiple | 5.9x | 5.9x | Increase |
| Senior secured loans - second lien | 4 | $ | 24,750 |
| Market comparables | Market yield (%) | 10.40% -11.85%
(10.89%) | Decrease | $ | 16,904 |
| Yield analysis | Yield | 9.91% | 7.67% - 11.27% | Decrease |
| | | | Market comparables | EBITDA multiple | 6.2x | Increase | $ | 15,492 |
| Transacted value | Potential transaction | 101.00 | Increase |
| Senior secured bonds | 3 | $ | 7,932 |
| Market quotations(5) | Broker quote | 93.00 | Increase | |
| | | | Market comparables | Market yield (%) | 9.72% | Decrease | $ | 4,386 |
| Yield analysis | Yield | 11.46% | Decrease |
| | | | Liquidation Analysis | Liquidation value | N/A | Increase | | Transacted value | Potential transaction | 100.00 | Increase |
| Subordinated debt | 3 | $ | 20,552 |
| Cost(1) | 98.64 - 100.00
(98.67) | Increase | |
| Senior unsecured debt | | $ | 16,798 |
| Yield analysis | Yield | 12.44% | 11.53% - 14.33% | Decrease |
| Equity and other | | $ | 30 |
| Transacted value | Cost | 15.36 | 15.36 | Increase |
| | | | Market comparables | Market yield (%) | 12.59% | Decrease | $ | 3,303 |
| Transacted value | Potential transaction | 1,116.45 | Increase |
| Equity / other | 2 | $ | 53 |
| Cost(1) | 100.00 | Increase | |
| | | $ | 4,752 |
| Market comparable | Capitalization Rate | 7.00% | Increase |
| | | $ | 81 |
| Discounted cash flow | EBITDA multiple | 16.7x | Increase |
| | | $ | 2,081 |
| Market comparable | Cash Flow Multiple | 3.6x | Increase |
| | | | Market comparable | Oil production multiple (6) | 19,650x | Increase |
| | | | Market comparable | Oil reserve multiple (7) | 6.6x | 6.6x | Increase |
| | | $ | 2,767 |
| Discounted cash flow | Discount Rate | 20.01% | 14.08% - 15% | Decrease |
| | | | Discounted cash flow | EBITDA multiple | 14.5x | 13.2x - 15.4x | Increase |
| | | | Market and income approach | Company specific risk premium | 515.60% | Decrease | | Discounted cash flow | Perpetuity Growth Rate | 6.74% | 5% - 8% | Increase |
| | | | Option valuation model | Volatility | 163.18% | Increase | | Discounted cash flow | Terminal EBITDA Multiple | 8.2x | 7.5x - 13x | Increase |
| Total | 34 | $ | 133,200 |
| | $ | 214,361 |
| |
______________
| |
| (1) | Investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value. |
Notes to Consolidated Financial Statements
| |
(2) | For the assets and investments that have more than one valuation technique, the Master Fund may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0-100%0% to 100%. |
Notes to Consolidated Financial Statements
| |
| (2) | The Master Fund generally uses prices provided by an independent pricing service, or directly from an independent broker, which are non-binding indicative prices on or near the valuation date as the primary basis for the fair valuation determinations for quoted senior secured bonds and loans. Since these prices are non-binding, they may not be indicative of fair value. Each quoted price is evaluated by Guggenheim in conjunction with additional information compiled by it, including financial performance, recent business developments and various other factors. Investments with fair values determined in this manner were not included in the table above. As of December 31, 2019, the Master Fund had investments of this nature measured at fair value totaling $45.7million. |
| |
| (3) | A range is not provided when there is only one investment within the classification;classification or multiple investments that have the same unobservable input; weighted average amounts are based on the estimated fair values. |
| |
| (4) | This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements. |
| |
| (5) | Investments may be valued at cost for a period of time after acquisition as the best indicator of fair value. |
| |
| (6) | Oil production multiple is valued based on thousand barrels of oil equivalent per day (MBOE/d). |
| |
| (7) | Oil reserve multiple is valued based on million barrels of oil equivalent (MMBOE). |
|
| | | | | | | | |
| December 31, 2018 |
| Asset Category | Fair
Value | Valuation Techniques (1) | Unobservable Inputs (2) | Weighted Average | Range (3) | Impact to Valuation from an Increase in Input (4) |
| Senior secured loans - first lien | $ | 122,898 |
| Yield analysis | Yield | 9.37% | 2.63% - 12.72% | Decrease |
| | $ | 9,790 |
| Transaction value | Cost (5) | 98.79 | 87.65-100.00 | Increase |
| Senior secured loans - second lien | $ | 34,275 |
| Yield analysis | Yield | 11.35% | 9.12% - 12.58% | Decrease |
| Senior unsecured debt | $ | 16,666 |
| Yield analysis | Yield | 11.50% | 9.51% - 16.01% | Decrease |
| Equity and other | $ | 4,034 |
| Market Comparables | Capitalization rate | 7.00% | 7.00% | Increase |
| | $ | 3,222 |
| Market Comparables | Cash flow multiple | 4.7x | 4.7x | Increase |
| | | Market Comparables | Oil production multiple (6) | 24,740 | 24,740 | Increase |
| | | Market Comparables | Oil reserve multiple (7) | 6.60 | 6.60 | Increase |
| | $ | 2,634 |
| Transaction Value | Cost (5) | 988.79 | 15.36-1000.00 | Increase |
| | $ | 231 |
| Discounted Cash Flow | Discount Rate | 14.58% | 14.58% | Decrease |
| | | Discounted Cash Flow | Perpetuity Growth rate | 8.00% | 8.00% | Increase |
| | | Discounted Cash Flow | EBITDA Multiple | 13.0x | 13.0x | Increase |
| | $ | 204 |
| Discounted Cash Flow | Discount Rate | 15.05% | 15.05% | Decrease |
| | | Discounted Cash Flow | Perpetuity Growth rate | 5.00% | 5.00% | Increase |
| | | Discounted Cash Flow | EBITDA Multiple | 9.0x | 9.0x | Increase |
| | | Transaction value | EBITDA Multiple | 13.2x | 13.2x | Increase |
| Total | $ | 193,954 |
| | | | | |
_______________
| |
| (1) | For the investments that have more than one valuation technique, the Master Fund may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0% to 100%. |
| |
| (2) | The Master Fund generally uses prices provided by an independent pricing service, or directly from an independent broker, which are non-binding indicative prices on or near the valuation date as the primary basis for the fair valuation determinations for quoted senior secured bonds and loans. Since these prices are non-binding, they may not be indicative of fair value. Each quoted price is evaluated by the AdvisorsGuggenheim in conjunction with additional information compiled by them,it, including financial performance, recent business developments and various other factors. |
In addition to the Level 3 valuation methodologies and unobservable inputs noted above, the Master Fund, in accordance with its valuation policy, may also use other valuation techniques and methodologies when determining the fair value estimates for its investments.
The following table provides quantitative information related to the significant Level 3 unobservable inputs associated with the determination of fair value for certain investments as of December 31, 2015 (dollars in thousands):
|
| | | | | | | | |
| December 31, 2015 |
| Asset Category | No. of Investment Positions | Fair
Value(1) | Valuation Techniques (2) | Unobservable Inputs | Range (Weighted Average)(3) | Impact to Valuation from an Increase in Input (4) |
| Senior secured loans - first lien | 7 | $ | 21,200 |
| Market comparables | EBITDA multiple | 10.6x - 15.8x (12.7x) | Increase |
| | | | Prepayment probability analysis | Probability weighting of alternative outcomes | 20% - 50% | Increase |
| Senior secured loans - second lien | 1 | $ | 1,576 |
| Market quotations (5) | Broker quote | 98.50 | Increase |
| Senior secured bonds | 2 | $ | 6,827 |
| Market quotations (5) | Broker quote | 60.50 | Increase |
| | | | Market comparables | EBITDA multiple | 12.4x | Increase |
| Equity / other | 1 | $ | 471 |
| Market and income approach | Company specific risk premium | 40.80% | Decrease |
| | | | Option valuation model | Volatility | 133.00% | Increase |
| Total | 11 | $ | 30,074 |
| | | | |
______________
| |
(1) | Investments may be valued at cost for a periodwith fair values determined in this manner were not included in the table above. As of time after an acquisition as the best indicator of fair value. |
| |
(2) | For the assets and investments that have more than one valuation technique,December 31, 2018, the Master Fund may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0-100%.had investments of this nature measured at fair value totaling $89.5 million. |
| |
| (3) | A range is not provided when there is only one investment within the classification;classification or multiple investments that have the same unobservable input; weighted average amounts are based on the estimated fair values. |
Notes to Consolidated Financial Statements
| |
| (4) | This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements. |
| |
| (5) | The Master Fund generally uses prices provided by an independent pricing service, or directly from an independent broker, which are non-binding indicative prices on or near the valuation dateInvestments may be valued at cost for a period of time after acquisition as the primary basis for the fair valuation determinations for quoted senior secured bonds and loans. Since these prices are non-binding, they may not be indicativebest indicator of fair value. Each quoted price |
| |
| (6) | Oil production multiple is evaluated by the Advisors in conjunction with additional information compiled by them, including financial performance, recent business developments and various other factors.valued based on thousand barrels of oil equivalent per day (MBOE/d). |
| |
| (7) | Oil reserve multiple is valued based on million barrels of oil equivalent (MMBOE). |
NotesIn addition to Consolidated Financial Statements
the Level 3 valuation methodologies and unobservable inputs noted above, the Master Fund, in accordance with its valuation policy, may also use other valuation techniques and methodologies when determining the fair value estimates for its investments.
