UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM10-Q

 

 

 

☒

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended SeptemberJune 30, 20172019

 

☐

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number:814-00849

 

 

SOLAR SENIOR CAPITAL LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland 27-4288022
(State of Incorporation) 

(I.R.S. Employer

Identification No.)

500 Park Avenue

New York, N.Y.

 10022
(Address of principal executive offices) (Zip Code)

(212) 993-1670

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulationS-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 whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company,” and “emerging growth company” inRule12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐  Accelerated filer ☒
Non-accelerated filer ☐  Smaller Reporting Companycompany ☐
Emerging growth company ☐   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading

Symbol(s)

Name of Each Exchange
on Which Registered

Common Stock, par value

$0.01 per share

SUNS

The NASDAQ Global

Select Market

The number of shares of the registrant’s Common Stock, $.01 par value, outstanding as of OctoberJuly 31, 20172019 was 16,034,553.16,043,735.

 

 

 

SOLAR SENIOR CAPITAL LTD.

FORM10-Q FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20172019

TABLE OF CONTENTS

 

   PAGE 

PART I. FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements

  
  

Consolidated Statements of Assets and Liabilities as of SeptemberJune  30, 20172019 (unaudited) and December 31, 20162018

   3 
  

Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20172019 (unaudited) and the three and ninesix months ended SeptemberJune 30, 20162018 (unaudited)

   4 
  

Consolidated Statements of Changes in Net Assets for the ninethree and six months ended SeptemberJune 30, 20172019 (unaudited) and the yearthree and six months ended December 31, 2016June 30, 2018 (unaudited)

   5 
  

Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune  30, 20172019 (unaudited) and the ninesix months ended SeptemberJune 30, 20162018 (unaudited)

   6 
  

Consolidated Schedule of Investments as of SeptemberJune 30, 20172019 (unaudited)

   7 
  

Consolidated Schedule of Investments as of December 31, 20162018

   1110 
  

Notes to Consolidated Financial Statements (unaudited)

   1513 
  

Report of Independent Registered Public Accounting Firm

   3731 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   3832 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   5748 

Item 4.

  

Controls and Procedures

   5749 

PART II. OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

   5849 

Item 1A.

  

Risk Factors

   5849 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   5849 

Item 3.

  

Defaults Upon Senior Securities

   5849 

Item 4.

  

Mine Safety Disclosures

   5849 

Item 5.

  

Other Information

   5850 

Item 6.

  

Exhibits

   5950 
  

Signatures

   6152 

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Solar Senior”, “Company”, “Fund”, “we”, “us”, and “our” refer to Solar Senior Capital Ltd. unless the context states otherwise.

 

Item 1.

Financial Statements

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share amounts)

 

  September 30, 2017
(unaudited)		 December 31, 2016   June 30, 2019
(unaudited)		 December 31,
2018		 

Assets

      

Investments at fair value:

      

Companies less than 5% owned (cost: $299,132 and $295,037, respectively)

  $293,015  $289,399 

Companies 5% to 25% owned (cost: $3,710 and $3,710, respectively)

   2,176  1,825 

Companies more than 25% owned (cost: $72,398 and $74,026, respectively)

   72,817  74,310 

Companies less than 5% owned (cost: $378,883 and $355,354, respectively)

  $368,069  $348,211 

Companies 5% to 25% owned (cost: $3,683 and $3,524, respectively)

   4,729  2,350 

Companies more than 25% owned (cost: $98,439 and $98,439, respectively)

   101,450  99,550 

Cash

   3,726  11,876    6,495  4,875 

Cash equivalents (cost: $124,799 and $139,952, respectively)

   124,799  139,952 

Cash equivalents (cost: $174,552 and $0, respectively)

   174,552   —   

Interest receivable

   1,534  2,141 

Dividends receivable

   1,552  1,422    1,893  1,893 

Interest receivable

   1,112  1,463 

Other receivable

   20  19 

Receivable for investments sold

   808  1,450    78  87 

Prepaid expenses and other assets

   325  273    293  188 
  

 

  

 

   

 

  

 

 

Total assets

  $500,350  $521,989   $659,093  $459,295 
  

 

  

 

   

 

  

 

 

Liabilities

      

Payable for investments and cash equivalents purchased

  $135,943  $151,312   $174,552  $22,805 

Credit facility payable (see notes 6 and 7)

   91,000  98,300 

Credit facility ($162,800 and $119,200 face amounts, respectively, reported net of unamortized debt issuance costs of $1,475 and $1,662, respectively. See note 7)

   161,325  117,538 

FLLP2015-1, LLC revolving credit facility (the “FLLP Facility”) ($56,452 and $51,371 face amounts, respectively, reported net of unamortized debt issuance costs of $732 and $0, respectively. See notes 6 and 7)

   55,720  51,371 

Distributions payable

   1,884  1,883    1,885  1,885 

Management fee payable (see note 3)

   474  104    744  1,189 

Performance-based incentive fee payable (see note 3)

   —    106 

Interest payable (see note 7)

   301  241    1,360  1,260 

Administrative services expense payable (see note 3)

   660  621    429  923 

Other liabilities and accrued expenses

   592  383    969  826 
  

 

  

 

   

 

  

 

 

Total liabilities

  $230,854  $252,844   $396,984  $197,903 
  

 

  

 

   

 

  

 

 

Commitments and contingencies (see notes 10, 11 and 12)

   

Commitments and contingencies (see note 10)

   

Net Assets

      

Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 16,033,733 and 16,025,011 issued and outstanding, respectively

  $160  $160 

Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 16,043,735 and 16,040,485 issued and outstanding, respectively

  $160  $160 

Paid-in capital in excess of par

   287,666  287,515    288,844  288,789 

Distributions in excess of net investment income

   (5,342)  (5,342) 

Accumulated net realized loss

   (5,756)  (5,949) 

Net unrealized depreciation

   (7,232)  (7,239) 

Accumulated distributable net loss

   (26,895)  (27,557) 
  

 

  

 

   

 

  

 

 

Total net assets

  $269,496  $269,145   $262,109  $261,392 
  

 

  

 

   

 

  

 

 

Net Asset Value Per Share

  $16.81  $16.80   $16.34  $16.30 
  

 

  

 

   

 

  

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share amounts)

 

 Three months ended Nine months ended   Three months ended Six months ended 
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016		   June 30,
2019		 June 30,
2018		 June 30,
2019		 June 30,
2018		 

INVESTMENT INCOME:

         

Interest:

         

Companies less than 5% owned

 $5,946  $5,165  $16,812  $14,456   $7,674  $6,012  $15,488  $11,829 

Companies 5% to 25% owned

 51  51  152  153    20  90  105  141 

Dividends:

         

Companies more than 25% owned

 1,924  1,767  5,771  5,278    2,265  3,250  4,530  6,637 

Other income:

         

Companies less than 5% owned

 25  1  326  97    22  78  92  145 

Companies 5% to 25% owned

   27  23  27  23 

Companies more than 25% owned

 20  17  59  47    —    18   —    37 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Total investment income

 7,966  7,001  23,120  20,031    10,008  9,471  20,242  18,812 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

EXPENSES:

         

Management fees (see note 3)

 $955  $852  $2,862  $2,483   $1,203  $1,145  $2,359  $2,193 

Performance-based incentive fees (see note 3)

 231  636  428  1,486    525  491  1,069  1,109 

Interest and other credit facility expenses (see note 7)

 977  870  2,717  2,634    2,789  1,806  5,474  3,168 

Administrative services expense (see note 3)

 372  301  1,107  895    400  387  796  769 

Other general and administrative expenses

 491  324  1,444  997    419  425  754  1,010 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Total expenses

 3,026  2,983  8,558  8,495    5,336  4,254  10,452  8,249 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Management fees waived (see note 3)

 (481)   —    (1,962)   —      (459)   —    (459)   —   

Performance-based incentive fees waived (see note 3)

 (231)  (518)  (428)  (1,131)    (525)  (437)  (1,061)  (745) 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Net expenses

 2,314  2,465  6,168  7,364    4,352  3,817  8,932  7,504 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Net investment income

 $5,652  $4,536  $16,952  $12,667   $5,656  $5,654  $11,310  $11,308 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS:

         

Net realized gain on investments and cash equivalents (companies less than 5% owned)

 $52  $8  $193  $39 

Net realized gain (loss) on investments and cash equivalents (companies less than 5% owned)

  $108  $(5,244)  $213  $(5,251) 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Net change in unrealized gain (loss) on investments and cash equivalents:

         

Companies less than 5% owned

 (457)  1,170  (478)  4,996    (2,468)  3,948  (3,671)  2,506 

Companies 5% to 25% owned

 281  (281)  351  (375)    1,940  166  2,220  274 

Companies more than 25% owned

 484  (264)  134  930    (650)  995  1,900  2,199 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Net change in unrealized gain (loss) on investments and cash equivalents

 308  625  7  5,551    (1,178)  5,109  449  4,979 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Net realized and unrealized gain (loss) on investments and cash
equivalents

 360  633  200  5,590    (1,070)  (135)  662  (272) 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 $6,012  $5,169  $17,152  $18,257   $4,586  $5,519  $11,972  $11,036 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

EARNINGS PER SHARE (see note 5)

 $0.37  $0.42  $1.07  $1.55   $0.29  $0.34  $0.75  $0.69 
 

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

(in thousands, except share amounts)

 

   Nine months ended
September 30, 2017
(unaudited)		  Year ended
December 31, 2016		 

Increase in net assets resulting from operations:

   

Net investment income

  $16,952  $18,316 

Net realized gain

   193   81 

Net change in unrealized gain (loss)

   7   5,855 
  

 

 

  

 

 

 

Net increase in net assets resulting from operations

   17,152   24,252 
  

 

 

  

 

 

 

Distributions to stockholders:

   

From net investment income

   (16,952)   (18,316) 
  

 

 

  

 

 

 

Capital transactions (see note 13):

   

Net proceeds from shares sold

   —     75,255 

Less common stock offering costs

   —     (376) 

Reinvestment of distributions

   151   26 
  

 

 

  

 

 

 

Net increase in net assets resulting from capital transactions

   151   74,905 
  

 

 

  

 

 

 

Total increase in net assets

   351   80,841 

Net assets at beginning of period

   269,145   188,304 
  

 

 

  

 

 

 

Net assets at end of period(1)

  $269,496  $269,145 
  

 

 

  

 

 

 

Capital share activity:

   

Common stock sold

   —     4,490,152 

Common stock issued from reinvestment of distributions

   8,722   1,544 
  

 

 

  

 

 

 

Net increase from capital share activity

   8,722   4,491,696 
  

 

 

  

 

 

 

(1)Includes over distributed net investment income of ($5,342) and ($5,342), respectively.
   Three months ended  Six months ended 
   June 30,
2019		  June 30,
2018		  June 30,
2019		  June 30,
2018		 

Increase in net assets resulting from operations:

     

Net investment income

  $5,656  $5,654  $11,310  $11,308 

Net realized gain (loss)

   108   (5,244)   213   (5,251) 

Net change in unrealized gain (loss)

   (1,178)   5,109   449   4,979 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase in net assets resulting from operations

   4,586   5,519   11,972   11,036 
  

 

 

  

 

 

  

 

 

  

 

 

 

Distributions to stockholders:

 

   

From net investment income

   (5,656)   (5,654)   (11,310)   (11,308) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Capital transactions(see note 12):

     

Reinvestment of distributions

   36   22   55   65 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase in net assets resulting from capital transactions

   36   22   55   65 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total increase (decrease) in net assets

   (1,034)   (113)   717   (207) 

Net assets at beginning of period

   263,143   270,037   261,392   270,131 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net assets at end of period

  $262,109  $269,924  $262,109  $269,924 
  

 

 

  

 

 

  

 

 

  

 

 

 

Capital share activity(see note 12):

     

Common stock issued from reinvestment of distributions

   2,131   1,279   3,250   3,755 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase from capital share activity

   2,131   1,279   3,250   3,755 
  

 

 

  

 

 

  

 

 

  

 

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

  Nine months ended   Six months ended 
  September 30,
2017		 September 30,
2016		   June 30,
2019		 June 30,
2018		 

Cash Flows from Operating Activities:

      

Net increase in net assets resulting from operations

  $17,152  $18,257   $11,972  $11,036 

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:

      

Net realized gain on investments and cash equivalents

   (193)  (39) 

Net realized (gain) loss on investments and cash equivalents

   (213)  5,251 

Net change in unrealized (gain) loss on investments and cash equivalents

   (7)  (5,551)    (449)  (4,979) 

(Increase) decrease in operating assets:

      

Purchase of investments

   (113,348)  (74,812)    (50,069)  (112,104) 

Proceeds from disposition of investments

   111,452  59,007    27,624  50,602 

Net accretion of discount on investments

   (692)  (693) 

Capitalization ofpayment-in-kind interest

   (378)   —      (338)  (231) 

Collection ofpayment-in-kind interest

   —    34 

Receivable for investments sold

   642  28    9  508 

Interest receivable

   351  889    607  374 

Dividends receivable

   (130)  (865)    —    (154) 

Other receivable

   (1)  (5)    —    2 

Prepaid expenses and other assets

   (52)  57    (105)  90 

Increase (decrease) in operating liabilities:

      

Payable for investments and cash equivalents purchased

   (15,369)  149,415    151,747  (36,082) 

Management fee payable

   370  21    (445)  146 

Performance-based incentive fee payable

   —    118 

Performance-based incentive fees payable

   (106)  (320) 

Administrative services expense payable

   39  (79)    (494)  (477) 

Interest payable

   60  (38)    100  251 

Other liabilities and accrued expenses

   209  253    143  453 
  

 

  

 

   

 

  

 

 

Net Cash Provided by Operating Activities

   797  146,656 

Net Cash Provided by (Used in) Operating Activities

   139,291  (86,293) 
  

 

  

 

   

 

  

 

 

Cash Flows from Financing Activities:

      

Net proceeds from shares sold

   —    75,255 

Common stock offering costs

   —    (309) 

Cash distributions paid

   (16,800)  (12,171)    (11,255)  (11,242) 

Deferred financing costs

   209  29 

Proceeds from borrowings

   84,200  61,600    81,127  103,234 

Repayments of borrowings

   (91,500)  (134,800)    (33,200)  (43,300) 
  

 

  

 

   

 

  

 

 

Net Cash Used in Financing Activities

   (24,100)  (10,425) 

Net Cash Provided by Financing Activities

   36,881  48,721 
  

 

  

 

   

 

  

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

   (23,303)  136,231    176,172  (37,572) 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

   151,828  53,067    4,875  108,600 
  

 

  

 

   

 

  

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $128,525  $189,298   $181,047  $71,028 
  

 

  

 

   

 

  

 

 

Supplemental disclosure of cash flow information:

      

Cash paid for interest

  $2,657  $2,672   $5,374  $2,917 
  

 

  

 

   

 

  

 

 

Non-cash financing activities consist of the reinvestment of distributionsdividends of $151$55 and $26$65 for the ninesix months ended SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, respectively.

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)

SeptemberJune 30, 20172019

(in thousands, except share/unit amounts)

 

Description

 Industry Spread
above
Index(3)		  Libor
Floor		  Interest
Rate(1)		  Acquisition
Date		  Maturity
Date		  Par
Amount		  Cost  Fair
Value		 

Bank Debt/Senior Secured Loans—109.5%

         

ABB/Con-Cise Optical Group LLC(2)(14)

 Health Care Equipment
& Supplies		  L+500   1.00%   6.32%   6/14/2016   6/15/2023  $11,880  $11,836  $11,910 

Acrisure, LLC(2)

 Insurance  L+500   1.00%   6.27%   5/3/2017   11/22/2023   6,965   6,948   7,061 

Advantage Sales and Marketing, Inc.

 Professional Services  L+650   1.00%   7.74%   2/14/2013   7/25/2022   8,000   7,960   7,246 

Aegis Toxicology Sciences Corporation(14)

 Health Care Providers
& Services		  L+850   1.00%   9.83%   2/20/2014   8/24/2021   4,000   3,963   3,920 

Alera Group Intermediate Holdings, Inc.(2)(14)

 Insurance  L+550   1.00%   6.74%   11/28/2016   12/30/2022   3,661   3,628   3,652 

American Teleconferencing Services, Ltd. (PGI)(2)(14)

 Communications Equipment  L+650   1.00%   7.78%   5/5/2016   12/8/2021   15,139   14,423   14,836 

Anesthesia Consulting & Management, LP(2)(14)

 Health Care Providers
& Services		  L+525   1.00%   6.58%   10/20/2016   10/31/2022   4,963   4,919   4,615 

Capstone Logistics Acqusition, Inc.(2)(14)

 Professional Services  L+450   1.00%   5.74%   10/3/2014   10/7/2021   8,159   8,108   8,098 

Confie Seguros Holding II  Co.(2)(14)

 Insurance  L+550   1.00%   6.74%   10/13/2016   4/19/2022   9,925   9,840   9,798 

DB Datacenter Holdings, Inc.(2)(14)

 IT Services  L+475   1.00%   8.00%   12/28/2016   7/13/2021   5,000   4,937   5,000 

Empower Payments Acquisition, Inc. (RevSpring)(2)(14)

 Professional Services  L+550   1.00%   6.83%   11/28/2016   11/30/2023   4,590   4,507   4,590 

Engineering Solutions & Products, LLC(6)(14)

 Aerospace & Defense  L+600   2.00%   8.00%   11/5/2013   11/5/2018   2,343   2,343   2,108 

Falmouth Group Holdings Corp. (AMPAC)(2)(14)

 Chemicals  L+675   1.00%   7.99%   12/15/2016   12/14/2021   8,826   8,826   8,826 

GenMark Diagnostics, Inc(2)(4)(14)

 Health Care Providers
& Services		  —     —     6.90%   4/22/2016   1/12/2019   8,110   8,317   8,391 

Global Holdings LLC &
Payment Concepts LLC(2)(14)

 Consumer Finance  L+650   1.00%   7.82%   3/31/2017   5/5/2022   8,750   8,587   8,575 

Global Tel*Link Corporation(2)

 Communications Equipment  L+375   1.25%   5.33%   11/6/2015   5/23/2020   3,374   3,104   3,413 

Global Tel*Link Corporation

 Communications Equipment  L+775   1.25%   9.08%   5/21/2013   11/23/2020   3,000   2,970   2,995 

Hostway Corporation(2)(14)

 Internet Software & Services  L+475   1.25%   8.08%   6/27/2014   12/13/2019   8,526   8,509   8,100 

Island Medical Management Holdings, LLC(2)(14)

 Health Care Providers
& Services		  L+550   1.00%   6.83%   3/31/2017   9/1/2022   4,581   4,538   4,535 

Kellermeyer Bergensons Services, LLC (KBS)(2)(14)

 Commercial Services
& Supplies		  L+500   1.00%   6.32%   10/31/2014   10/29/2021   4,863   4,832   4,814 

Logix Holding Company, LLC(2)(14)

 Communications Equipment  L+575   1.00%   6.98%   8/11/2017   11/30/2024   11,250   11,138   11,138 

Lumeris Solutions Company, LLC(2)(14)

 Health Care

Technology

  L+860   0.25%   9.83%   3/22/2017   2/1/2020   4,000   4,014   4,020 

Metamorph US 3, LLC (Metalogix)(2)(14) ††

 Software  L+750(7)   1.00%   8.74%   12/1/2014   12/1/2020   7,975   7,862   5,742 

Meter Readings Holding, LLC (Aclara)(2)(14)

 Electronic Equipment,
Instruments & Components		  L+575   1.00%   7.07%   6/15/2017   8/29/2023   7,960   7,941   8,119 

MHE Intermediate Holdings, LLC(TFS-Miner)(2)(14)

 Air Freight & Logistics  L+500   1.00%   6.33%   3/8/2017   3/10/2024   5,473   5,422   5,446 

Ministry Brands, LLC(2)(14)

 Software  L+500   1.00%   6.24%   11/21/2016   12/2/2022   9,278   9,198   9,208 

MRI Software LLC(2)(14)

 Software  L+600   1.00%   7.32%   6/7/2017   6/30/2023   8,245   8,165   8,162 

MYI Acquiror Corp. (McLarens Young)(2)(14)

 Insurance  L+450   1.25%   5.80%   5/21/2014   5/28/2019   3,356   3,344   3,356 

MYI Acquiror Ltd. (McLarens Young)(2)(4)(14)

 Insurance  L+450   1.25%   5.80%   5/21/2014   5/28/2019   4,282   4,267   4,282 

PetVet Care Centers, LLC(2)(14)

 Health Care Facilities  L+600   1.00%   7.31%   6/1/2017   6/8/2023   9,312   9,222   9,219��

Polycom, Inc.(2)(14)

 Communications Equipment  L+525   1.00%   6.48%   9/29/2016   9/27/2023   12,905   12,451   13,095 

Description 

 Industry  Spread
above
Index(3)		  Libor
Floor 		  Interest
Rate(1)		  Acquisition
Date		  Maturity
Date		  Par
Amount		  Cost  Fair
Value		 

Bank Debt/Senior Secured Loans—141.0%

 

1A Smart Start LLC(2)(14)

  

Electrical Equipment, Instruments &

Components

 

 

  L+450   1.00%   6.83%   12/21/2017   2/21/2022  $13,865  $13,820  $13,865 

Acrisure, LLC(2)(11)

  Insurance   L+425   1.00%   6.77%   5/3/2017   11/22/2023   7,334   7,322   7,315 

Advantage Sales and Marketing, Inc.(2).

  Professional Services   L+325   1.00%   5.58%   2/14/2018   7/23/2021   4,925   4,863   4,851 

Advantage Sales and Marketing, Inc.

  Professional Services   L+650   1.00%   8.83%   2/14/2013   7/25/2022   8,000   7,973   7,840 

Aegis Toxicology Sciences Corporation(2)(14)

  Health Care Providers & Services   L+550   1.00%   8.06%   5/7/2018   5/9/2025   10,918   10,745   10,372 

Alera Group Intermediate Holdings, Inc.(2).

  Insurance   L+450   —     6.90%   7/27/2018   8/1/2025   4,967   4,961   4,971 

Alimera Sciences, Inc.(2).

  Pharmaceuticals   L+765   —     10.08%   1/5/2018   7/1/2022   5,000   5,039   5,150 

Alteon Health, LLC (fka Island Medical)(2)(14)

  Health Care Providers & Services   L+650   1.00%   8.90%   3/31/2017   9/1/2022   7,426   7,378   7,203 

American Teleconferencing Services, Ltd. (PGI)(2)

  Communications Equipment   L+650   1.00%   9.06%   5/5/2016   12/8/2021   13,703   13,324   12,743 

AQA Acquisition Holding, Inc.(2)

  Software   L+425   1.00%   6.58%   9/7/2018   5/24/2023   5,646   5,598   5,618 

Capstone Logistics Acquisition, Inc.(2)(14)

  Professional Services   L+450   1.00%   6.90%   10/3/2014   10/7/2021   12,073   12,028   12,043 

Centria Healthcare LLC(2).

  Health Care Providers & Services   L+400   1.00%   6.33%   11/19/2018   11/3/2021   3,411   3,386   3,411 

Cerapedics, Inc.(2)

  Health Care Equipment & Supplies   L+695   2.50%   9.45%   3/22/2019   3/1/2024   2,885   2,880   2,880 

Composite Technology Acquisition Corp. (ClockSpring)(2)(14).

  Building Products   L+450   —     7.13%   2/1/2019   2/1/2025   11,946   11,778   11,767 

Confie Seguros Holding II Co.(2)(14)

  Insurance   L+475   1.00%   7.08%   10/13/2016   4/19/2022   14,173   14,095   13,984 

DISA Holdings Acquisition Subsidiary Corp.(2)

  Professional Services   L+400   1.00%   6.61%   6/14/2018   6/30/2022   9,756   9,716   9,756 

Edgewood Partners Holdings, LLC(2)(14)

  Insurance   L+425   1.00%   6.65%   3/28/2018   9/8/2024   15,787   15,748   15,787 

Empower Payments Acquisition, Inc. (RevSpring).(2)

  Professional Services   L+425   1.00%   6.65%   11/28/2016   10/11/2025   4,975   4,963   4,970 

Engineering Solutions & Products, LLC(6)

  Aerospace & Defense   L+600   2.00%   8.52%   11/5/2013   5/5/2020   201   201   201 

Engineering Solutions & Products, LLC(6)

  Aerospace & Defense   L+600   2.00%   8.56%   11/5/2013   11/5/2020   2,402   2,157   2,402 

Falmouth Group Holdings Corp. (AMPAC)(2)(14)

  Chemicals   L+675   1.00%   8.95%   12/15/2016   12/14/2021   11,859   11,859   11,859 

GenMark Diagnostics, Inc(2)(4)

  Health Care Providers & Services   L+590   2.51%   8.41%   2/1/2019   2/1/2023   5,427   5,445   5,454 

Global Holdings LLC & Payment Concepts LLC(2)

  Consumer Finance   L+650   1.00%   9.03%   3/31/2017   5/5/2022   11,025   10,892   11,135 

Kellermeyer Bergensons Services, LLC (KBS)(2)(14)

  Commercial Services & Supplies   L+475   1.00%   7.19%   10/31/2014   10/29/2021   8,579   8,543   8,536 

KORE Wireless Group, Inc.(2)

  
Wireless Telecommunication
Services		 
 		  L+550   —     7.83%   12/21/2018   12/21/2024   11,986   11,760   11,896 

Logix Holding Company, LLC(2)

  Communications Equipment   L+575   1.00%   8.15%   8/11/2017   12/22/2024   10,631   10,543   10,631 