The following table presentstables present a roll-forward inof the fair value changes for all investments for which the Master Fund determines fair value using Level 3 unobservable inputs for the yearyears ended December 31, 2016 (in thousands):2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Senior Secured Loans - First Lien | | Senior Secured Loans - Second Lien | | Senior Secured Bonds | | Subordinated Debt | | Equity / Other | | Total |
| Balance as of January 1, 2016 | $ | 21,200 |
| | $ | 1,576 |
| | $ | 6,827 |
| | $ | — |
| | $ | 471 |
| | $ | 30,074 |
|
Additions (1) | 64,687 |
| | 24,603 |
| | — |
| | 20,456 |
| | 50 |
| | 109,796 |
|
Net realized gains (2) | 209 |
| | — |
| | — |
| | — |
| | — |
| | 209 |
|
Net change in unrealized appreciation (depreciation) on investments (3) | 166 |
| | 117 |
| | 1,102 |
| | 96 |
| | (468 | ) | | 1,013 |
|
Sales or repayments (4) | (11,424 | ) | | — |
| | — |
| | — |
| | — |
| | (11,424 | ) |
| Net discount accretion | 112 |
| | 30 |
| | 3 |
| | — |
| | — |
| | 145 |
|
Transfers out of Level 3 (5)(6) | — |
| | (1,576 | ) | | — |
| | — |
| | — |
| | (1,576 | ) |
Transfers into Level 3 (5)(7) | 4,963 |
| | — |
| | — |
| | — |
| | — |
| | 4,963 |
|
| Fair value balance as of December 31, 2016 | $ | 79,913 |
| | $ | 24,750 |
| | $ | 7,932 |
| | $ | 20,552 |
| | $ | 53 |
| | $ | 133,200 |
|
| Change in net unrealized appreciation (depreciation) on investments held as of December 31, 2016 | $ | 300 |
| | $ | 117 |
| | $ | 1,102 |
| | $ | 96 |
| | $ | (468 | ) | | $ | 1,147 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 |
| | Senior Secured Loans - First Lien | | Senior Secured Loans - Second Lien | | Senior Unsecured Debt | | Equity and Other | | Total |
| Balance as of January 1, 2019 | $ | 204,558 |
| | $ | 51,898 |
| | $ | 16,666 |
| | $ | 10,325 |
| | $ | 283,447 |
|
Additions (1) | 41,376 |
| | 4,469 |
| | — |
| | 3,560 |
| | 49,405 |
|
Sales and repayments (2) | (31,640 | ) | | (6,967 | ) | | — |
| | (636 | ) | | (39,243 | ) |
Net realized gains (losses) (3) | 503 |
| | (4,428 | ) | | — |
| | — |
| | (3,925 | ) |
Net change in unrealized appreciation (depreciation) on investments (4) | (7,141 | ) | | 4,132 |
| | 93 |
| | (235 | ) | | (3,151 | ) |
| Net discount accretion | 666 |
| | 87 |
| | 39 |
| | — |
| | 792 |
|
Transfers into Level 3 (5) | 35,926 |
| | 3,488 |
| | — |
| | — |
| | 39,414 |
|
Transfers out of Level 3 (6) | (56,274 | ) | | (10,392 | ) | | — |
| | — |
| | (66,666 | ) |
| Fair value balance as of December 31, 2019 | $ | 187,974 |
| | $ | 42,287 |
| | $ | 16,798 |
| | $ | 13,014 |
| | $ | 260,073 |
|
| Change in net unrealized appreciation (depreciation) on investments held as of December 31, 2019 | $ | (7,579 | ) | | $ | (78 | ) | | $ | 93 |
| | $ | (317 | ) | | $ | (7,881 | ) |
_________________________
| |
| (1) | Includes increases in the cost basis of investments resulting from new and incremental portfolio investments, including the capitalization of PIK dividend income. |
| |
| (2) | Included in net realized gain (loss) on investments in the consolidated statements of operations. |
| |
(3) | Included in net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations. |
| |
(4) | Includes principal payments/paydowns on debt investments and proceeds from sales of investments. |
| |
| (3) | Included in net realized gains (losses) on investments on the consolidated statements of operations. |
| |
| (4) | Included in net change in unrealized appreciation (depreciation) on investments on the consolidated statements of operations. |
| |
| (5) | For the year ended December 31, 2019, investments were transferred from Level 2 to Level 3 as valuation coverage was reduced to one independent pricing service without any corroborating recent trade. |
| |
| (6) | For the year ended December 31, 2019, investments were transferred from Level 3 to Level 2 as valuation coverage was initiated by more than one independent pricing services or by one independent pricing service with a corroborating recent trade. |
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2018 |
| | Senior Secured Loans - First Lien | | Senior Secured Loans - Second Lien | | Senior Secured Bonds | | Senior Unsecured Debt | | Subordinated Debt | | Equity and Other | | Total |
| Balance as of January 1, 2018 | $ | 197,008 |
| | $ | 66,464 |
| | $ | 8,273 |
| | $ | 21,313 |
| | $ | 14,923 |
| | $ | 231 |
| | $ | 308,212 |
|
Additions (1) | 90,075 |
| | 25,143 |
| | — |
| | 2,036 |
| | — |
| | 6,784 |
| | 124,038 |
|
Sales and repayments (2) | (63,733 | ) | | (25,661 | ) | | (5,081 | ) | | (22,546 | ) | | — |
| | (300 | ) | | (117,321 | ) |
Net realized gains (losses) (3) | 2,395 |
| | 525 |
| | 445 |
| | 1,823 |
| | — |
| | (1,586 | ) | | 3,602 |
|
Net change in unrealized appreciation (depreciation) on investments (4) | (2,190 | ) | | (1,427 | ) | | (235 | ) | | (917 | ) | | (19 | ) | | 1,783 |
| | (3,005 | ) |
| Net discount accretion | 610 |
| | 85 |
| | 11 |
| | 34 |
| | 19 |
| | — |
| | 759 |
|
| Restructuring | — |
| | — |
| | (3,413 | ) | | 14,923 |
| | (14,923 | ) | | 3,413 |
| | — |
|
Transfers into Level 3 (5) (6) | 28,223 |
| | 3,068 |
| | — |
| | — |
| | — |
| | — |
| | 31,291 |
|
Transfers out of Level 3 (5) (7) | (47,830 | ) | | (16,299 | ) | | — |
| | — |
| | — |
| | — |
| | (64,129 | ) |
| Fair value balance as of December 31, 2018 | $ | 204,558 |
| | $ | 51,898 |
| | $ | — |
| | $ | 16,666 |
| | $ | — |
| | $ | 10,325 |
| | $ | 283,447 |
|
| Change in net unrealized depreciation on investments held as of December 31, 2018 | $ | (1,990 | ) | | $ | (1,337 | ) | | $ | — |
| | $ | (241 | ) | | $ | — |
| | $ | (102 | ) | | $ | (3,670 | ) |
| |
| (1) | Includes increases in the cost basis of investments resulting from new and incremental portfolio investments, including the capitalization of PIK income. |
| |
| (2) | Includes principal payments/paydowns on debt investments and proceeds from sales of investments. |
| |
| (3) | Included in net realized gains (losses) on investments on the consolidated statements of operations. |
| |
| (4) | Included in net change in unrealized appreciation (depreciation) on investments on the consolidated statements of operations. |
| |
| (5) | The Master Fund transfers investments in and out of Level 1, 2 and 3 securities at the value of the investment as of the beginning of the period based on changes in the use of observable inputs utilized to perform the valuation for the period. |
| |
| (6) | For the year ended December 31, 2016,2018, investments were transferred from Level 2 to Level 3 as valuation coverage was reduced to one investment wasindependent pricing service. |
| |
| (7) | For the year ended December 31, 2018, investments were transferred from Level 3 to Level 2 as valuation coverage was initiated by one or more independent pricing services. |
| |
(7) | For the year ended December 31, 2016, one investment was transferred from Level 2 to Level 3 as valuation coverage was reduced by one independent pricing service. |
Notes to Consolidated Financial Statements
The following table presents a roll-forward in the fair value changes for all investments for which the Master Fund determines fair value using Level 3 unobservable inputs for the year ended December 31, 2015 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Senior Secured Loans - First Lien | | Senior Secured Loans - Second Lien | | Senior Secured Bonds | | Subordinated Debt | | Equity / Other | | Total |
| Balance as of January 1, 2015 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Additions (1) | 21,170 |
| | 1,568 |
| | 8,003 |
| | — |
| | 1,849 |
| | 32,590 |
|
Net realized gains (2) | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Net change in unrealized appreciation (depreciation) on investments (3) | 98 |
| | 8 |
| | (1,192 | ) | | — |
| | (1,378 | ) | | (2,464 | ) |
Sales or repayments (4) | (82 | ) | | — |
| | — |
| | — |
| | — |
| | (82 | ) |
| Net discount accretion | 13 |
| | — |
| | 16 |
| | — |
| | — |
| | 29 |
|
| Fair value balance as of December 31, 2015 | $ | 21,200 |
| | $ | 1,576 |
| | $ | 6,827 |
| | $ | — |
| | $ | 471 |
| | $ | 30,074 |
|
| Change in net unrealized appreciation (depreciation) on investments held as of December 31, 2015 | $ | 98 |
| | $ | 8 |
| | $ | (1,192 | ) | | $ | — |
| | $ | (1,378 | ) | | $ | (2,464 | ) |
______________
| |
(1) | Includes increases in the cost basis of investments resulting from new and incremental portfolio investments, including the capitalization of PIK dividend income. |
| |
(2) | Included in net realized gain from investments in the consolidated statements of operations. |
| |
(3) | Included in net change in unrealized appreciation on investments in the consolidated statements of operations. |
| |
(4) | Includes principal payments/paydowns on debt investments and proceeds from sales of investments. |
Financial Instruments Disclosed, But Not Carried Atat Fair Value
The carryingfair value of the credit facility payable, approximates its fair value and it is considered to be classifiedwhich would have been categorized as a Level 3 liability inwithin the fair value hierarchy.hierarchy as of December 31, 2019, approximates its carrying value.