Mavenir Systems, Inc.(2)

  Software   L+600   1.00%   8.42%   5/1/2018   5/8/2025   1,900   1,867   1,899 

MHE Intermediate Holdings, LLC(TFS-Miner)(2)(14)

  Air Freight & Logistics   L+500   1.00%   7.33%   3/8/2017   3/10/2024   5,950   5,905   5,950 

Ministry Brands, LLC(2)(14)

  Software   L+400   1.00%   6.33%   11/21/2016   12/2/2022   14,247   14,162   14,247 

MRI Software LLC(2)(14)

  Software   L+575   1.00%   8.16%   6/7/2017   6/30/2023   11,187   11,109   11,131 

MSHC, Inc. (Service Logic)(2)(14)

  Commercial Services & Supplies   L+425   1.00%   6.56%   7/12/2018   12/31/2024   6,661   6,630   6,628 

National Spine and Pain Centers, LLC(14)

  Health Care Providers & Services   L+450   1.00%   6.90%   9/18/2018   6/2/2024   2,572   2,562   2,539 

On Location Events, LLC & PrimeSport Holdings Inc.(2)(14)

  Media   L+500   1.00%   7.33%   12/7/2017   9/29/2021   14,230   14,120   14,230 

Pet Holdings ULC & Pet Supermarket, Inc.(4)(14)

  Specialty Retail   L+550   1.00%   8.09%   9/18/2018   7/5/2022   4,570   4,531   4,536 

PPT Management Holdings, LLC(2) ††

  Health Care Providers & Services   L+750(15)   1.00%   9.94%   12/15/2016   12/16/2022   8,792   8,740   7,517 

Radiology Partners, Inc.(2)

  Health Care Providers & Services   L+475   —     7.34%   6/28/2018   7/9/2025   7,463   7,398   7,461 

Restoration Robotics, Inc.(2)

  Health Care Equipment & Supplies   L+795   —     10.38%   5/10/2018   5/1/2022   2,000   2,126   2,126 

Rubius Therapeutics, Inc. (2)(4)

  Pharmaceuticals   L+550   —     7.93%   12/21/2018   12/21/2023   4,121   4,120   4,111 

SHO Holding I Corporation (Shoes for Crews)(2)

  Footwear   L+500   1.00%   7.58%   11/20/2015   10/27/2022   5,790   5,762   5,689 

Solara Medical Supplies, Inc.(2)(14)

  Health Care Providers & Services   L+600   1.00%   8.40%   5/31/2018   2/27/2024   12,506   12,309   12,381 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(2)(14)

  Insurance   L+485   1.00%   7.18%   3/16/2016   6/24/2021   14,049   13,935   13,768 

Trident USA Health Services(2) ††*

  Health Care Providers & Services   L+600(13)   1.25%   8.74%   7/29/2013   7/31/2022   7,164   7,028   72 

TwentyEighty, Inc.

  Professional Services   L+800   1.00%   10.33%   1/31/2017   3/31/2020   61   60   61 

TwentyEighty, Inc. ††

  Professional Services   —     —     8.00%(7)   1/31/2017   3/31/2020   2,108   2,076   2,108 

TwentyEighty, Inc. ††

  Professional Services   —     —     9.00%(8)   1/31/2017   3/31/2020   2,069   2,039   2,069 

Unified Physician Management, LLC(2)

  Health Care Facilities   L+425   1.00%   6.65%   4/18/2019   11/27/2023   4,720   4,674   4,685 

U.S. Acute Care Solutions, LLC(2)(14)

  Health Care Providers & Services   L+500   1.00%   7.20%   12/22/2016   5/15/2021   6,338   6,308   6,242 

US Radiology Specialists, Inc.(2)

  Health Care Providers & Services   L+450   1.00%   6.70%   11/27/2018   1/1/2024   3,748   3,722   3,719 

Web.com Group, Inc.(2)

  Software   L+375   —     6.16%   9/17/2018   10/10/2025   8,178   8,159   8,078 

WIRB-Copernicus Group, Inc.(2)(14)

  Professional Services   L+425   1.00%   6.58%   3/27/2017   8/15/2022   11,722   11,675   11,722 
        

 

 

  

 

 

 

Total Bank Debt/Senior Secured Loans

 

  $378,034  $369,609 
  

 

 

  

 

 

 

Common Equity/Equity Interests/Warrants—39.9%

        Shares/Units   

Engineering Solutions & Products, LLC(6)(9)†

  Aerospace & Defense      11/5/2013    133,668  $1,325  $2,126 

Essence Group Holdings Corporation (Lumeris) Warrants†

  Health Care Technology      3/22/2017    52,000   16   74 

Gemino Healthcare Finance, LLC(4)(5)

  Diversified Financial Services      9/30/2013    32,839   31,439   34,150 

North Mill Holdco LLC(4)(5)(12)

  Diversified Financial Services      10/20/2017    100   67,000   67,300 

Restoration Robotics, Inc. Warrants†

  Health Care Equipment & Supplies      5/10/2018    16,173   25   1 

TwentyEighty Investors, LLC†.

  Professional Services      1/31/2017    17,214   3,166   988 
        

 

 

  

 

 

 

Total Common Equity/Equity Interests/Warrants

 

  $102,971  $104,639 
  

 

 

  

 

 

 

Total Investments(10)—180.9%

 

  $481,005  $474,248 

Cash Equivalents—66.6%

        Par Amount   

U.S. Treasury Bill

  Government   6/28/2019   8/15/2019  $175,000  $174,552  $174,552 
  

 

 

  

 

 

 

Total Investments & Cash Equivalents—247.5%

 

 $ 655,557  $ 648,800 

Liabilities in Excess of Other Assets—(147.5%)

 

   (386,691) 
   

 

 

 

Net Assets—100.0%

 

   $ 262,109 
         

 

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

SeptemberJune 30, 2017

(in thousands, except share/unit amounts)

Description

 Industry  Spread
above
Index(3)		  Libor
Floor		  Interest
Rate(1)		  Acquisition
Date		  Maturity
Date		  Par
Amount		  Cost  Fair
Value		 

PPT Management Holdings, LLC(2)(14)

  
Health Care Providers &
Services		 
 		  L+600   1.00%   7.33%   12/15/2016   12/16/2022   7,940   7,869   7,781 

PSP Group, LLC (Pet Supplies Plus)(2)(8)(14)

  Specialty Retail   L+475   1.00%   6.09%   4/2/2015   4/6/2021   483   480   483 

QBS Holding Company, Inc. (Quorum)(2)(14)

  Software   L+475   1.00%   6.06%   8/1/2014   8/7/2021   6,059   6,023   5,999 

Richelieu Foods, Inc.(2)(14)

  Food Products   L+475   1.00%   6.08%   11/21/2014   5/21/2020   5,958   5,912   5,958 

Salient Partners, L.P.(2)(14)

  Asset Management   L+850   1.00%   9.80%   6/10/2015   6/9/2021   3,988   3,934   3,988 

Securus Technologies, Inc.(14)

  
Communications
Equipment		 
 		  L+775   1.25%   9.00%   4/17/2013   4/30/2021   10,000   9,955   10,058 

SHO Holding I Corporation (Shoes for Crews)(2)(14)

  Footwear   L+500   1.00%   6.24%   11/20/2015   10/27/2022   5,895   5,852   5,836 

Suburban Broadband, LLC (Jab Wireless, Inc.)(2)(14)

  

Wireless
Telecommunication
Services		 
 
 		  L+450   1.00%   5.83%   11/29/2016   3/26/2019   4,962   4,930   4,913 

The Edelman Financial Center,
LLC(2)(14)

  
Diversified Financial
Services		 
 		  L+550   1.00%   6.81%   12/16/2015   12/18/2022   4,913   4,835   4,913 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(2)(14)

  Insurance   L+475   1.00%   6.08%   3/16/2016   6/24/2021   3,900   3,843   3,871 

Trident USA Health
Services(2)(14)

  
Health Care Providers &
Services		 
 		  L+575   1.25%   7.08%   7/29/2013   7/31/2019   8,718   8,691   7,192 

TwentyEighty, Inc.(14) ††

  Professional Services   L+800(9)   1.00%   9.27%   1/31/2017   3/31/2020   911   877   911 

TwentyEighty, Inc.(14) ††

  Professional Services   —     —     8.00%(10)   1/31/2017   3/31/2020   1,949   1,850   1,832 

TwentyEighty, Inc.(14) ††

  Professional Services   —     —     9.00%(11)   1/31/2017   3/31/2020   1,775   1,685   1,615 

U.S. Acute Care Solutions, LLC(2)(14)

  
Health Care Providers &
Services		 
 		  L+500   1.00%   6.33%   12/22/2016   5/15/2021   6,451   6,396   6,403 

VT Buyer Acquisition Corp. (Veritext)(2)(14)

  Professional Services   L+475   1.00%   6.08%   2/17/2017   1/29/2022   4,604   4,584   4,581 

WIRB-Copernicus Group, Inc.(2)(14)

  Professional Services   L+500   1.00%   6.33%   3/27/2017   8/12/2022   4,478   4,457   4,478 
        

 

 

  

 

 

 

Total Bank Debt/Senior Secured Loans

 

 $298,292  $295,082 
        

 

 

  

 

 

 
                    Shares/Units       

Common Equity/Equity Interests/Warrants—27.1%

         

Engineering Solutions & Products, LLC(6)(12)(14)†

  Aerospace & Defense      11/5/2013    133,668  $1,367  $68 

Essence Group Holdings Corporation (Lumeris) Warrants(14)†.

  Health Care Technology      3/22/2017    52,000   16   41 

First Lien Loan Program LLC(4)(5)(14)

  Asset Management      2/13/2015    —     39,559   37,667 

Gemino Healthcare Finance, LLC(4)(5)(14)

  
Diversified Financial
Services		 
 		     9/30/2013    32,839   32,839   35,150 

TwentyEighty Investors, LLC(14)†.

  Professional Services      1/31/2017    17,214   3,167   —   
        

 

 

  

 

 

 

Total Common Equity/Equity Interests/Warrants

 

  $76,948  $72,926 
        

 

 

  

 

 

 

Total Investments(13)—136.6%

 

  $375,240  $368,008 
         
                    Par Amount       

Cash Equivalents—46.3%

         

U.S. Treasury Bill

  Government      9/29/2017   11/30/2017   125,000  $124,799  $124,799 
        

 

 

  

 

 

 

Total Investments & Cash Equivalents—182.9%

 

  $500,039  $492,807 

Liabilities in Excess of Other Assets—(82.9%)

 

    (223,311) 
         

 

 

 

Net Assets—100.0%

 

   $269,496 
         

 

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 20172019

(in thousands)

 

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of SeptemberJune 30, 2017.2019.

(2)

Indicates an investment that is wholly or partially held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary SUNS SPV LLC (the “SPV”“SUNS SPV”). Such investments are pledged as collateral under the Senior Secured Revolving Credit Facility (the “Credit Facility”) (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Senior Capital Ltd. The respective par amount for the investment partially held through the SPV is $3,903 for Genmark Diagnostics, Inc. The par balance in excess of this stated amount is held directly by Solar Senior Capital Ltd.Company.

(3)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typicallyoften subject to a LIBOR or PRIME rate floor.

(4)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from makingfollow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of SeptemberJune 30, 2017,2019, on a fair value basis,non-qualifying assets in the portfolio represented 17.1%17.5% of the total assets of the Company.

(5)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the ninesix months ended SeptemberJune 30, 20172019 in these controlled investments are as follows:

 

Name of Issuer

  Fair Value at
December 31,
2016		   Gross
Additions		   Gross
Reductions		   Realized
Gain
(Loss)		   Change in
Unrealized
Gain
(Loss)		 Dividend
/Other
Income		   Fair Value at
September 30,
2017		  Fair Value at
December 31,
2018		 Gross
Additions		 Gross
Reductions		 Realized
Gain
(Loss)		 Change in
Unrealized
Gain		 Dividend
/Other
Income		 Fair Value at
June 30,
2019		 

First Lien Loan Program LLC (“FLLP”)

  $38,810   $2,835   $4,462   $—     $484  $3,059   $37,667 

Gemino Healthcare Finance, LLC

   35,500    —      —      —      (350)  2,771    35,150  $32,550  $—    $—    $—    $1,600  $1,730 $34,150 

North Mill Holdco LLC

 67,000   —     —     —    300  2,800 67,300 
  

 

   

 

   

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  $74,310   $2,835   $4,462   $—     $134  $5,830   $72,817  $99,550  $—    $—    $—    $1,900  $4,530  $101,450 
  

 

   

 

   

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(6)

Denotes investments in which we are an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the ninesix months ended SeptemberJune 30, 20172019 in these affiliated investments are as follows:

 

Name of Issuer

  Fair Value at
December 31,
2016		   Gross
Additions		   Gross
Reductions		   Realized
Gain
(Loss)		   Change in
Unrealized
Gain
(Loss)		   Interest/
Dividend
Income		   Fair Value at
September 30,
2017		  Fair Value at
December 31,
2018		 Gross
Additions		 Gross
Reductions		 Realized
Gain
(Loss)		 Change in
Unrealized
Gain
(Loss)		 Interest/
Dividend/
Other
Income		 Fair Value at
June 30,
2019		 

Engineering Solutions & Products, LLC (1st lien)

 $—    $548  $347  $—    $—    $31  $201 

Engineering Solutions & Products, LLC (2nd lien)

   1,757    —      —      —      351   152    2,108  $2,282  —     —     —    120  101 2,402

Engineering Solutions & Products, LLC (equity interests)

   68    —      —      —      —      —      68  $68  —    42  —    2,100   —    2,126
  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  $1,825   $—     $—     $—     $351   $152   $2,176  $2,350  $548  $389  $—    $2,220  $132  $4,729 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(7)Spread

Coupon is 5.50%4.00% Cash / 2.00%4.00% PIK.

(8)PSP Group, LLC, PSP Service Newco, Inc., PSP Subco, LLC, PSP Stores, LLC, and PSP Distribution, LLC areco-borrowers.
(9)Spread is 3.50% Cash / 4.50% PIK.
(10)Coupon is 1.00% Cash / 7.00% PIK.
(11)

Coupon is 0.25% Cash / 8.75% PIK.

(12)(9)

Our equity investment in Engineering Solutions & Products, LLC is held through ESP SSC Corp.,Corporation, a taxable consolidated subsidiary.

(13)(10)

Aggregate net unrealized depreciation for federal income tax purposes is $10,634;$9,407; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $3,003$4,276 and $13,637,$13,683, respectively, based on a tax cost of $378,642.$483,655. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated.

(11)

Denotes a Level 2 investment.

(12)

Our equity investment in North Mill Capital LLC is partially held through ESP SSC Corporation, a taxable consolidated subsidiary.

(13)

Spread is 3.00% Cash / 3.00% PIK.

(14)Investment valued using significant unobservable inputs.

Indicates an investment that is wholly or partially held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary FLLP2015-1 LLC (the “FLLP SPV”). Such investments are pledged as collateral under the FLLP2015-1, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company.

(15)

Spread is 3.50% Cash / 4.00% PIK.

†

Non-income producing security.

††

Investment contains apayment-in-kind (“PIK”) feature.

*

Investment is onnon-accrual status.

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

 

Industry Classification

  Percentage of Total
Investments (at
fair value) as of
SeptemberJune 30, 20172019

Communications EquipmentDiversified Financial Services (includes Gemino Healthcare Finance, LLC and North Mill Holdco LLC)

   15.121.4%

Health Care Providers & Services

   11.714.0%

Asset Management (includes FLLP)

11.3% 

Diversified Financial Services (includes Gemino Healthcare Finance, LLC)

10.9% 

Professional Services

   9.111.9%

Insurance

   8.711.8%

Software

   7.98.6%

Communications Equipment

4.9%

Commercial Services & Supplies

3.2%

Media

3.0%

Electronic Equipment, Instruments & Components

2.9%

Wireless Telecommunication Services

2.5%

Chemicals

2.5%

Building Products

2.5%

Consumer Finance

2.3%

Pharmaceuticals

1.9%

Air Freight & Logistics

1.3%

Footwear

1.2%

Health Care Equipment & Supplies

   3.21.1%

Aerospace & Defense

1.0%

Health Care Facilities

   2.51.0%

ChemicalsSpecialty Retail

   2.41.0%

Consumer Finance

2.3% 

Electronic Equipment, Instruments & Components

2.2% 

Internet Software & Services

2.2% 

Food Products

1.6% 

Footwear

1.6% 

Air Freight & Logistics

1.5% 

IT Services

1.4% 

Wireless Telecommunication Services

1.3% 

Commercial Services & Supplies

1.3% 

Health Care Technology

   1.10.0%

Aerospace & DefenseDiversified Consumer Services

   0.60.0%

Specialty Retail

  0.1% 
 

 

 

 

Total Investments

   100.0%
 

 

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 20162018

(in thousands, except share/unit amounts)

 

Description

 Industry Spread
above
Index(3)		  Libor
Floor		  Interest
Rate(1)		  Acquisition
Date		  Maturity
Date		  Par
Amount		  Cost  Fair
Value		 

Bank Debt/Senior Secured Loans—108.2%

         

ABB/Con-Cise Optical Group LLC(2)

 Health Care Equipment &
Supplies		  L+500   1.00%   6.00%   6/14/2016   6/15/2023  $11,970  $11,920  $12,135 

Advantage Sales and Marketing, Inc.

 Professional Services  L+650   1.00%   7.50%   2/14/2013   7/25/2022   8,000   7,955   7,835 

Aegis Toxicology Sciences Corporation

 Health Care Providers &
Services		  L+850   1.00%   9.50%   2/20/2014   8/24/2021   4,000   3,958   3,740 

Alera Group Intermediate Holdings, Inc.(2).

 Insurance  L+550   1.00%   6.50%   11/28/2016   12/30/2022   8,640   8,554   8,554 

ALG B.V. (Apple Leisure)(2)(4)

 Hotels, Restaurants &
Leisure		  L+575   1.25%   7.00%   2/28/2013   2/28/2019   2,692   2,681   2,692 

ALG USA Holdings, LLC (Apple Leisure)(2)

 Hotels, Restaurants &
Leisure		  L+575   1.25%   7.00%   2/28/2013   2/28/2019   3,568   3,553   3,568 

American Seafoods Group LLC(2)

 Food Products  L+500   1.00%   6.00%   8/10/2015   8/19/2021   4,817   4,798   4,781 

American Teleconferencing Services, Ltd. (PGI)(2)

 Communications
Equipment		  L+650   1.00%   7.50%   5/5/2016   12/8/2021   8,662   7,871   8,423 

Anesthesia Consulting & Management, LP(2)

 Health Care Providers &
Services		  L+500   1.00%   6.00%   10/20/2016   10/31/2022   5,000   4,951   4,950 

Asurion, LLC

 Insurance  L+750   1.00%   8.50%   2/27/2014   3/3/2021   840   785   855 

Capstone Logistics Acqusition, Inc.(2)

 Professional Services  L+450   1.00%   5.50%   10/3/2014   10/7/2021   8,278   8,218   8,196 

CIBT Holdings, Inc.(2)

 Professional Services  L+525   1.00%   6.25%   6/28/2016   6/28/2022   2,620   2,596   2,594 

Confie Seguros Holding II Co.(2)

 Insurance  L+475   1.00%   5.75%   10/13/2016   4/19/2022   10,000   9,903   10,067 

ConvergeOne Holdings Corp.(2)

 Communications
Equipment		  L+538   1.00%   6.38%   6/16/2014   6/17/2020   4,830   4,800   4,806 

CT Technologies Intermediate Holdings(2)

 Health Care Technology  L+425   1.00%   5.25%   12/1/2014   12/1/2021   3,393   3,377   3,253 

DB Datacenter Holdings, Inc.(2)

 IT Services  L+475   1.00%   5.75%   12/28/2016   7/13/2021   5,000   4,925   4,925 

Empower Payments Acquisition, Inc.(2)

 Professional Services  L+550   1.00%   6.50%   11/28/2016   11/30/2023   4,625   4,533   4,532 

Engineering Solutions & Products, LLC(6)

 Aerospace & Defense  L+600   2.00%   8.00%   11/5/2013   11/5/2018   2,343   2,343   1,757 

Epic Health Services, Inc.(2)

 Health Care Providers &
Services		  L+475   1.00%   5.75%   2/20/2015   2/17/2021   4,798   4,770   4,798 

Falmouth Group Holdings Corp. (AMPAC)(2)

 Chemicals  L+675   1.00%   7.75%   12/15/2016   12/14/2021   9,476   9,476   9,476 

GenMark Diagnostics, Inc.(2)(4)

 Health Care Providers &
Services		  —     —     6.90%   4/22/2016   1/12/2019   9,643   9,538   9,739 

Global Tel*Link Corporation(2)

 Communications
Equipment		  L+375   1.25%   5.00%   11/6/2015   5/23/2020   3,426   3,083   3,418 

Global Tel*Link Corporation

 Communications
Equipment		  L+775   1.25%   9.00%   5/21/2013   11/23/2020   3,000   2,964   2,921 

HC Group Holdings III, Inc. (Walgreens)(2)

 Health Care Providers &
Services		  L+500   1.00%   6.00%   3/25/2015   4/7/2022   4,938   4,918   4,765 

Hostway Corporation(2)

 Internet Software &
Services		  L+475   1.25%   8.00%   6/27/2014   12/13/2019   8,776   8,753   8,162 

Kellermeyer Bergensons Services, LLC (KBS)(2)

 Commercial Services &
Supplies		  L+500   1.00%   6.00%   10/31/2014   10/29/2021   4,875   4,840   4,778 

Lumeris Solutions Company, LLC(2)

 Health Care Technology  —     —     9.42%   4/22/2016   12/27/2017   2,074   2,115   2,095 

Material Handling Services, LLC (TFS)(2)

 Air Freight & Logistics  L+500   1.00%   6.00%   3/3/2014   3/26/2020   11,056   10,991   10,946 

Mediware Information Systems, Inc.(2)

 Health Care Technology  L+475   1.00%   5.75%   9/26/2016   9/28/2023   4,988   4,939   4,988 

Metamorph US 3, LLC (Metalogix)(2)

 Software  L+650   1.00%   7.50%   12/1/2014   12/1/2020   8,000   7,860   5,720 

Ministry Brands, LLC(2)

 Software  L+500   1.00%   6.00%   11/21/2016   12/2/2022   5,493   5,438   5,438 

MYI Acquiror Corp. (McLarens Young)(2)

 Insurance  L+450   1.25%   5.75%   5/21/2014   5/28/2019   3,356   3,339   3,298 

MYI Acquiror Ltd. (McLarens Young)(2)(4)

 Insurance  L+450   1.25%   5.75%   5/21/2014   5/28/2019   4,282   4,260   4,208 

nThrive, Inc. (Precyse)(2)

 Health Care Providers &
Services		  L+550   1.00%   6.50%   4/19/2016   10/20/2022   5,977   5,901   6,067 

Description 

 Industry  Spread
above
Index(3)		  Libor
Floor 		  Interest
Rate (1)		  Acquisition
Date		  Maturity
Date		  Par
Amount		  Cost  Fair
Value		 

Bank Debt/Senior Secured Loans — 134.1%

         

1A Smart Start LLC(2)(11)(14)

  

Electrical Equipment, Instruments &

Components

 

 

  L+450   1.00%   7.02%   12/21/2017   2/21/2022  $13,936  $13,883  $13,902 

Acrisure, LLC(2)

  Insurance   L+425   1.00%   6.77%   5/3/2017   11/22/2023   7,372   7,358   7,164 

Advantage Sales and Marketing, Inc.(2)(11).

  Professional Services   L+325   1.00%   5.77%   2/14/2018   7/23/2021   4,950   4,873   4,838 

Advantage Sales and Marketing, Inc.(11)

  Professional Services   L+650   1.00%   9.02%   2/14/2013   7/25/2022   8,000   7,969   7,680 

Aegis Toxicology Sciences Corporation(2)(11)(14)

  Health Care Providers & Services   L+550   1.00%   8.10%   5/7/2018   5/9/2025   10,973   10,788   10,973 

Alera Group Intermediate Holdings, Inc.(2)(11).

  Insurance   L+450   —     7.02%   7/27/2018   8/1/2025   4,993   4,985   4,943 

Alimera Sciences, Inc.(2)(11).

  Pharmaceuticals   L+765   —     10.03%   1/5/2018   7/1/2022   5,000   5,009   5,025 

Alteon Health, LLC (fka Island Medical)(2)(11)(14)

  Health Care Providers & Services   L+650   1.00%   9.02%   3/31/2017   9/1/2022   7,469   7,414   7,095 

American Teleconferencing Services, Ltd. (PGI)(2)(11)

  Communications Equipment   L+650   1.00%   9.09%   5/5/2016   12/8/2021   14,113   13,643   13,937 

AQA Acquisition Holding, Inc.(2)(11)

  Software   L+425   1.00%   7.05%   9/7/2018   5/24/2023   5,675   5,621   5,604 

Capstone Logistics Acquisition, Inc.(2)(11)(14)

  Professional Services   L+450   1.00%   7.02%   10/3/2014   10/7/2021   12,358   12,302   12,204 

Centria Healthcare LLC(2)(11).