Note 6. Related Party Agreements and Transactions
The Advisor,Master Fund is affiliated with Guggenheim Credit Income Fund 2016 T ("GCIF 2016T") and Guggenheim Credit Income Fund 2019 ("GCIF 2019") (together, the "Feeder Funds"). The membership of the Boards of Trustees for the Master Fund, GCIF 2016T and GCIF 2019 are identical. The Feeder Funds have invested, and/or intend to invest, substantially all of the proceeds from their public offerings of common shares in the acquisition of the Master Fund's Common Shares.
Two of the Master Fund’s executive officers, Kevin Robinson, Senior Vice President and Brian Binder, Senior Vice President, serve as executive officers of Guggenheim. All of the Master Fund's executive officers also serve as executive officers of the Feeder Funds.
Guggenheim and/or its affiliates and/or GPIM may receive, as applicable, compensation for (i) investment advisory services, (ii) reimbursement of expenses in connection with investment advisory activities, administrative services and organizing the Master Fund and (iii) capital markets services in connection with the raising of equity capital for feeder fundsFeeder Funds affiliated with the Master Fund, and (iv) lending capital to the Master Fund.
All of the Master Fund’s executive officers, except its chief executive officer and chief compliance officer, also serve as executive officers of the Advisor. Its chief executive officer also serves as chief executive officer of WPC, the Advisor's ultimate parent.
Related Party Capital Contributions and Ownership of Common Shares
On December 19, 2014, the Master Fund entered into a capital contribution agreement for the sale of 2,777,778 Common Shares to the Advisor for consideration of $25.0 million. The Advisor periodically receives distributions in connection with its ownership of Common Shares.
The Master Fund is also affiliated with Carey Credit Income Fund 2016 T ("CCIF 2016T"), Carey Credit Income Fund - I ("CCIF-I"), and Carey Credit Income Fund 2018 T ("CCIF 2018T"), three feeder funds, whose registration statements enable each feeder fund to issue up to $1 billion in Common Shares, initially became effective on July 24, 2015, July 31, 2015 and October 3, 2016, respectively. The membership of the Boards of Trustees for the Master Fund, CCIF 2016T, CCIF-I and CCIF 2018T are identical. The feeder funds, have invested, and/or intend to continue to invest, substantially all of the proceeds from their public offerings of their Common Shares in the acquisition of the Master Fund's Common Shares.
Investment Advisory Agreements and Compensation of the Advisors
On February 27, 2015, the Master Fund entered into (i) an investment advisory agreement (the "Investment Advisory Agreement") with the Advisor and (ii) an investment sub-advisory agreement (the "Investment Sub-Advisory Agreement") with the Advisor and GPIM. Under the Investment Advisory Agreement, the Master Fund agreed to pay the Advisor an investment advisory fee consisting of two components: (i) a base management fee and (ii) a performance-based incentive fee. Under themore fully discussed below.
Notes to Consolidated Financial Statements
Investment Sub-AdvisoryAdvisory Agreements and Compensation of the Advisor
The Master Fund is party to an Investment Advisory Agreement with Guggenheim, pursuant to which the Advisor directly compensates GPIM for itsMaster Fund agreed to pay Guggenheim an investment sub-advisory services. In addition, the Advisors areadvisory fee consisting of two components: (i) a management fee and (ii) a performance-based incentive fee. Guggenheim continues to be entitled to reimbursement of certain expenses incurred on behalf of the Master Fund in connection with investment operations and investment transactions.
Management Fee:Fees: The management fee (recorded as investment advisory fee) is calculated at the followingan annual ratesrate of 1.75% based on the simple average of the Master Fund's gross assets at the end of the two most recently completed calendar months and it is payable monthly in arrears:
Annual Rate for Management Fee
•2.000% on the portion of the Master Fund's gross assets below $1 billion;
•1.875% on the portion of Master Fund's gross assets between $1 billion and $2 billion; and
•1.750% on the portion of gross assets above $2 billion.arrears.
Performance-based Incentive Fee: The performance-based incentive fee consists of two parts: (i) an incentive fee on income and (ii) an incentive fee on capital gains.
| |
| (i) | The incentive fee on income is paid quarterly, if earned; it is computed as the sum of (A) 100% of quarterly pre-incentive fee net investment income in excess of 1.875% of average adjusted capital up to a limit of 2.344% of average adjusted capital, and (B) 20% of pre-incentive fee net investment income in excess of 2.344% of average adjusted capital, andcapital. |
| |
| (ii) | The incentive fee on capital gains is paid annually, if earned; it is equal to 20% of realized capital gains on a cumulative basis from inception, net of (A) all realized capital losses and unrealized depreciation on a cumulative basis from inception, and (B) the aggregate amount, if any, of previously paid incentive fees on capital gains. |
All fees are computed in accordance with a detailed fee calculation methodology as approved by the Board of Trustees. On February 27, 2015,
The Investment Advisory Agreement may be terminated at any time, without the Advisor permanently waived all investment advisory and performance-based incentive fees underpayment of any penalty: (i) by the terms ofMaster Fund upon 60 days' written notice to Guggenheim, or (ii) by Guggenheim upon not less than 120 days' written notice to the Master Fund. In the event that the Investment Advisory Agreement throughis terminated by Guggenheim, and including October 7, 2015.
if the Independent Trustees elect to continue the Master Fund, then Guggenheim shall pay all direct expenses incurred by the Master Fund as a result of Guggenheim's withdrawal, up to, but not exceeding $250,000. Unless earlier terminated, the Investment Advisory Agreement and the Investment Sub-Advisory Agreement will remain in effect for a period of two years from the date they first become effectiveon which the Master Fund's shareholders approved the Investment Advisory Agreement and will remain in effect year to year thereafter if approved annually (i) by a majority of the Master Fund's Independent Trustees and either(ii) the Master Fund's Board of Trustees or the holders of a majority of the Master Fund's outstanding voting securities.
Administrative Services Agreement
On October 3, 2016, theThe Master Fund entered into an amended and restated administrative services agreement with the Advisor,Guggenheim (the "Administrative Services Agreement") whereby the AdvisorGuggenheim agreed to provide administrative services to the Master Fund, including office facilities and equipment, and clerical, bookkeeping and record-keeping services. More specifically, the Advisor,Guggenheim, serving as the administrator (the "Administrator"), performs and oversees the Master Fund's required administrative services, which includeincluded financial and corporate record-keeping, preparing and disseminating the Master Fund's reports to its shareholders and filing reports with the SEC. In addition, the Administrator assists in determining net asset value, overseesoverseeing the preparation and filing of tax returns, overseesoverseeing the payment of expenses and distributions and overseesoverseeing the performance of administrative and professional services fees rendered by others. For providing these services, facilities and personnel, the Master Fund reimburses the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administrative Services Agreement. Prior to October 7, 2015,To the extent that the Administrator outsources any of its functions, the Master Fund had no obligationmay pay the fees associated with such functions on a direct basis, without incremental profit to reimbursethe Administrator.
The Administrative Services Agreement may be terminated at any time, without the payment of any penalty: (i) by the Master Fund upon 60 days' written notice to the Administrator for any servicesupon the vote of the Master Fund's Independent Trustees, or other expenses incurred directly by the Advisor or its affiliates, excluding any expenses of third-party service providers incurred(ii) by the Administrator or its affiliates onupon not less than 120 days' written notice to the Master Fund's behalf.