  Health Care Providers & Services   L+400   1.00%   6.64%   11/19/2018   11/3/2021   4,720   4,674   4,672 

Confie Seguros Holding II Co.(2)(11)(14)

  Insurance   L+475   1.00%   7.46%   10/13/2016   4/19/2022   14,173   14,082   14,014 

DISA Holdings Acquisition Subsidiary Corp.(2)(11)

  Professional Services   L+400   1.00%   6.35%   6/14/2018   6/30/2022   7,731   7,696   7,712 

Edgewood Partners Holdings, LLC(2)(11)(14)

  Insurance   L+425   1.00%   6.77%   3/28/2018   9/8/2024   13,272   13,255   13,272 

Empower Payments Acquisition, Inc. (RevSpring).(2)(11)

  Professional Services   L+425   1.00%   7.05%   11/28/2016   10/11/2025   5,000   4,988   4,988 

Engineering Solutions & Products, LLC(6)(11)

  Aerospace & Defense   L+600   2.00%   8.59%   11/5/2013   11/5/2019   2,282   2,157   2,282 

Falmouth Group Holdings Corp. (AMPAC)(2)(11)(14)

  Chemicals   L+675   1.00%   9.27%   12/15/2016   12/14/2021   11,859   11,859   11,859 

GenMark Diagnostics, Inc(2)(4)(11)

  Health Care Providers & Services   —     —     6.90%   4/22/2016   1/1/2021   10,039   10,953   10,953 

Global Holdings LLC & Payment Concepts
LLC(2)(11)

  Consumer Finance   L+750   1.00%   10.24%   3/31/2017   5/5/2022   11,400   11,241   11,400 

Kellermeyer Bergensons Services, LLC (KBS)(2)(11)(14)

  Commercial Services & Supplies   L+475   1.00%   7.27%   10/31/2014   10/29/2021   8,623   8,579   8,623 

Kore Wireless Group, Inc.(2)(11)

  
Wireless Telecommunication
Services		 
 		  L+550   1.00%   8.29%   12/21/2018   12/21/2024   12,046   11,805   11,926 

Logix Holding Company, LLC(2)(11)

  Communications Equipment   L+575   1.00%   8.27%   8/11/2017   12/22/2024   10,688   10,593   10,688 

Mavenir Systems, Inc.(2)(11)

  Software   L+600   1.00%   8.39%   5/1/2018   5/8/2025   9,950   9,765   9,920 

MHE Intermediate Holdings, LLC(TFS-Miner)(2)(11)(14)

  Air Freight & Logistics   L+500   1.00%   7.74%   3/8/2017   3/10/2024   5,951   5,902   5,891 

Ministry Brands, LLC(2)(11)(14)

  Software   L+400   1.00%   6.52%   11/21/2016   12/2/2022   14,320   14,223   14,320��

MRI Software LLC(2)(11)(14)

  Software   L+550   1.00%   7.90%   6/7/2017   6/30/2023   9,147   9,074   9,055 

MSHC, Inc. (Service Logic)(2)(11)(14)

  Commercial Services & Supplies   L+425   1.00%   6.89%   7/12/2018   7/31/2023   2,719   2,706   2,705 

National Spine and Pain Centers, LLC(11)(14)

  Health Care Providers & Services   L+450   1.00%   7.02%   9/18/2018   6/2/2024   2,585   2,574   2,546 

On Location Events, LLC & PrimeSport Holdings Inc.(2)(11)(14)

  Media   L+550   1.00%   7.90%   12/7/2017   9/29/2021   14,375   14,242   14,267 

Pet Holdings ULC & Pet Supermarket, Inc.(4)(11)(14)

  Specialty Retail   L+550   1.00%   7.90%   9/18/2018   7/5/2022   4,593   4,548   4,570 

PPT Management Holdings, LLC(2)(11) ††

  Health Care Providers & Services   L+750 PIK   1.00%   9.85%   12/15/2016   12/16/2022   8,583   8,523   7,295 

Pre-Paid Legal Services, Inc.(2)

  Diversified Consumer Services   L+300   —     5.52%   4/13/2018   5/1/2025   1,453   1,446   1,425 

Radiology Partners, Inc.(2)(11)

  Health Care Providers & Services   L+425   —     6.66%   6/28/2018   7/9/2025   7,481   7,411   7,350 

Restoration Robotics, Inc.(2)(11)

  Health Care Equipment & Supplies   L+795   —     10.33%   5/10/2018   5/1/2022   2,000   1,975   1,995 

Rubius Therapeutics, Inc.(2)(11)

  Pharmaceuticals   L+550   —     7.97%   12/21/2018   12/21/2023   2,061   2,056   2,055 

SHO Holding I Corporation (Shoes for Crews)(2)(11)

  Footwear   L+500   1.00%   7.53%   11/20/2015   10/27/2022   5,820   5,788   5,674 

Solara Medical Supplies, Inc.(2)(11)(14)

  Health Care Providers & Services   L+600   1.00%   8.52%   5/31/2018   2/27/2024   5,933   5,853   5,933 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(2)(11)(14)

  Insurance   L+475   1.00%   7.55%   3/16/2016   6/24/2021   10,982   10,876   10,982 

Trident USA Health Services(2)(11) ††

  Health Care Providers & Services   L+600(13)   1.25%   8.53%   7/29/2013   7/31/2022   7,057   7,051   4,234 

TwentyEighty, Inc.(11)

  Professional Services   L+800   1.00%   10.80%   1/31/2017   3/31/2020   96   95   96 

TwentyEighty, Inc.(11) ††

  Professional Services   —     —     8.00%(7)   1/31/2017   3/31/2020   2,067   2,014   2,067 

TwentyEighty, Inc.(11) ††

  Professional Services   —     —     9.00%(8)   1/31/2017   3/31/2020   1,981   1,934   1,952 

U.S. Acute Care Solutions, LLC(2)(11)(14)

  Health Care Providers & Services   L+500   1.00%   7.52%   12/22/2016   5/15/2021   6,370   6,333   6,370 

US Radiology Specialists, Inc.(2)(11)

  Health Care Providers & Services   L+450   1.00%   7.12%   11/27/2018   1/1/2024   3,766   3,738   3,738 

Web.com Group, Inc.(2)(11)

  Software   L+375   —     6.17%   9/17/2018   10/10/2025   9,000   8,978   8,685 

WIRB-Copernicus Group, Inc.(2)(11)(14)

  Professional Services   L+425   1.00%   6.77%   3/27/2017   8/15/2022   11,524   11,471   11,524 
        

 

 

  

 

 

 

Total Bank Debt/Senior Secured Loans

 

  $354,303  $350,403 
  

 

 

  

 

 

 

Common Equity/Equity Interests/Warrants—38.1%

  Shares/Units   

Engineering Solutions & Products, LLC(6)(9)(11)†

  Aerospace & Defense      11/5/2013    133,668  $1,367  $68 

Essence Group Holdings Corporation (Lumeris) Warrants(11)†. ..

  Health Care Technology      3/22/2017    52,000   16   89 

Gemino Healthcare Finance, LLC(4)(5)(11)

  Diversified Financial Services      9/30/2013    32,839   31,439   32,550 

North Mill Capital LLC(4)(5)(11)(12)

  Diversified Financial Services      10/20/2017    131   67,000   67,000 

Restoration Robotics, Inc. Warrants(11)†

  Health Care Equipment & Supplies      5/10/2018    16,173   25   1 

TwentyEighty Investors, LLC(11)†.

  Professional Services      1/31/2017    17,214   3,167   —   
        

 

 

  

 

 

 

Total Common Equity/Equity Interests/Warrants

 

  $103,014  $99,708 
  

 

 

  

 

 

 

Total Investments(10)—172.2%

 

  $457,317  $450,111 

Liabilities in Excess of Other Assets—(72.2%)

 

    (188,719) 
   

 

 

 

Net Assets—100.0%

 

   $261,392 
         

 

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 20162018

(in thousands, except share/unit amounts)thousands)

Description

 Industry  Spread
above
Index(3)		  Libor
Floor		  Interest
Rate(1)		  Acquisition
Date		  Maturity
Date		  Par
Amount		  Cost  Fair
Value		 

Pearl Merger Sub LLC (PetVet)(2)

  Health Care Facilities   L+475   1.00%   5.75%   1/29/2015   12/17/2020   4,410   4,347   4,360 

Polycom, Inc.(2)

  
Communications
Equipment		 
 		  L+650   1.00%   7.50%   9/29/2016   9/27/2023   14,506   13,940   14,434 

PPT Management Holdings, LLC(2)

  
Health Care Providers &
Services		 
 		  L+600   1.00%   7.00%   12/15/2016   12/16/2022   8,000   7,920   7,920 

PSP Group, LLC (Pet Supplies Plus)(2)(7)

  Specialty Retail   L+475   1.00%   5.75%   4/2/2015   4/6/2021   487   483   484 

QBS Holding Company, Inc. (Quorum)(2)

  Software   L+475   1.00%   5.75%   8/1/2014   8/7/2021   6,370   6,325   6,115 

Richelieu Foods, Inc.(2)

  Food Products   L+475   1.00%   5.75%   11/21/2014   5/21/2020   6,510   6,446   6,510 

Salient Partners, L.P.(2)

  Asset Management   L+850   1.00%   9.50%   6/10/2015   6/9/2021   4,217   4,150   4,111 

Securus Technologies, Inc.

  
Communications
Equipment		 
 		  L+775   1.25%   9.00%   4/17/2013   4/30/2021   10,000   9,946   9,759 

SHO Holding I Corporation (Shoes for Crews)(2)

  Footwear   L+500   1.00%   6.00%   11/20/2015   10/27/2022   5,940   5,890   5,940 

Strategic Partners Acquisition Corp.(2)

  
Textiles, Apparel &
Luxury Goods		 
 		  L+525   1.00%   6.25%   6/24/2016   6/30/2023   1,995   1,976   2,015 

Stratose Intermediate Holdings II, LLC(2)

  Health Care Services   L+500   1.00%   6.00%   1/25/2016   1/26/2022   4,950   4,907   4,962 

Suburban Broadband, LLC (Jab Wireless, Inc.)(2)

  

Wireless
Telecommunication
Services		 
 
 		  L+450   1.00%   5.50%   11/29/2016   3/26/2019   5,000   4,952   4,950 

The Edelman Financial Center, LLC(2)

  
Diversified Financial
Services		 
 		  L+550   1.00%   6.50%   12/16/2015   12/18/2022   4,950   4,862   4,950 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(2)

  Insurance   L+500   1.00%   6.00%   3/16/2016   6/24/2021   3,814   3,747   3,776 

Trident USA Health Services(2)

  
Health Care Providers &
Services		 
 		  L+575   1.25%   7.00%   7/29/2013   7/31/2019   8,793   8,755   8,001 

TwentyEighty, Inc. (fka Miller Heiman)(2)*

  Professional Services   L+600   1.00%   7.00%   9/30/2013   9/30/2019   6,991   6,950   3,495 

U.S. Acute Care Solutions, LLC(2)

  
Health Care Providers &
Services		 
 		  L+500   1.00%   6.00%   12/22/2016   5/15/2021   6,500   6,435   6,435 

VT Buyer Acquisition Corp. (Veritext)(2)

  Professional Services   L+500   1.00%   6.00%   1/29/2016   1/29/2022   4,481   4,443   4,459 
        

 

 

  

 

 

 

Total Bank Debt/Senior Secured Loans

 

 $297,380  $291,156 
        

 

 

  

 

 

 
                    Shares/Units       

Common Equity/Equity Interests—27.6%

         

Engineering Solutions & Products, LLC(6)(8)†

  Aerospace & Defense      11/5/2013    133,668  $1,367  $68 

First Lien Loan Program LLC(4)(5)

  Asset Management      2/13/2015    —     41,187   38,810 

Gemino Healthcare Finance,
LLC(4)(5)

  
Diversified Financial
Services		 
 		     9/30/2013    32,839   32,839   35,500 
        

 

 

  

 

 

 

Total Common Equity/Equity Interests

 

  $75,393  $74,378 
 

 

 

  

 

 

 

Total Investments(9)—135.8%

 

  $372,773  $365,534 
   Par Amount       
Cash Equivalents—52.0%         

U.S. Treasury Bill

  Government      12/29/2016   2/2/2017   140,000  $139,952  $139,952 
        

 

 

  

 

 

 

Total Investments & Cash Equivalents—187.8%

 

  $512,725  $505,486 

Liabilities in Excess of Other Assets—(87.8%)

 

    (236,341) 
         

 

 

 

Net Assets—100.0%

 

   $269,145 
         

 

 

 

 

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2016.2018.

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2016

(in thousands, except share/unit amounts)

(2)

Indicates an investment that is wholly or partially held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary SUNS SPV LLC.LLC (the “SUNS SPV”). Such investments are pledged as collateral under the Senior Secured Revolving Credit Facility (the “Credit Facility”) (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of Solar Senior Capital Ltd. The respective par amount for the investment that is partially held through the SPV is $4,821 for Genmark Diagnostics, Inc. The par balance in excess of this stated amount is held directly by Solar Senior Capital Ltd.Company.

(3)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.

(4)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from makingfollow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2016,2018, on a fair value basis,non-qualifying assets in the portfolio represented 17.4%25.5% of the total assets of the Company.