Fund. Unless earlier terminated, the Administrative Services Agreement will remain in effect for a period of two years, from the date it first becomes effective and will remain in effect year to year thereafter shall continue automatically for successive one-year periods if approved annually by a majority of the Master Fund's Board of Trustees and the Master Fund's Independent Trustees.
Organization and Offering Costs
On August 17, 2015, the Master Fund entered into an organization and offering expense reimbursement agreement (the "O&O Agreement") with the Advisor and GPIM. Under the O&O Agreement the Master Fund reimburses the Advisor and GPIM for costs incurred on the Master Fund's behalf, including, but not limited to, legal services, audit services, printer services, and the registration of securities under the Exchange Act. The reimbursement of organization and offering expenses is conditional on the raise of equity capital from the sale of Master Fund's Common Shares. Any such reimbursements will not exceed actual expenses incurred by the Advisors, and the Advisors will be responsible for the payment of the Master Fund's cumulative organization and offering expenses to the extent they exceed 1.5% of the aggregate proceeds from the sale of the Master Fund's Common Shares, without recourse against or reimbursement by the Master Fund. As of December 31, 2016 the Master Fund had reimbursed the Advisors for all organization and offering costs incurred. The Advisors waived reimbursement in connection with equity raised during the months of November and December 2015 and the reimbursement waiver expired on December 31, 2015.
Notes to Consolidated Financial Statements
Dealer Manager Agreement
On July 17, 2015, theThe Master Fund entered into an amended and restatedfund is party to a dealer manager agreement, as amended (the "Dealer Manager Agreement") with Carey Financial,Guggenheim Funds Distributors, LLC a Delaware limited liability company (the "Dealer Manager"("GFD"), CCIF 2016T and CCIF-I. The Dealer Manager Agreement was updated to include CCIF 2018T on October 3, 2016. The Dealer Manager is an affiliate of the Advisor.Guggenheim. Under the terms of the Dealer Manager Agreement, the Dealer ManagerGFD is to act on a best efforts basis as the exclusive dealer manager for (i) CCIFGCIF 2016T's CCIF 2018T's and CCIF-I'sGCIF 2019's public offerings of common shares and (ii) the public offering of common shares for future feeder funds affiliated with the Master Fund. Each feeder fund, not theThe Master Fund is not responsible for the compensation of the Dealer ManagerGFD pursuant to the terms of the Dealer Manager Agreement; therefore, fees compensating the Dealer ManagerGFD are not presented in this periodic report.
Promissory Notes
In 2015, As to a Feeder Fund, the Master Fund's Board of Trustees and WPC's board of directors approved unsecured loansDeal Manager Agreement may be terminated by a Feeder Fund or GFD upon 60 calendar days' written notice to the Master Fund of up to $50.0 million in the aggregate (the "Promissory Notes"). The unpaid principal balanceother party.
Capital Structuring Fees and accrued interest thereon was due and payable on December 30, 2015. On December 17, 2015, the Company repaid all outstanding balances under the Promissory Notes.
StructuringAdministrative Agency Fees
The AdvisorsGuggenheim and its affiliates are obligated to remit to the CompanyMaster Fund any earned capital structuring fees and administrative agency fees (i.e. loan administration fees) based on the Company’sMaster Fund's pro rata portion of the co-investment transactions or originated investments in which the CompanyMaster Fund participates.
Summary of Related Party Transactions for the Years Ended December 31, 2016, December 31, 2015 and December 31, 2014
The following table presents the related party fees, expenses and transactions for the years ended December 31, 2016, 2019, December 31, 20152018 and December 31, 2014 (in thousands):2017:
|
| | | | | | | | | | | | | | |
| | | | | Year Ended | | Year Ended | | Year Ended |
| Related Party | | Source Agreement & Description | | December 31, 2016 | | December 31, 2015 | | December 31, 2014 |
| Advisor | | Investment Advisory Agreement - investment advisory fee, net of waivers (1)(2) | | $ | 3,473 |
| | $ | 402 |
| | $ | — |
|
| Advisor | | Administrative Services Agreement - expense reimbursement (3) | | 384 |
| | 245 |
| | — |
|
| Advisor | | Issuance of Common Shares | | — |
| | — |
| | 25,000 |
|
| CCIF-I | | Issuance of Common Shares | | 19,191 |
| | 125 |
| | — |
|
| CCIF 2016T | | Issuance of Common Shares | | 104,949 |
| | 2,235 |
| | — |
|
| Advisors | | O&O Agreement - organization cost reimbursements | | 228 |
| | — |
| | — |
|
| Advisors | | O&O Agreement - offering cost reimbursements | | 120 |
| | — |
| | — |
|
| Trustee Fees | | Amended and Restate Bylaws - trustee fees and expenses | | 367 |
| | 103 |
| | — |
|
| WPC Holdco LLC | | Promissory Notes - principal and interest | | — |
| | 33,188 |
| | — |
|
| GPIM | | Co-Investment Exemptive Relief Order - Reimbursement of Structuring Fees | | 157 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | |
Related Party (1) (2) | | | | For the Years Ended December 31, |
| | Source Agreement & Description | | 2019 | | 2018 | | 2017 |
| | | Expenses: | | | | | | |
| CCA & Guggenheim | | Prior Investment Advisory Agreement - management fee | | $ | — |
| | $ | — |
| | $ | 5,229 |
|
| Guggenheim | | Investment Advisory Agreement - management fee | | 6,889 |
| | 7,195 |
| | 2,167 |
|
| CCA & Guggenheim | | Prior Administrative Services Agreement - expense reimbursement | | — |
| | — |
| | 303 |
|
| Guggenheim | | Administrative Services Agreement - expense reimbursement | | 818 |
| | 645 |
| | 168 |
|
| | | Income: | | | | | | |
| Guggenheim | | Share on capital structuring fees and administrative agency fees | | 271 |
| | 164 |
| | 371 |
|
| WPC & Guggenheim | | Reimbursement of advisor transition costs
| | — |
| | — |
| | 798 |
|
______________________________________________
| |
| (1) | No investment advisory fee was waived forRelated party transactions not included in the year ended December 31, 2016. Waived investment advisory fee fortable above consist of Independent Trustees fees and expenses and sales and repurchase of the year ended December 31, 2015 was $0.9 million.Master Fund Shares to/from affiliated Feeder Funds as disclosed in the Master Fund's consolidated statements of operations and consolidated statements of changes in net assets, respectively. |
| |
| (2) | During the years endedAs of December 31, 20162019 and December 31, 2015, none of2018, the Master Fund's accumulated unrealized depreciation exceeded its accumulated net realized capital gains and therefore, Guggenheim did not earn any performance-based incentive fee was payable toduring the Advisors and therefore recorded performance-based incentive fee is not included in the table above. See Note 2. Significant Accounting Policies - Management Fees. |
| |
(3) | Administrative Services Agreement - expense reimbursement includes amounts paid to the Advisor for the reimbursement of prepaid insurance costs initially paid by the Advisor foryear. During the year ended December 31, 2015.2017, Guggenheim contractually earned and subsequently waived, an incentive fee on capital gains in the amount of less than $0.1 million. |
Co-Investment Transactions Exemptive Relief
On June 28, 2016 theThe Master Fund was granted aan SEC exemptive order which grants the Master Fund exemptive relief permitting the Master Fund, subject to the satisfaction of specific conditions and requirements, to co-invest in privately negotiated investment transactions with certain affiliates of the Advisors.Guggenheim.
Indemnification
Notes to Consolidated Financial Statements
The Investment Advisory Agreement, Investment Sub-Advisory Agreement and Administrative Services Agreement provide certain indemnifications to the Advisors, theirGuggenheim, its directors, officers, persons associated with the Advisors,Guggenheim and theirits affiliates, including the administrator. In addition, the Master Fund's Declaration of Trust, as amended, provides certain indemnifications to its officers, trustees, agents and certain other persons. As of December 31, 2016,2019, management believes that the risk of incurring any losses for such indemnifications is remote.
Notes to Consolidated Financial Statements
Note 7. Borrowings
Hamilton Credit Facility
On December 17, 2015, Hamilton initially entered into a senior-secured term loan, as amended (the “Hamilton Credit Facility”) with JPMorgan Chase Bank, National Association ("JPM"), as administrative agent, each of the lenders from time to time party thereto, and U.S. Bank National Association, as collateral agent, collateral administrator and securities intermediary. TheAs of December 31, 2019, the Hamilton Credit Facility providesprovided for (i) borrowings in an aggregate principal amount of $175.0 million on a committed basis, with(ii) a revolving feature on all amounts above the minimum utilization amount, (iii) an overall four-year term and a three-year draw-down term; all loan advances and all accrued and unpaid interest thereunder will be due and payable on December 17, 2019. The interest rate is 3 month LIBOR+2.65% per annumof 3-month LIBOR +2.50%, (iv) a draw-down term which ends December 29, 2021, (v) a stated maturity date of December 29, 2022, (vi) undrawn fees payable during the draw-down term of 250 basis points on all undrawn amounts below the minimum utilization amount and interest is(vii) unused commitment fees payable quarterly in arrears.during the draw-down term of 100 basis points on all undrawn amounts above the minimum utilization amount. All investments owned by, and all cash on hand with, Hamilton are held as collateral for the Hamilton Credit Facility. As of December 31, 2016,
Hamilton was in compliance with all material terms and covenants related to the Hamilton Credit Facility. Hamilton incurred certain customary costs and expenses in connection with obtainingJPM amended the Hamilton Credit Facility on June 29, 2018 to, among other things, (i) extend the term from December 17, 2019 to December 29, 2022, (ii) extend the draw-down term from December 17, 2018 to December 29, 2021, (iii) reduce the interest rate from 3-month LIBOR +2.65% per annum to 3-month LIBOR +2.50% per annum, (iv) include a revolving feature on all amounts above the minimum utilization amount and (v) reduce the loan agreement provides for conditional undrawn fees and unused commitment fees.
During the period between June 17, 2016 and September 16, 2016, Hamilton was subject to an undrawn fee ofcharged on all amounts below the facility's minimum utilization amount from 265 basis points per annum on the amount of (i) $100 million less (ii) the outstanding loan amount. Beginning on September 17, 2016 and ending December 16, 2018, Hamilton is subject to an undrawn fee of 265250 basis points per annum on the amount, if any, of (i) $150 million less (ii) the outstanding loan amount. In the period commencing September 17, 2016 and ending December 17, 2018, Hamilton is obligated to pay an annual unused commitment fee of 100 basis points on the difference, if any, between $175 million and the greater of (i) the outstanding loan amount and (ii) $150 million.annum.
Hamilton's borrowings as of December 31, 20162019 and December 31, 20152018 were as follows (in thousands):follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | Hamilton Credit Facility - Borrowing Summary |
| As of | Total Principal Amount Committed | | Principal Amount Outstanding | | Carrying Value (1) | | Interest Rate (2) | | Maturity Date | | Maturity Term |
| December 31, 2016 | $ | 175,000 |
| | $ | 126,000 |
| | $ | 124,505 |
| | 3.64 | % | | 12/17/19 | | 3.0 |
| years |
| December 31, 2015 | $ | 175,000 |
| | $ | 39,000 |
| | $ | 37,038 |
| | 3.18 | % | | 12/17/19 | | 4.0 |
| years |
|
| | | | | | | | | | | | | | | | | | | | |
| | Hamilton Credit Facility - Borrowing Summary |
| As of | Principal Amount Committed | | Principal Amount Outstanding | | Carrying Value (1) | | Interest Rate (2) | | Maturity Date | | Maturity Term |
| December 31, 2019 | $ | 175,000 |
| | $ | 172,000 |
| | $ | 170,862 |
| | 4.40 | % | | 12/29/22 | | 3.0 |
| years |
| December 31, 2018 | $ | 175,000 |
| | $ | 150,000 |
| | $ | 148,482 |
| | 5.29 | % | | 12/29/22 | | 4.0 |
| years |
_______________________________________
| |
| (1) | Carrying value is equal to outstanding principal amount net of unamortized financing costs. |
| |
| (2) | Interest rate as of the end of the reporting period (3-month LIBOR+2.65%)LIBOR +2.50% as of December 31, 2019 and the base interest rate (i.e.3-month LIBOR) areDecember 31, 2018) is subject to quarterly changes.reset. Interest rate is calculated as the weighted average interest rates of all tranches currently outstanding. Interest rate does not include the amortization of upfront fees, undrawn or unused fees and expenses that were incurred in connection with the Hamilton Credit Facility. |
The components of the Master Fund's interest expense and other financing costs for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 were as follows:
|
| | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Stated interest expense | | $ | 8,023 |
| | $ | 7,193 |
| | $ | 5,593 |
|
| Unused/undrawn fees | | 149 |
| | 253 |
| | 459 |
|
| Amortization of deferred financing costs | | 380 |
| | 439 |
| | 483 |
|
| Total interest expense | | $ | 8,552 |
| | $ | 7,885 |
| | $ | 6,535 |
|
| Average borrowings | | $ | 160,312 |
| | $ | 150,000 |
| | $ | 142,615 |
|
| | | | | | | |
Weighted average interest rate (1) | | 5.03 | % | | 4.90 | % | | 4.19 | % |
| Amortized financing costs | | 0.23 | % | | 0.29 | % | | 0.33 | % |
| Total borrowing cost | | 5.26 | % | | 5.19 | % | | 4.52 | % |
_________________
| |
| (1) | Calculated as the amount of the stated interest expense and undrawn or unused fees divided by the average borrowings during the reporting period. |
Notes to Consolidated Financial Statements
Note 8. Commitments and Contingencies
The amounts associated with unfunded commitments to provide funds to portfolio companies are not recorded in the Master Fund’s consolidated statements of assets and liabilities. Since these commitments and the associated amounts may expire without being drawn upon, the total commitment amount does not necessarily represent a future cash requirement. As of December 31, 20162019 and December 31, 2015,2018, the Master Fund’s unfunded commitments consisted of the following (in thousands):following:
|
| | | | | | | | |
Category / Portfolio Company (1) | | December 31, 2016 | | December 31, 2015 |
| Unfunded Delayed Draw Loans: | | | | |
| Med Intermediate (Delayed Draw) | | $ | 1,631 |
| | $ | — |
|
| National Technical Systems, Inc. (Delayed Draw) | | 765 |
| | 765 |
|
| Pet Holdings ULC (Delayed Draw) | | 500 |
| | — |
|
| Total Unfunded Delayed Draw Loans | | 2,896 |
| | 765 |
|
| | | | | |
| Unfunded Revolvers: | | | | |
| Dominion Marine (Revolver) | | 1,000 |
| | — |
|
| Humanetics (Revolver) | | 400 |
| | — |
|
| Onyx CenterSource (Revolver) | | 329 |
| | — |
|
| Parts Town, LLC (Revolver) | | 900 |
| | — |
|
| Total Unfunded Revolvers | | 2,629 |
| | — |
|
| | | | | |
| Other Unfunded Commitments | | | | |
| Grinding Media Inc. | | 6,200 |
| | — |
|
| Total Other Unfunded Commitments | | 6,200 |
| | — |
|
| Total Unfunded Commitments | | $ | 11,725 |
| | $ | 765 |
|
|
| | | | | | | | |
| | | Total Unfunded Commitments |
Category / Portfolio Company (1) | | December 31, 2019 | | December 31, 2018 |
| Aceto Chemical (Revolver) | | $ | 800 |
| | $ | — |
|
| Acquia Inc. (Revolver) | | 211 |
| | — |
|
Alexander Mann Solutions (Revolver) (2) | | 446 |
| | 446 |
|
| Apptio, Inc. (Revolver) | | 326 |
| | 326 |
|
| Bluefin Holding, LLC (Revolver) | | 132 |
| | — |
|
| Boats Group (Revolver) | | 1,000 |
| | 1,000 |
|
| GAL Manufacturing (Revolver) | | 260 |
| | 384 |
|
| Galls LLC (Delayed Draw) | | 1,518 |
| | 1,644 |
|
| Galls LLC (Revolver) | | 113 |
| | 326 |
|
Gladman Developments Ltd. (Delayed Draw) (2) | | 706 |
| | 1,648 |
|
| Lytx, Inc. (Revolver) | | 368 |
| | 368 |
|
| Mavis Tire Express Services Corp. (Delayed Draw) | | 319 |
| | 435 |
|
| Mavis Tire Express Services Corp. (Revolver) | | 189 |
| | 217 |
|
| Onyx CenterSource (Revolver) | | 329 |
| | 329 |
|
| PSI Services LLC (Delayed Draw) | | 239 |
| | — |
|
| PSI Services LLC (Delayed Draw) | | 168 |
| | — |
|
| PSI Services LLC (Revolver) | | 269 |
| | — |
|
| Seal For Life Industries US LLC (Revolver) | | 390 |
| | — |
|
SLR Consulting (Delayed Draw) (2) | | — |
| | 534 |
|
| Trader Interactive (Revolver) | | 346 |
| | 346 |
|
| Velocity Holdings US (Revolver) | | — |
| | 115 |
|
| Wind River Systems (Bridge Loan) | | — |
| | 353 |
|
| Total Unfunded Commitments | | $ | 8,129 |
| | $ | 8,471 |
|
______________________
| |
| (1) | May pertain to commitments to one or more entities affiliated with the named portfolio company. |
As of December 31, 2016, the Master Fund’s unfunded commitments have increased in fair value by $0.1 million which is recorded on the consolidated schedule of investments and included in investments at fair value on the consolidated statements of assets and liabilities. The Master Fund and Hamilton have sufficient liquidity to fund these commitment should the funding requirement occur.