(5)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 20162018 in these controlled investments are as follows:

 

Name of Issuer

  Fair Value at
December 31, 2015		   Gross
Additions		   Gross
Reductions		   Realized
Gain
(Loss)		   Dividend/Other
Income		   Fair Value at
December 31, 2016		  Fair Value at
December 31,
2017		 Gross
Additions		 Gross
Reductions		 Realized
Gain
(Loss)		 Change in
Unrealized
Gain
(Loss)		 Dividend
/Other
Income		 Fair Value at
December 31,
2018		 

First Lien Loan Program LLC

  $27,593   $11,603   $—     $—       $3,264     $38,810 

First Lien Loan Program LLC (15)

 $35,835  $5,521  $42,980  $(3,209)  $(1,585)  $2,889 $—   

Gemino Healthcare Finance, LLC

   34,000    —      —      —      3,878      35,500  35,050   —    1,400   —    (1,100)  3,498 32,550 

North Mill Capital LLC

 51,000  16,000   —     —     —    5,703 67,000 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  $61,593   $11,603   $—     $—     $7,142     $74,310  $121,885  $21,521  $44,380  $(3,209)  $(2,685)  $12,090  $99,550 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(6)

Denotes investments in which we are an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 20162018 in these affiliated investments are as follows:

 

Name of Issuer

  Fair Value at
December 31, 2015		   Gross
Additions		   Gross
Reductions		   Realized
Gain
(Loss)		   Interest
Income		   Fair Value at
December 31, 2016		  Fair Value at
December 31,
2017		 Gross
Additions		 Gross
Reductions		 Realized
Gain
(Loss)		 Change in
Unrealized
Gain
(Loss)		 Interest/
Dividend/
Other
Income		 Fair Value at
December 31,
2018		 

Engineering Solutions & Products, LLC (1st lien)

  $106   $376   $482   $—     $11   $—     —    602  602  —     —    54   —   

Engineering Solutions & Products, LLC (2nd lien)

   2,249    —      —      —      190    1,757  2,145  76  226  —    238  329  2,282 

Engineering Solutions & Products, LLC (equity interests)

   68    —      —      —      —      68  68  —     —     —     —     —    68
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  $2,423   $376   $482   $—     $201   $1,825  $2,213  $678  $828  $—    $238  $383  $2,350 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(7)PSP Group, LLC, PSP Service Newco, Inc., PSP Subco, LLC, PSP Stores, LLC, and PSP Distribution, LLC areco-borrowers.

Coupon is 4.00% Cash / 4.00% PIK.

(8)

Coupon is 0.25% Cash / 8.75% PIK.

(9)

Our equity investment in Engineering Solutions & Products, LLC is held through ESP SSC Corp.,Corporation, a taxable consolidated subsidiary.

(9)(10)

Aggregate net unrealized depreciation for federal income tax purposes is $10,676;$10,007; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $3,649$1,362 and $14,325,$11,369, respectively, based on a tax cost of $376,210.$460,118. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.

*(11)Investment

Level 3 investment valued using significant unobservable inputs.

(12)

Our equity investment in North Mill Capital LLC is onpartially held through ESP SSC Corporation, a taxable consolidated subsidiary.

(13)

Spread is 3.00% Cash / 3.00% PIK.

(14)

Indicates an investment that is wholly or partially held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary FLLPnon-accrual2015-1 status.LLC (the “FLLP SPV”). Such investments are pledged as collateral under the FLLP2015-1, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company.

(15)

On September 18, 2018, the Company acquired 100% of the equity of FLLP and as such consolidated this investment as of this date. On December 19, 2018, FLLP was merged into the Company.

†

Non-income producing security.

††

Investment contains apayment-in-kind (“PIK”) feature.

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2016

2018

 

Industry Classification

  Percentage of Total
Investments (at
(at fair value) as of
December 31, 2016
2018

Diversified Financial Services (includes Gemino Healthcare Finance, LLC and North Mill Capital LLC)

  22.1%

Health Care Providers & Services

   16.815.8%

Professional Services

11.8%

Insurance

11.2%

Software

10.6%

Communications Equipment

   12.05.5%

Asset ManagementMedia

   11.73.2%

Diversified FinancialElectronic Equipment, Instruments & Components

3.1%

Wireless Telecommunication Services

   11.12.6%

Professional ServicesChemicals

   8.52.6%

InsuranceConsumer Finance

   8.42.5%

SoftwareCommercial Services & Supplies

   4.72.5%

Pharmaceuticals

1.6%

Air Freight & Logistics

1.3%

Footwear

1.3%

Specialty Retail

1.0%

Aerospace & Defense

0.5%

Health Care Equipment & Supplies

   3.30.5%

Food ProductsDiversified Consumer Services

   3.10.3%

Air Freight & Logistics

3.0% 

Health Care Technology

   2.80.0%

Chemicals

  2.6% 

Internet Software & Services

2.2% 

Hotels, Restaurants & Leisure

1.7% 

Footwear

1.6% 

Wireless Telecommunication Services

1.4% 

IT Services

1.4% 

Commercial Services & Supplies

1.3% 

Health Care Facilities

1.2% 

Textile, Apparel & Luxury Goods

0.6% 

Aerospace & Defense

0.5% 

Specialty Retail

0.1% 
 

 

 

 

Total Investments

   100.0%
 

 

 

 

See notes to consolidated financial statements.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

Note 1. Organization

Solar Senior Capital Ltd. (“Solar Senior”, the “Company”, “SUNS”, “we”, “us”, or “our”), a Maryland corporation formed on December 16, 2010, is aclosed-end, externally managed,non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, we have elected to be treated, and intend to qualify annually, as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (“the Code”).

On January 28, 2011, Solar Senior was capitalized with initial equity of $2 and commenced operations. On February 24, 2011, Solar Senior priced its initial public offering, selling 9.0 million shares, including the underwriters’ over-allotment, raising approximately $168,000 of net proceeds. Concurrent with this offering, our senior management team purchased an additional 500,000 shares through a private placement, raising another $10,000.

The Company’s investment objective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve our investment objective by investing directly or indirectly in senior secured loans, including first lien, stretch-senior, unitrache, and second lien debt instruments, made primarily to leveraged private middle-market companies whose debt is rated below investment grade, which the Company refers to collectively as “senior loans.” From time to time, we may also invest in public companies that are thinly traded. Under normal market conditions, at least 80% of the value of the Company’s net assets (including the amount of any borrowings for investment purposes) will be invested in senior loans.

Note 2. Significant Accounting Policies

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and itscertain wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been reclassified to conform to current period presentation.

Interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form10-Q and RegulationS-X, as appropriate. Accordingly, they may not include all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2019.

In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for the fair presentation of our consolidated financial statements, have been included.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

The significant accounting policies consistently followed by the Company are:

 

 (a)

Investment transactions are accounted for on the trade date;

 

 (b)

The Company conducts the valuation of its assets in accordance with GAAP and the 1940 Act. The Company generally values its assets on a quarterly basis, or more frequently if required. Investments for which market quotations are readily available on an exchange are valued at the closing price on the date of valuation. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, management determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the investment. If determined adequate, the Company uses the quote obtained. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of Solar Capital Partners, LLC (the “Investment Adviser”), does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of the Company’s board of directors (the “Board”).

Investments for which reliable market quotations are not readily available or for which the pricing sources do not provide a valuation or methodology or provide a valuation or methodology that, in the judgment of the Investment Adviser or the Board does not represent fair value, shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuations are discussed with senior management of the Investment Adviser; (iii) independent valuation firms engaged by, or on behalf of, the Board will conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for (a) each portfolio investment that, when taken together with all other investments in the same portfolio company, exceeds 10% of estimated total assets, plus available borrowings, as of the end of the most recently completed fiscal quarter, and (b) each portfolio investment that is presently in payment default;default and the Investment Adviser does not expect to reach an agreement with the portfolio company in the subsequent quarter; (iv) the Board will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser and, where appropriate, the respective independent valuation firm.

The recommendation of fair value generally considers the following factors among others, as relevant: applicable market yields; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flow; the markets in which the issuer does business; and comparisons to publicly traded securities, among others.

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

Investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the ninesix months ended SeptemberJune 30, 2017,2019, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.

 

 (c)

Gains or losses on investments are calculated by using the specific identification method.

 

 (d)

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method or on a straight-line basis, as applicable.method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any othernon-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned.

 

 (e)

The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate.

 

 (f)

Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

 (g)

Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

 

 (h)

In accordance with RegulationS-X and ASC Topic 810—Consolidation, the Company consolidates its interest in controlled investment company subsidiaries, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to the Company.

 

 (i)

The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against the U.S. dollar on the date of valuation. The Company will 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 market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company.

 

 (j)The Company has made an irrevocable election to apply the fair value option of accounting to its senior secured revolving credit facility (the “Credit Facility”), in accordance with ASC825-10. The Company uses an independent third-party valuation firm to assist in measuring its fair value.

(k)In accordance with ASC835-30, the Company recordsreports origination and other expenses related to certain debt issuances, if any, as a direct deduction from the carrying amount of the debt liability. TheseApplicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities andand/or when it approximates the effective yield method.

 

 (l)(k)

The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization, in accordance with ASC946-20-25. Certain subsequent costs are expensed per the AICPA Audit & Accounting Guide for Investment Companies.

 

 (m)(l)

Investments that are expected to pay regularly scheduled interest in cash are generally placed onnon-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Suchnon-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment.

 

 (n)(m)

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

Recent Accounting Pronouncements

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) interned to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend RegulationS-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to RegulationS-X was August 1, 2017. The Company has evaluated the impact that the adoption of the amendments to RegulationS-X on its consolidated financial statements and disclosures and determined that the adoption of the amendments to RegulationS-X has not had a material impact on its consolidated financial statements.

In November 2016, FASB issued ASU2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update require that a statement of cash flows explain the change during the periodmodify and eliminate certain disclosure requirements on fair value measurements 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 thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of820, Fair Value Measurement. ASU2016-18 on its consolidated financial statements and disclosures.

In December 2016, the FASB issued ASU2016-19, Technical Corrections and Improvements. As part of this guidance, ASU2016-19 amends FASB ASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU2016-192018-13 is effective on a prospective basis for financial statements issuedall entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis.2019. Early adoption is permitted. The Company has evaluatedis evaluating the impact of ASU2016-192018-13 on its consolidated financial statements and disclosures and determined that the adoption of ASU2016-19 has not had a material impact on its consolidated financial statements.disclosures.

In March 2017, the FASB issued ASU2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC310-20. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact ofhas adopted ASU2017-08 on its consolidated financial statements and disclosures.

In May 2014, the FASB issued ASC 606, Revenue From Contracts With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016. On August 12, 2015, the FASB issued an ASU, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASC 606 but does not currently believedetermined that the application of ASC 606 will haveadoption has not had a material impact on its consolidated financial statements and disclosures.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

Note 3. Agreements

Solar Senior has an Advisory Agreement with the Investment Adviser, under which the Investment Adviser manages theday-to-day operations of, and provides investment advisory services to, Solar Senior. For providing these services, the Investment Adviser receives a fee from Solar Senior, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is calculated at an annual rate of 1.00% of gross assets. For services rendered under the Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters. Base management fees for any partial month or quarter will be appropriatelypro-rated. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.

The performance-based incentive fee has two parts, as follows: one is calculated and payable quarterly in arrears based on ourpre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose,pre-incentive fee net investment income means interest income, dividend income and any other income (other than fees for providing managerial assistance) accrued during the calendar quarter, minus our operating expenses for the quarter (excluding the performance-based incentive fee).Pre-incentive fee net investment income includes, in the case of investments, if any, with a deferred interest feature (such as original issue discount, debt instruments withpay-in-kind interest andzero-coupon securities), accrued income that we have not yet received in cash.Pre-incentive fee net investment income does not include any realized capital gains or losses or unrealized capital appreciation or depreciation.Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00% annualized). The Company pays the Investment Adviser a performance-based incentive fee with respect topre-incentive fee net investment income for each calendar quarter as follows:

 

no performance-based incentive fee in any calendar quarter in which ourpre-incentive fee net investment income does not exceed the hurdle of 1.75%;

 

50% ofpre-incentive fee net investment income with respect to that portion of suchpre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.9167% in any calendar quarter (11.67% annualized);

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

and

 

20% of the amount ofpre-incentive fee net investment income, if any, that exceeds 2.9167% in any calendar quarter (11.67% annualized) will be payable to the Investment Adviser.

The second part of the performance-based incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of the Company’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a grossinvestment-by-investment basis at the end of each calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the performance-based incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

2018.