Note 9. Earnings Per Common Share
The following information sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations (i.e. earnings (loss) per Common Share) for the years ended December 31, 2016 and December 31, 2015 (in thousands, except share and per share data):
|
| | | | | | | | |
| | | Year Ended | | Year Ended |
| | | December 31, 2016 | | December 31, 2015 |
| Net increase (decrease) in net assets resulting from operations | | $ | 10,908 |
| | $ | (3,953 | ) |
| Basic and diluted weighted average Common Shares outstanding | | 12,370,464 |
| | 5,571,531 |
|
Earnings (loss) per Common Share - basic and diluted (1) | | $ | 0.88 |
| | $ | (0.71 | ) |
______________________
| |
(1)(2) | Earnings (loss) per Common Share, both basicThis commitment is in foreign currency and diluted, were equivalent duringhas been converted to USD using the period because there were no Common Share equivalents outstanding during the period.December 31, 2019 and December 31, 2018 exchange rates, respectively. |
Indemnification
In the normal course of business, the Master Fund enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Master Fund's maximum exposure under these arrangements is unknown, as these involve future claims that may be made against the Master Fund but that have not occurred. The Master Fund expects the risk of any future obligations under these indemnifications to be remote.
Notes to Consolidated Financial Statements
Note 10.9. Financial Highlights
The following per Common Share data and financial ratios have been derived from information provided in the consolidated financial statements. The following is a schedule of financial highlights during the years ended December 31, 2019, December 31, 2018, December 31, 2017, December 31, 2016and December 31, 2015 (in thousands, except share and per share amounts):2015:
| | | | Year Ended | | Year Ended | For the Years Ended December 31, |
| | December 31, 2016 | | December 31, 2015 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
PER COMMON SHARE OPERATING PERFORMANCE (1) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 8.00 |
| | $ | 9.00 |
| $ | 8.09 |
| | $ | 8.52 |
| | $ | 8.47 |
| | $ | 8.00 |
| | $ | 9.00 |
|
Net investment income | 0.21 |
| | 0.30 |
| 0.63 |
| | 0.64 |
| | 0.50 |
| | 0.21 |
| | 0.30 |
|
| Net realized gain on investments | 0.05 |
| | 0.01 |
| |
Net unrealized gain (loss) (2) | 0.45 |
| | (1.01 | ) | |
Net realized gains (losses) (1) | | (0.25 | ) | | 0.24 |
| | 0.12 |
| | 0.05 |
| | 0.01 |
|
Net change in unrealized appreciation (depreciation) (2) | | (0.09 | ) | | (0.47 | ) | | 0.02 |
| | 0.45 |
| | (1.01 | ) |
| Net increase (decrease) resulting from operations | 0.71 |
| | (0.70 | ) | 0.29 |
| | 0.41 |
| | 0.64 |
| | 0.71 |
| | (0.70 | ) |
Distributions to Common Shareholders (3) | | | | | | | | | | | | |
| Distributions from net investment income | (0.17 | ) | | (0.30 | ) | (0.59 | ) | | (0.63 | ) | | (0.49 | ) | | (0.17 | ) | | (0.30 | ) |
| Distributions from realized gains | (0.04 | ) | | — |
| (0.01 | ) | | (0.21 | ) | | (0.07 | ) | | (0.04 | ) | | — |
|
| Distributions in excess of net investment income | (0.03 | ) | | — |
| — |
| | — |
| | (0.03 | ) | | (0.03 | ) | | — |
|
| Net decrease resulting from distributions | (0.24 | ) | | (0.30 | ) | (0.60 | ) | | (0.84 | ) | | (0.59 | ) | | (0.24 | ) | | (0.30 | ) |
| Net asset value, end of year | $ | 8.47 |
| | $ | 8.00 |
| $ | 7.78 |
| | $ | 8.09 |
| | $ | 8.52 |
| | $ | 8.47 |
| | $ | 8.00 |
|
| | | | | | | | | | | | | |
| INVESTMENT RETURNS | | | | | | | | | | | | |
Total investment return (4) | 9.14 | % | | (7.91 | )% | 3.55 | % | | 4.87 | % | | 7.80 | % | | 9.14 | % | | (7.91 | )% |
| | | | | | | | | | | | | |
| RATIOS/SUPPLEMENTAL DATA | | | | | | | | | | | | |
| Net assets, end of year | $ | 178,066 |
| | $ | 46,704 |
| $ | 211,197 |
| | $ | 236,232 |
| | $ | 248,481 |
| | $ | 178,066 |
| | $ | 46,704 |
|
Average net assets (5) | $ | 101,825 |
| | $ | 49,119 |
| $ | 229,144 |
| | $ | 247,249 |
| | $ | 233,765 |
| | $ | 101,825 |
| | $ | 49,119 |
|
| Common Shares outstanding, end of year | 21,016,797 |
| | 5,840,060 |
| 27,157,534 |
| | 29,195,002 |
| | 29,151,096 |
| | 21,016,797 |
| | 5,840,060 |
|
| Weighted average Common Shares outstanding | 12,370,464 |
| | 5,571,531 |
| 28,730,579 |
| | 29,163,651 |
| | 27,524,615 |
| | 12,370,464 |
| | 5,571,531 |
|
| | | | | | | | | | | | | |
Ratios-to-average net assets: (5) | | | | | | | | | | | | |
| Total expenses before incentive fee waiver and reimbursement of advisor transition costs | | 7.87 | % | | 6.55 | % | | 7.70 | % | | 9.65 | % | | 5.16 | % |
| Effect of incentive fee waiver and reimbursement of advisor transition costs | | — | % | | — | % | | (0.35 | )% | | — | % | | (1.78 | )% |
| Total expenses | | 7.87 | % | | 6.55 | % | | 7.35 | % | | 9.65 | % | | 3.38 | % |
| Net investment income | 2.53 | % | | 3.45 | % | 7.88 | % | | 7.51 | % | | 5.88 | % | | 2.53 | % | | 3.45 | % |
| Total expenses (excluding investment advisory fee waiver) | 9.65 | % | | 5.16 | % | |
| Effect of investment advisory fee waiver | — | % | | (1.77 | )% | |
| Net expenses | 9.65 | % | | 3.38 | % | |
| | | | | | | | | | | | | |
Average outstanding borrowings (5) | $ | 67,000 |
| | $ | 16,385 |
| $ | 160,312 |
| | $ | 150,000 |
| | $ | 142,615 |
| | $ | 67,000 |
| | $ | 16,385 |
|
Portfolio turnover rate (5)(6) | 51 | % | | 39 | % | |
Portfolio turnover rate (5) (6) | | 20 | % | | 49 | % | | 43 | % | | 51 | % | | 39 | % |
Asset coverage ratio (7) | 2.41 |
| | 2.15 |
| 2.23 |
| | 2.57 |
| | 2.66 |
| | 2.41 |
| | 2.15 |
|
_____________________
| |
| (1) | The per Common Share data was derived by using the weighted average Common Shares outstanding during the period.period presented. |
| |
| (2) | The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption for a Common Share outstanding throughout the periodyear may not agree with the change in the aggregate gainsappreciation and lossesdepreciation in portfolio securities for the periodyear because of the timing of sales of the Master Fund’s Common Shares in relation to fluctuating market values for the portfolio. |
Notes to Consolidated Financial Statements
| |
| (3) | The per Common Share data for distributions is the actual amount of distributions paid or payabledeclared per Common Share outstanding during the entire period;year; distributions per Common Share are rounded to the nearest $0.01. For income tax purposes, distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital or a combination thereof, based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP. As of December 31, 2019, the Master Fund estimated distributions to be composed of either ordinary income or capital gains. The final determination of the tax character of distributions will not be made until we file our tax return. |
Notes to Consolidated Financial Statements
| |
| (4) | Total investment return is a measure of total return for shareholders, assuming the purchase of the Master Fund’s Common Shares at the beginning of the period and the reinvestment of all distributions declared during the period. More specifically, total investment return is based on (i) the purchase of Common Shares at net asset value on the first day of the period,year, (ii) the sale at the net asset value per Common Share on the last day of the period,year, of (A) all purchased Common Shares plus (B) any fractional Common Shares issued in connection with the reinvestment of distributions and (iii) distributions payable relating to onethe ownership of Common Share,Shares, if any, on the last day of the period.year. The total investment return calculation assumes that cash distributions are reinvested concurrent with the issuance of Common Shares at the the most recent transaction price on or prior to each distribution payment date. Since there is no public market for the Master Fund’s Common Shares, then the terminal sales price per Common Share is assumed to be equal to net asset value per Common Share on the last day of the period.year. Total investment return is not annualized. The Master Fund’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. |
| |
| (5) | The computation of average net assets, average outstanding borrowings and average value of portfolio securities during the periodyear is based on averaging the amount on the first day of the first month of the periodyear and the last day of each month during the period. |
| |
| (6) | Portfolio turnover is calculated as the lesser of (i) purchases of portfolio securities or (ii) the aggregate total of sales of portfolio securities plus any prepaymentsrepayments received divided by the monthly average of the value of investment portfolio securities owned by the Master Fund during the fiscal year.period. |
| |
| (7) | Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the periodyear and (B) total senior securities issued at the end of the period,year, divided by (ii) total senior securities at the end of the period. |
Note 11.10. Distributions
The following table summarizes the distributions that the Master Fund paiddeclared on its Common Shares during the years ended December 31, 2016 2019, December 31, 2018and December 31, 2015 (in thousands, except per Share amounts):2017:
|
| | | | | | | | | | |
| Record Date | | Payment Date | | Distribution Amount Per Common Share | | Cash Distribution |
| For Fiscal Year 2016 | | | | | | |
| March 28, 2016 | | March 29, 2016 | | $ | 0.04626 |
| | $ | 350 |
|
| August 30, 2016 | | August 31, 2016 | | $ | 0.05000 |
| | $ | 756 |
|
| September 27, 2016 | | September 28, 2016 | | $ | 0.12074 |
| | $ | 2,000 |
|
| December 27, 2016 | | December 28, 2016 | | $ | 0.02777 |
| | $ | 579 |
|
| | | | | | | |
| For Fiscal Year 2015 | | | | | | |
| June 30, 2015 | | August 14, 2015 | | $ | 0.02000 |
| | $ | 128 |
|
| October 1, 2015 | | October 2, 2015 | | $ | 0.13500 |
| | $ | 750 |
|
| December 29, 2015 | | December 30, 2015 | | $ | 0.14200 |
| | $ | 825 |
|
|
| | | | | | | | | | | | | | |
| Record Date | | Payment Date | | Distribution Per Common Share at Record Date | | Distribution Per Common Share at Payment Date | | Cash Distribution |
| For Calendar Year 2019 | | | | | | | | |
| January 7, 14, 21, 28 | | January 30 | | $ | 0.01346 |
| | $ | 0.05384 |
| | $ | 1,572 |
|
| February 4, 11, 18, 25 | | February 27 | | 0.01346 |
| | 0.05384 |
| | 1,572 |
|
| March 4, 11, 18, 25 | | March 27 | | 0.01346 |
| | 0.05384 |
| | 1,573 |
|
| April 1, 8, 15, 22, 29 | | May 1 | | 0.01346 |
| | 0.06730 |
| | 1,971 |
|
| May 6, 13, 20, 27 | | May 29 | | 0.01346 |
| | 0.05384 |
| | 1,576 |
|
| June 3, 10, 17, 24 | | June 26 | | 0.01346 |
| | 0.05384 |
| | 1,559 |
|
| July 1, 8, 15, 22, 29 | | July 31 | | 0.01346 |
| | 0.06730 |
| | 1,926 |
|
| August 5, 12, 19, 26 | | August 28 | | 0.00776 |
| | 0.03104 |
| | 888 |
|
| September 2, 9, 16, 23, 30 | | October 2 | | 0.00776 |
| | 0.03880 |
| | 1,110 |
|
| October 7, 14, 21 | | October 23 | | 0.00776 |
| | 0.02328 |
| | 666 |
|
| October 28, November 4, 11, 18 | | November 20 | | 0.01049 |
| | 0.04196 |
| | 1,170 |
|
| November 25, December 2, 9, 16, 23 | | December 26 | | 0.01200 |
| | 0.06000 |
| | 1,663 |
|
| | | | | | | $ | 0.59888 |
| | $ | 17,246 |
|
| | | | | | | | | |
| For Calendar Year 2018 | | | | | | | | |
| January 25 | | January 26 | | $ | 0.05832 |
| | $ | 0.05832 |
| | $ | 1,700 |
|
| February 22 | | February 23 | | 0.05832 |
| | 0.05832 |
| | 1,700 |
|
| March 22 | | March 23 | | 0.05832 |
| | 0.05832 |
| | 1,700 |
|
| April 19 | | April 20 | | 0.04803 |
| | 0.04803 |
| | 1,400 |
|
| May 24 | | May 25 | | 0.06861 |
| | 0.06861 |
| | 2,000 |
|
| June 21 | | June 22 | | 0.06861 |
| | 0.06861 |
| | 2,000 |
|
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | |
| July 26 | | July 27 | | 0.06861 |
| | 0.06861 |
| | 2,000 |
|
| August 23 | | August 24 | | 0.06861 |
| | 0.06861 |
| | 2,000 |
|
| September 4, 11, 18, 25 | | September 26 | | 0.01346 |
| | 0.05384 |
| | 1,570 |
|
| October 2, 9, 16, 23, 30 | | October 31 | | 0.01346 |
| | 0.06730 |
| | 1,962 |
|
| November 6, 13, 20, 27 | | November 28 | | 0.01346 |
| | 0.05384 |
| | 1,573 |
|
| December 3, 10, 17, 24 | | December 26 | | 0.01346 |
| | 0.05384 |
| | 1,573 |
|
| December 28 | | January 9, 2019 | | 0.10276 |
| | 0.10276 |
| | 3,000 |
|
| December 31 | | January 30, 2019 | | 0.01346 |
| | 0.01346 |
| | 394 |
|
| | | | | | | $ | 0.84247 |
| | $ | 24,572 |
|
| | | | | | | | | |
| For Calendar Year 2017 | | | | | | | | |
| January 31 | | February 1 | | 0.03015 |
| | $ | 0.03015 |
| | $ | 691 |
|
| February 28 | | March 1 | | 0.03300 |
| | 0.03300 |
| | 803 |
|
| March 28 | | March 29 | | 0.03101 |
| | 0.03101 |
| | 806 |
|
| April 28 | | May 1 | | 0.03900 |
| | 0.03900 |
| | 1,093 |
|
| May 30 | | May 31 | | 0.04603 |
| | 0.04603 |
| | 1,299 |
|
| June 29 | | June 30 | | 0.03852 |
| | 0.03852 |
| | 1,100 |
|
| July 25 | | July 27 | | 0.06877 |
| | 0.06877 |
| | 2,000 |
|
| August 29 | | August 30 | | 0.04437 |
| | 0.04437 |
| | 1,300 |
|
| September 26 | | September 27 | | 0.04437 |
| | 0.04437 |
| | 1,300 |
|
| October 30 | | October 31 | | 0.07500 |
| | 0.07500 |
| | 2,186 |
|
| November 27 | | November 28 | | 0.05489 |
| | 0.05489 |
| | 1,600 |
|
| December 21 | | December 22 | | 0.08576 |
| | 0.08576 |
| | 2,500 |
|
| | | | | | | $ | 0.59087 |
| | $ | 16,678 |
|
For income tax purposes, the CompanyMaster Fund estimates that its 20162019 calendar year distributions are fully covered by taxable income before the paid distributions deduction (see Note 12.11. Taxable/Distributable Income).
Note 12.11. Taxable/Distributable Income
Income and capital gain distributions are determined in accordance with the Code and federal tax regulations, which may differ from amounts determined in accordance with GAAP. The book-to-tax basis differences, which could be material, may be due to (i) differing treatments of income and gains on various investment securities held by the Master Fund and expenses incurred by the Master Fund and (ii) the transition of the Master Fund from non-RIC tax status to RIC tax status.Fund. Permanent book and taxbook-to-tax basis differences result in reclassifications to paid-in capital in excess of par value and undistributedaccumulated distributions in excess of net investment income. Undistributed (distributions in excess of) net investment income, accumulated net realized gains and accumulated net unrealized appreciation on investments, may include temporary book and tax basis differences which will reverse in subsequent periods.
As ofFor the years ended December 31, 20162019, December 31, 2018 and December 31, 2015,2017, the CompanyMaster Fund made the following reclassifications of permanent book and tax basis differences (in thousands):differences:
| | | | | | | | For the Years Ended December 31, |
| Capital Accounts | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Paid in capital in excess of par value | $ | (52 | ) | | $ | (15 | ) | $ | — |
| | $ | (1 | ) | | $ | (67 | ) |
| Undistributed net investment income | 52 |
| | 15 |
| (707 | ) | | 1,062 |
| | 67 |
|
| Accumulated realized gains | | 707 |
| | (1,061 | ) | | — |
|
| Total | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | — |
|
Notes to Consolidated Financial Statements
The following table reconciles net increase (decrease) in net assets resulting from operations to total taxable income available for distributions for the years ended December 31, 20162019, December 31, 2018 and December 31, 2015 (in thousands):2017:
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | For the Years Ended December 31, |
| Net increase (decrease) in net assets resulting from operations | $ | 10,908 |
| | $ | (3,953 | ) | |
| | | 2019 | | 2018 | | 2017 |
| Net increase in net assets resulting from operations | | $ | 8,300 |
| | $ | 11,960 |
| | $ | 17,708 |
|
| Net realized losses | | 7,108 |
| | — |
| | — |
|
| Net change in unrealized (appreciation) depreciation | (7,767 | ) | | 5,688 |
| 2,658 |
| | 13,742 |
| | (626 | ) |
| Unearned performance-based incentive fee on unrealized gains | 536 |
| | — |
| |
| Unearned performance-based incentive fee on unrealized gains (losses) | | 11 |
| | (1,346 | ) | | 798 |
|
| Offering expense | 52 |
| | — |
| — |
| | — |
| | 68 |
|
| Other book-tax difference | 168 |
| | 15 |
| (589 | ) | | 48 |
| | (199 | ) |
| Total taxable income available for distributions | $ | 3,897 |
| | $ | 1,750 |
| |
| Total taxable income and gains available for distributions | | $ | 17,488 |
| | $ | 24,404 |
| | $ | 17,749 |
|
ForThe Company did not incur U.S. federal excise tax for the calendar years ended December 31, 20162018 and December 31, 20152017 and the Master Fund had taxable income availableCompany does not expect to incur a U.S. federal excise tax for distributions in excess of the distributions paid during each respective year.calendar year ended December 31, 2019. The tax character of shareholder distributions attributable to the fiscal years ended December 31, 20162019, December 31, 2018 and December 31, 20152017 was as follows (in thousands):
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| Distributions Attributable To: | 2019 | | 2018 | | 2017 |
| Ordinary income (including short-term capital gains) | $ | 16,911 |
| | $ | 21,113 |
| | $ | 16,321 |
|
Long-term capital gains (1) | 335 |
| | 3,459 |
| | 357 |
|
| Total distributions | $ | 17,246 |
| | $ | 24,572 |
| | $ | 16,678 |
|
Distributions as a percentage of taxable income and gains available for distributions (2) | 98.6 | % | | 100.7 | % | | 94.0 | % |
|
| | | | | | | |
| Paid Distributions Attributable To: | 2016 | | 2015 |
Ordinary income (including short-term capital gains) | $ | 3,685 |
| | $ | 1,703 |
|
| Long-term capital gains | — |
| | — |
|
| Return of capital | — |
| | — |
|
| Total | $ | 3,685 |
| | $ | 1,703 |
|
| Paid distributions as a percentage of taxable income available for distributions | 94.6 | % | | 97.3 | % |
(2) The total distributions declared during the year includes payment of prior year undistributed taxable income and gains.