For the three and ninesix months ended SeptemberJune 30, 2017,2019 the Company recognized $955$1,203 and $2,862,$2,359, respectively, in gross base management fees and $231$525 and $428,$1,069, respectively, in gross performance-based incentive fees. For the three and ninesix months ended SeptemberJune 30, 2017, $4812019, $459 and $1,962,$459, respectively, of such base management fees were waived. For the three and ninesix months ended SeptemberJune 30, 2017, $2312019, $525 and $428,$1,061, respectively, of such performance-based incentive fees were waived. For the three and ninesix months ended SeptemberJune 30, 2016,2018 the Company recognized $852$1,145 and $2,483,$2,193, respectively, in gross base management fees and $636$491 and $1,486,$1,109, respectively, in gross performance-based incentive fees. For the three and ninesix months ended SeptemberJune 30, 2016,2018, no base management fees were waived. For the three and ninesix months ended SeptemberJune 30, 2016, $5182018, $437 and $1,131,$745, respectively, of such performance-based incentive fees were waived. For the quarterly periodsthree and six months ended September 30, 2016 to June 30, 2017 (the “Waiver Period”),2019 and 2018, there were no fees recaptured by the Investment Adviser had agreed to voluntarily waive a portion or all of the incentive fees, and to the extent necessary a portion or all of the base management fees, that the Investment Adviser would otherwise be entitled to receive pursuant to our investment advisory and management agreement with the Investment Adviser to the extent required in order for the Company to earn net investment income (exclusive of costs related to the expansion, extension and/or amendments of our credit facilities), as determined in accordance with GAAP, sufficient to maintain the Company’s current level of distributions. A portion or all of theAdviser. The below voluntary fee waivers made during the Waiver Period were made at the Investment Adviser’s discretion and are subject to recapture by the Investment Adviser and reimbursement by the Company through June 30, 2018 to the extent GAAP net investment income equals or exceeds the current level of distributions, among other conditions. As of June 30, 2017, which was the end of the waiver period, the total amount of fees waived that are subject to possible recoupment quarterly through June 30, 2018 was $3,067. The amount to be waived or recaptured was determined after the end of each quarter during the Waiver Period, with such amounts accrued on a quarterly basis. For the three and nine months ended September 30, 2017, there were no fees recaptured by the Investment Adviser. The voluntary fee waiver for the three months ended September 30, 2017 was made at the Investment Adviser’s discretion and is subject to recapture by the Investment Adviser and reimbursement by the company under the conditions noted below. The voluntary fee waiver for the three and nine months ended September 30, 2016 was made at the Investment Adviser’s discretion and was subject to recapture by the Investment Adviser and reimbursement by the Company if net investment income during and/or for fiscal 2016 equaled or exceeded distributions declared in fiscal 2016, among other conditions. For fiscal 2016, there were no fees recaptured by the Investment Adviser. No fees will be recouped by the Investment Adviser if (i) for the period in which recoupment occurs, the ratio of operating expenses to average net assets, when considering the reimbursement, exceeds the same ratio for the period in which the waiver occurred; (ii) for the period in which recoupment occurs, the annualized distribution rate cannot fall below the annualized distribution rate for the period in which the waiver occurred; and (iii) recoupment can only occur within three years from the date of the waiver. The table below presents a summary of fees waived that may be subject to recoupment:

 

Three Months Ended

 Management and
Performance-
Based Incentive
Fees Waived		  Management and
Performance-
Based Incentive
Fees Recouped		  Unreimbursed
Management and
Performance-Based
Incentive Fees		  Ratio of Operating
Expense to
Average Net Assets
for the Period(1)		  Annualized
Distribution
Rate for the
Period(2)		  Eligible for
Recoupment
Through

September 30, 2016

 $518  $—    $518   0.32%   8.41%  June 30, 2018

December 31, 2016

  871   —     871   0.28%   8.40%  June 30, 2018

March 31, 2017

  864   —     864   0.31%   8.39%  June 30, 2018

June 30, 2017

  814   —     814   0.31%   8.39%  June 30, 2018

September 30, 2017

  712   —     712   0.32%   8.40%  June 30, 2019
 

 

 

  

 

 

  

 

 

    

Total

 $3,779  $—    $3,779    
 

 

 

  

 

 

  

 

 

    

Three Months Ended

  Management
and
Performance-
Based
Incentive
Fees Waived		   Management
and
Performance-
Based
Incentive
Fees
Recouped		   Unreimbursed
Management
and
Performance-
Based
Incentive Fees		   Ratio of
Operating
Expense to
Average
Net Assets
for the
Period(1)		  Annualized
Distribution
Rate for the
Period(2)		  Eligible for
Recoupment Through		 

December 31, 2017

  $281   $—     $281    0.33%   8.39%   September 30, 2019 

March 31, 2018

   308    —      308    0.28%   8.37%   December 31, 2019 

June 30, 2018

   437    153    284    0.30%   8.37%   March 31, 2020 

December 31, 2018

   362    —      362    0.20%   8.38%   September 30, 2020 

March 31, 2019

   536    —      536    0.28%   8.65%   December 31, 2020 

June 30, 2019

   984    —      984    0.31%   8.60%   March 31, 2021 
  

 

 

   

 

 

   

 

 

     

Total

  $2,908   $153   $2,755     
  

 

 

   

 

 

   

 

 

     

 

(1)

Operating expense includes all expenses borne by the Company, except for organizational and offering costs, base management fees, performance-based incentive fees and interest expense. The ratios presented are not annualized.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

(2)

Annualized distribution rate equals the annualized rate of distributions paid to shareholdersstockholders based on the amount of the distributions declared prior to the date that the waivers of expenses related to management and performance-based incentive fees were incurred.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

Solar Senior has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services for Solar Senior. For providing these services, facilities and personnel, Solar Senior reimburses the Administrator for Solar Senior’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Senior’s behalf, managerial assistance to those portfolio companies to which Solar Senior is required to provide such assistance. The Company typically reimburses the Administrator on a quarterly basis.

For the three and ninesix months ended SeptemberJune 30, 2017,2019, the Company recognized expenses under the Administration Agreement of $372$400 and $1,107,$796, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2018, the Company recognized expenses under the Administration Agreement of $301$387 and $895,$769, respectively. No managerial assistance fees were accrued or collected for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018.

Note 4. Net Asset Value Per Share

At SeptemberJune 30, 2017,2019, the Company’s total net assets and net asset value per share were $269,496$262,109 and $16.81,$16.34, respectively. This compares to total net assets and net asset value per share at December 31, 20162018 of $269,145$261,392 and $16.80,$16.30, respectively.

Note 5. Earnings Per Share

The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC260-10, for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:

 

  Three months ended
September 30,		   Nine months ended
September 30,		   Three months ended June 30,   Six months ended June 30, 
  2017   2016   2017   2016   2019   2018   2019   2018 

Earnings per share (basic & diluted)

                

Numerator—net increase in net assets resulting from operations:

  $6,012   $5,169   $17,152   $18,257   $4,586   $5,519   $11,972   $11,036 

Denominator—weighted average shares:

   16,033,270    12,359,049    16,029,844    11,810,569    16,043,288    16,040,457    16,042,086    16,039,628 

Earnings per share:

  $0.37   $0.42   $1.07   $1.55   $0.29   $0.34   $0.75   $0.69 

Note 6. Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

 a)

Quoted prices for similar assets or liabilities in active markets;

 

 b)

Quoted prices for identical or similar assets or liabilities innon-active markets;

 

 c)

Pricing models whose inputs are observable for substantially the full term of the asset or liability; and

 

 d)

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3.Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).

Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of the quarter in which the reclassifications occur.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of SeptemberJune 30, 20172019 and December 31, 2016:2018:

Fair Value Measurements

As of SeptemberJune 30, 20172019

 

   Level 1   Level 2   Level 3   Measured at
Net Asset Value*		   Total 

Assets:

          

Bank Debt/Senior Secured Loans

  $—     $20,715   $274,367   $—     $295,082 

Common Equity/Equity Interests/Warrants

   —      —      35,259    37,667    72,926 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $—     $20,715   $309,626   $37,667   $368,008 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

          

Credit Facility

  $—     $—     $91,000   $—     $91,000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

*

In accordance with ASC820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The

   Level 1   Level 2   Level 3   Total 

Assets:

        

Bank Debt/Senior Secured Loans

  $—     $7,315   $362,294   $369,609 

Common Equity/Equity Interests/Warrants

   —      —      104,639    104,639 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $—     $7,315   $466,933   $474,248 
  

 

 

   

 

 

   

 

 

   

 

 

 

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. The portfolio investment in this category is FLLP. See Note 11 for more information on this investment, including its investment strategy and the Company’s unfunded equity commitment to FLLP. This investment is not redeemable by the Company absent an election by the members of the entity to liquidate all investments and distribute the proceeds to the members.

Fair Value Measurements

As of December 31, 20162018

 

   Level 1   Level 2   Level 3   Measured at
Net Asset Value*		   Total 

Assets:

          

Bank Debt/Senior Secured Loans

  $—     $40,888   $250,268   $—     $291,156 

Common Equity/Equity Interests

   —      —      35,568    38,810    74,378 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $—     $40,888   $285,836   $38,810   $365,534 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

          

Credit Facility

  $—     $—     $98,300   $—     $98,300 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

*In accordance with ASC820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.
   Level 1   Level 2   Level 3   Total 

Assets:

        

Bank Debt/Senior Secured Loans

  $—     $8,589   $341,814   $350,403 

Common Equity/Equity Interests/Warrants

   —      —      99,708    99,708 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $—     $8,589   $441,522   $450,111 
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

        

FLLP Facility

  $—     $—     $51,371   $51,371 
  

 

 

   

 

 

   

 

 

   

 

 

 

The following tabletables provides a summary of the changes in fair value of Level 3 assets and liabilities for the ninesix months ended SeptemberJune 30, 2017,2019 and the year ended December 31, 2018, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at SeptemberJune 30, 2017:2019 and December 31, 2018:

Fair Value Measurements Using Level 3 Inputs

 

   Bank Debt/Senior
Secured Loans		  Common
Equity/Equity
Interests/Warrants		 

Fair value, December 31, 2016

  $250,268  $35,568 

Total gains or losses included in earnings:

   

Net realized gain (loss)

   86   —   

Net change in unrealized gain (loss)

   3,286   (3,491) 

Purchase of investment securities

   100,626   3,182 

Proceeds from dispositions of investment securities

   (95,725)   —   

Transfers in/out of Level 3

   15,826   —   
  

 

 

  

 

 

 

Fair value, September 30, 2017

  $274,367  $35,259 
  

 

 

  

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

   

Net change in unrealized gain (loss):

  $3,286  $(3,491) 
  

 

 

  

 

 

 

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

During the three months ended September 30, 2017, there were no transfers in and out of Levels 1 or 2. During the three months ended June 30, 2017, Securus Technologies, Inc. was transferred from Level 2 to Level 3. At June 30, 2017, the Investment Adviser believed that Securus Technologies, Inc. was likely going to be prepaid at par in the near future. As such, the Investment Adviser, in its recommendation to the Board, felt that it was more representative of fair value to price the position at par, matching the price we would receive if the investment was prepaid. During the three months ended March 31, 2017, nThrive, Inc. was transferred from Level 2 to Level 3. At March 31, 2017, the Investment Adviser also believed that nThrive, Inc. was likely going to be prepaid in the near future. As such, the Investment Adviser, in its recommendation to the Board, felt that it was more representative of fair value to price the position at par, matching the price we would receive if the investment was prepaid. This position was repaid in the quarter ended June 30, 2017.

   Bank
Debt/Senior
Secured
Loans		  Common
Equity/Equity
Interests/
Warrants		  Total 

Fair value, December 31, 2018

  $341,814  $99,708  $441,522 

Total gains or losses included in earnings:

    

Net realized gain (loss)

   212   —     212 

Net change in unrealized gain (loss)

   (4,731)   4,973   242 

Purchase of investment securities

   51,097   —     51,097 

Proceeds from dispositions of investment securities

   (26,098)   (42)   (26,140) 

Transfers into Level 3

   —     —     —   

Transfers out of Level 3

   —     —     —   
  

 

 

  

 

 

  

 

 

 

Fair value, June 30, 2019

  $362,294  $104,639  $466,933 
  

 

 

  

 

 

  

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

    

Net change in unrealized gain (loss):

  $(4,731)  $4,973  $242 
  

 

 

  

 

 

  

 

 

 

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the ninesix months ended SeptemberJune 30, 2017:2019:

 

Beginning fair value at December 31, 2016

  $98,300 

Beginning fair value at December 31, 2018

  $51,371 

Borrowings

   84,200    5,082 

Repayments

   (91,500)    —   

Transfers in/out of Level 3

   —      (56,453) 
  

 

   

 

 

Ending fair value at September 30, 2017

  $91,000 

Ending fair value at June 30, 2019

  $—   
  

 

   

 

 

The Company has made an irrevocable electiondid not elect to apply the fair value option of accounting to the CreditFLLP Facility, in accordance with ASC825-10. On September 30, 2017, there were borrowingswhich was refinanced by way of $91,000amendment on the Credit Facility. For the nine months ended September 30, 2017, the Credit Facility had no net change in unrealized (appreciation) depreciation. The Company used an independent third-party valuation firmMay 31, 2019. As this refinancing was deemed to assist in measuring the fair value of the Credit Facility.