As of December 31, 20162019 and December 31, 2015,2018, the components of tax basis accumulated earnings (loss) were as follows (in thousands):follows:
| | | | | | | As of December 31, |
| | 2016 | | 2015 | 2019 | | 2018 |
| Undistributed ordinary income, net | $ | 271 |
| | $ | 47 |
| $ | 577 |
| | $ | 508 |
|
| Unrealized gain (loss) | 2,087 |
| | (5,688 | ) | |
| Undistributed capital gains | | (6,402 | ) | | 681 |
|
| Unrealized loss | | (12,834 | ) | | (11,037 | ) |
| Other temporary adjustments | (724 | ) | | — |
| (167 | ) | | (32 | ) |
| Total accumulated earnings (loss), net | $ | 1,634 |
| | $ | (5,641 | ) | |
| Total accumulated (loss), net | | $ | (18,826 | ) | | $ | (9,880 | ) |
ForUnder the year endedcurrent tax law, the Company may carry forward net capital losses indefinitely to use to offset capital gains realized in future years, and their character is retained as either short-term and/or long-term. At December 31, 2016,2019, the Master Fund had taxable income in excessCompany incurred $(6,402) of the distributions made from such taxable income during the year. Furthermore, the Master Fund does not expect to incur an U.S. federal excise tax for its tax year beginning January 1, 2016 and ending December 31, 2016.long-term capital losses.
Notes to Consolidated Financial Statements
Note 13.12. Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the years ended December 31, 20162019, December 31, 2018 and December 31, 20152017 are presented below (in thousands, except per share amounts):below:
| | | | As of and for the three months ended | As of and for the three months ended |
| | December 31, 2016 | | September 30, 2016 | | June 30, 2016 | | March 31, 2016 | December 31, 2019 | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| Total investment income | $ | 5,033 |
| | $ | 3,707 |
| | $ | 1,977 |
| | $ | 1,691 |
| $ | 8,908 |
| | $ | 9,162 |
| | $ | 9,114 |
| | $ | 8,923 |
|
| Net investment income | 1,194 |
| | 1,083 |
| | 73 |
| | 228 |
| 4,498 |
| | 4,567 |
| | 4,603 |
| | 4,398 |
|
| Net realized and unrealized gains (losses) | 2,465 |
| | 4,598 |
| | 1,720 |
| | (453 | ) | |
| Net realized and unrealized losses | | (4,094 | ) | | (4,974 | ) | | (387 | ) | | (311 | ) |
| Net increase (decrease) in net assets resulting from operations | 3,659 |
| | 5,681 |
| | 1,793 |
| | (225 | ) | 404 |
| | (407 | ) | | 4,216 |
| | 4,087 |
|
| Net assets | 178,066 |
| | 139,716 |
| | 98,179 |
| | 59,739 |
| 211,197 |
| | 225,699 |
| | 230,030 |
| | 236,295 |
|
| Total investment income per Common Share - basic and diluted | 0.27 |
| | 0.26 |
| | 0.20 |
| | 0.26 |
| 0.32 |
| | 0.32 |
| | 0.31 |
| | 0.31 |
|
| Net investment income per Common Share - basic and diluted | 0.06 |
| | 0.08 |
| | 0.01 |
| | 0.04 |
| 0.16 |
| | 0.16 |
| | 0.16 |
| | 0.15 |
|
| Earnings (loss) per Common Share - basic and diluted | 0.19 |
| | 0.40 |
| | 0.18 |
| | (0.04 | ) | 0.01 |
| | (0.01 | ) | | 0.14 |
| | 0.14 |
|
| Net asset value per Common Share at end of quarter | 8.47 |
| | 8.31 |
| | 8.08 |
| | 7.90 |
| 7.78 |
| | 7.89 |
| | 8.04 |
| | 8.07 |
|
| | | | As of and for the three months ended | As of and for the three months ended |
| | December 31, 2015 | | September 30, 2015 | | June 30, 2015 | | March 31, 2015 | December 31, 2018 | | September 30, 2018 | | June 30, 2018 | | March 31, 2018 |
| Total investment income | $ | 1,533 |
| | $ | 1,314 |
| | $ | 508 |
| | $ | — |
| $ | 8,963 |
| | $ | 8,678 |
| | $ | 8,853 |
| | $ | 8,265 |
|
| Net investment income (loss) | 570 |
| | 995 |
| | 143 |
| | (15 | ) | |
| Net investment income | | 6,345 |
| | 4,343 |
| | 4,476 |
| | 3,393 |
|
| Net realized and unrealized gains (losses) | (2,387 | ) | | (3,458 | ) | | 199 |
| | — |
| (9,105 | ) | | (592 | ) | | (28 | ) | | 3,128 |
|
| Net increase (decrease) in net assets resulting from operations | (1,817 | ) | | (2,463 | ) | | 342 |
| | (15 | ) | (2,760 | ) | | 3,751 |
| | 4,448 |
| | 6,521 |
|
| Net assets | 46,704 |
| | 47,736 |
| | 50,327 |
| | 49,985 |
| 236,232 |
| | 247,131 |
| | 248,950 |
| | 249,901 |
|
| Total investment income per Common Share - basic and diluted | 0.27 |
| | 0.24 |
| | 0.09 |
| | — |
| 0.31 |
| | 0.30 |
| | 0.30 |
| | 0.28 |
|
| Net investment income per Common Share - basic and diluted | 0.10 |
| | 0.18 |
| | 0.03 |
| | — |
| 0.22 |
| | 0.15 |
| | 0.15 |
| | 0.12 |
|
| Earnings (loss) per Common Share - basic and diluted | (0.32 | ) | | (0.44 | ) | | 0.06 |
| | — |
| (0.09 | ) | | 0.13 |
| | 0.15 |
| | 0.22 |
|
| Net asset value per Common Share at end of quarter | 8.00 |
| | 8.59 |
| | 9.06 |
| | 9.00 |
| 8.09 |
| | 8.48 |
| | 8.54 |
| | 8.57 |
|
|
| | | | | | | | | | | | | | | |
| | As of and for the three months ended |
| | December 31, 2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 |
| Total investment income | $ | 8,661 |
| | $ | 8,331 |
| | $ | 7,745 |
| | $ | 6,172 |
|
| Net investment income | 4,402 |
| | 3,862 |
| | 3,555 |
| | 1,919 |
|
| Net realized and unrealized gains (losses) | 998 |
| | 956 |
| | (256 | ) | | 2,272 |
|
| Net increase in net assets resulting from operations | 5,400 |
| | 4,818 |
| | 3,299 |
| | 4,191 |
|
| Net assets | 248,481 |
| | 249,367 |
| | 248,564 |
| | 236,398 |
|
| Total investment income per Common Share - basic and diluted | 0.30 |
| | 0.29 |
| | 0.28 |
| | 0.26 |
|
| Net investment income per Common Share - basic and diluted | 0.15 |
| | 0.13 |
| | 0.13 |
| | 0.08 |
|
| Earnings per Common Share - basic and diluted | 0.19 |
| | 0.16 |
| | 0.12 |
| | 0.18 |
|
| Net asset value per Common Share at end of quarter | 8.52 |
| | 8.55 |
| | 8.55 |
| | 8.55 |
|
Note 14.13. Subsequent Events
AsManagement has evaluated subsequent events through the date of March 17, 2017issuance of these consolidated financial statements and has determined that there are no subsequent events outside the Master Fund had issued 4,972,919 Common Shares subsequentordinary scope of business that require adjustment to, December 31, 2016, resultingor disclosure in, a $42.4 million increase in equity capital.
the consolidated financial statements.