The following table providesbe a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2016, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2016:significant

Fair Value Measurements Using Level 3 Inputs

   Bank Debt/Senior
Secured Loans		  Unsecured
Notes		  Common
Equity/Equity
Interests		 

Fair value, December 31, 2015

  $198,836  $3,650  $34,068 

Total gains or losses included in earnings:

    

Net realized gain (loss)

   6   —     —   

Net change in unrealized gain (loss)

   (1,812)   (6)   1,500 

Purchase of investment securities

   136,331   —     —   

Proceeds from dispositions of investment securities

   (83,093)   (3,644)   —   

Transfers in/out of Level 3

   —     —     —   
  

 

 

  

 

 

  

 

 

 

Fair value, December 31, 2016

  $250,268  $—    $35,568 
  

 

 

  

 

 

  

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

    

Net change in unrealized gain (loss):

  $(2,857)  $—    $1,500 
  

 

 

  

 

 

  

 

 

 

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

modification of debt, per ASC825-10-25, a new election date was triggered. As such the FLLP Facility is shown as a transfer out of Level 3.

Fair Value Measurements Using Level 3 Inputs

   Bank
Debt/Senior
Secured
Loans		  Common
Equity/Equity
Interests/
Warrants		  Total 

Fair value, December 31, 2017

  $264,650  $86,157  $350,807 

Total gains or losses included in earnings:

    

Net realized gain (loss)

   (5,218)   —     (5,218) 

Net change in unrealized gain (loss)

   (1,052)   (1,073)   (2,125) 

Purchase of investment securities

   168,768   16,024   184,792 

Proceeds from dispositions of investment securities

   (176,482)   (1,400)   (177,882) 

Transfers in/out of Level 3

   91,148   —     91,148
  

 

 

  

 

 

  

 

 

 

Fair value, December 31, 2018

  $341,814  $99,708  $441,522 
  

 

 

  

 

 

  

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

    

Net change in unrealized gain (loss):

  $(1,053)  $(1,073)  $(2,126) 
  

 

 

  

 

 

  

 

 

 

During the yearquarter ended June 30, 2018, Advantage Sales and Marketing Inc. was transferred from Level 2 to Level 3. At June 30, 2018, the Investment Adviser believed that the available quote for Advantage Sales and Marketing Inc. was no longer representative of fair value. However, the quote was still considered as an input to the fair value determination. As such, Advantage Sales and Marketing Inc. was transferred from Level 2 to Level 3 as the Investment Adviser could no longer rely on the available quote from a third-party source and was using additional assumptions in fair valuing the investment. During the quarter ended September 30, 2018, the Company’s investment in FLLP was consolidated, and as such the Level 3 assets held by FLLP are reflected as transfers into Level 3. During the quarter ended December 31, 2016,2018,Pre-Paid Legal Services, Inc. was transferred from Level 3 to Level 2 as the Investment Adviser believed that there were no transferswas ample liquidity in the available quote given known transactions and outthus believed the quote to be representative of Levels 1 and 2.fair value.

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2016:2018:

 

Beginning fair value at December 31, 2015

  $116,200 

Beginning fair value at December 31, 2017

  $124,200 

Borrowings

   136,800    30,950 

Repayments

   (154,700)    (29,376) 

Transfers in/out of Level 3

   —      (74,403) 
  

 

   

 

 

Ending fair value at December 31, 2016

  $98,300 

Ending fair value at December 31, 2018

  $51,371 
  

 

   

 

 

The Company has made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC825-10. On December 31, 2018, there were borrowings of $51,371 on the FLLP Facility. For the year ended December 31, 2018, the FLLP Facility had no net change in unrealized (appreciation) depreciation. As a result of the consolidation of FLLP, the FLLP Facility is shown as a transfer into Level 3.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

The Company did not elect to apply the fair value option of accounting to the Credit Facility, in accordance withwhich was refinanced by way of amendment on June 1, 2018. As this refinancing was deemed to be a significant modification of debt, per ASC825-10.825-10-25, On December 31, 2016, there were borrowings of $98,300 on the Credit Facility. For the year ended December 31, 2016,a new election date was triggered. As such the Credit Facility had no net change in unrealized (appreciation) depreciation. The Company used an independent third-party valuation firm to assist in measuring the fair valueis shown as a transfer out of the Credit Facility.Level 3.

Quantitative Information about Level 3 Fair Value Measurements

The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.

Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, and comparable market transactions for equity securities.

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of SeptemberJune 30, 20172019 is summarized in the table below:

 

  Asset or
Liability		 Fair Value at
September 30,
2017		  Principal
Valuation
Technique/
Methodology		 Unobservable Input Range (Weighted
Average)

Bank Debt / Senior Secured Loans

 Asset $274,367  Yield Analysis Market Yield 5.9% – 20.4% (8.2%)

Common Equity/Equity Interests/Warrants

 Asset $

$

109

35,150

 

 

 Enterprise Value

Enterprise Value

 EBITDA Multiple

Return on Equity

 6.8x – 18.2x (18.2x)
6.2% – 22.8% (12.5%)

Credit Facility

 Liability $91,000  Yield Analysis Market Yield L+1.4% – L+4.8%

(L+2.0%)

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

  Asset or
Liability		 Fair Value at
June 30,
2019		  Principal
Valuation
Technique/
Methodology		 Unobservable Input Range (Weighted
Average)

Bank Debt / Senior Secured Loans

 Asset $362,222  Income Approach Market Yield 6.4% – 15.5% (8.2%)
 Asset $72  Market Approach EBITDA Multiple 7.0x – 10.0x (8.5x)

Common Equity/Equity Interests/Warrants

 

Asset

 $

$

3,189

101,450

 

 

 Market Approach

Market Approach

 EBITDA Multiple

Return on Equity

 5.8x – 14.4x (14.4x)

3.5% – 28.9% (6.5%)

Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in derivingbid-ask spreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities.

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 20162018 is summarized in the table below:

 

  Asset or
Liability		 Fair Value at
December 31,
2016		  Principal
Valuation
Technique/
Methodology		 Unobservable Input Range (Weighted
Average)

Bank Debt / Senior Secured Loans

 Asset $250,268  Yield Analysis Market Yield 5.7% – 37.3% (8.0%)

Common Equity/Equity Interests

 Asset $

$

68

35,500

 

 

 Enterprise Value

Enterprise Value

 EBITDA Multiple

Return on Equity

 9.3x – 27.0x (27.0x)
3.0% – 21.7% (15.0%)

Credit Facility

 Liability $98,300  Yield Analysis Market Yield L+1.4% – L+4.8%

(L+2.0%)

  Asset or
Liability		 Fair Value at
December 31,
2018		  Principal
Valuation
Technique/
Methodology		 Unobservable Input Range (Weighted
Average)

Bank Debt / Senior Secured Loans

 Asset $341,814  Income Approach Market Yield 6.9% – 25.5% (8.7%)

Common Equity/Equity Interests/Warrants

 

Asset

 $

$

158

99,550

 

 

 Market Approach

Market Approach

 EBITDA Multiple

Return on Equity

 5.8x – 14.4x (14.4x)

7.5% – 25.2% (10.1%)

FLLP Facility

 Liability $51,371  Income Approach Market Yield L+1.4% – L+4.8%
(L+2.3%)

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in derivingbid-ask spreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities. Generally, an increase in market yields or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

Note 7. Debt

Senior Secured Revolving Credit Facility—On August 26, 2011, the Company established theour wholly-owned subsidiary, SUNS SPV LLC (the “SUNS SPV”) which entered into the Credit Facility with Citigroup Global Markets Inc. acting as administrative agent. On January 10, 2017, commitments to the Credit Facility, as amended, were increased from $175,000 to $200,000 by utilizing the accordion feature. ItThe commitment can also be expanded up to $600,000. The stated interest rate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement and the current final maturity date is June 30, 2020.1, 2023. The Credit Facility is secured by all of the assets held by theSUNS SPV. Under the terms of the Credit Facility, Solar Senior Capital and theSUNS SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature. The Credit Facility was amended on November 7, 2012, June 30, 2014, and May 29, 2015 to extend maturities and add greater investment flexibility, among other changes.

The Company has made an irrevocable election to apply On June 1, 2018, the fair value optionCredit Facility was refinanced by way of accountingamendment, allowing for greater investment flexibility and the extension of the maturity date, among other changes. On July 13, 2018, commitments to the Credit Facility, in accordance with ASC825-10. We believe accounting foras amended, were increased from $200,000 to $225,000 by utilizing the accordion feature. There were $162,800 of borrowings outstanding as of June 30, 2019 under the Credit Facility.

FLLP Facility at fair value better aligns—On May 31, 2019, the measurement methodologies of assetsCompany as transferor and liabilities, which may mitigate certain earnings volatility. ASCFLLP825-102015-1, requires entities to display the fair valueLLC, a wholly-owned subsidiary of the selected assetsCompany, as borrower entered into amendment number five to the $75,000 FLLP Facility with Wells Fargo Bank, NA acting as administrative agent. The Company acts as servicer under the FLLP Facility. The FLLP Facility is scheduled to mature on May 31, 2024. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of2.15-2.25%. The Company and liabilities on the faceFLLP2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facility also includes usual and customary events of the Consolidated Statementsdefault for credit facilities of Assets and Liabilities and changes in fair valuethis nature. There were $56,452 of the Credit Facility are reported in the Consolidated Statementsborrowings outstanding as of Operations.June 30, 2019.

The average annualized interest cost for all borrowings for the ninesix months ended SeptemberJune 30, 20172019 and the year ended December 31, 20162018 was 3.09%4.79% and 2.59%4.30%, respectively. These costs are exclusive of other credit facility expenses such as unused fees and fees paid to theback-up servicer, if any. The maximum amount borrowed on the Credit Facilityrevolving credit facilities during the ninesix months ended SeptemberJune 30, 20172019 and the year ended December 31, 2016,2018, was $111,600$223,453 and $141,600,$214,296, respectively.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

Note 8. Financial Highlights and Senior Securities Table

The following is a schedule of financial highlights for the ninesix months ended SeptemberJune 30, 20172019 and for the year ended December 31, 2016:2018:

 

  Nine months
ended
September 30,
2017
(unaudited)		 Year ended
December 31,
2016		   Six months ended
June 30, 2019		 Six months ended
June 30, 2018		 

Per Share Data: (a)

      

Net asset value, beginning of year

  $16.80  $16.33   $16.30  $16.84 
  

 

  

 

   

 

  

 

 

Net investment income

   1.06  1.42    0.70  0.71 

Net realized and unrealized gain

   0.01  0.50    0.04  (0.01) 
  

 

  

 

   

 

  

 

 

Net increase in net assets resulting from operations

   1.07  1.92    0.74  0.70 

Distributions to stockholders:

      

From net investment income

   (1.06)  (1.42)    (0.70)  (0.71) 

Offering costs and other

   —    (0.03) 
  

 

  

 

   

 

  

 

 

Net asset value, end of period

  $16.81  $16.80   $16.34  $16.83 
  

 

  

 

   

 

  

 

 

Per share market value, end of period

  $17.23  $16.44   $15.91  $16.31 

Total Return(b)

   11.40%  20.70% 

Total Return(b)

   9.77%  (4.24)% 

Net assets, end of period

  $269,496  $269,145   $262,109  $269,924 

Shares outstanding, end of period

   16,033,733  16,025,011    16,043,735  16,040,485 
  

 

  

 

   

 

  

 

 

Ratios to average net assets(c):

   

Ratios to average net assets(c):

   

Net investment income

   6.30%  8.68%    4.31%  4.19% 
  

 

  

 

   

 

  

 

 

Operating expenses

   1.28%*  2.65%*    1.32%*  1.61%* 

Interest and other credit facility expenses

   1.01%  1.56%    2.09%  1.17% 
  

 

  

 

   

 

  

 

 

Total expenses

   2.29%*  4.21%*    3.41%*  2.78%* 
  

 

  

 

   

 

  

 

 

Average debt outstanding

  $94,681  $109,938   $207,500  $152,870 

Portfolio turnover ratio

   30.5%  38.4%    5.9%  11.9% 

 

(a)

Calculated using the average shares outstanding method.

(b)

Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. The market price per share as of December 31, 2018 and December 31, 2017 was $15.12 and $17.76, respectively. Total return does not include a sales load.

(c)

Not annualized for periods less than one year.

*

The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets is shown net of voluntary management andand/or incentive fee waivers (see note 3). For the ninesix months ended SeptemberJune 30, 2017,2019, the ratios of operating expenses to average net assets and total expenses to average net assets would be 2.17%1.90% and 3.18%3.99%, respectively, without the voluntary management and incentive fee waivers. For the yearsix months ended December 31, 2016,June 30, 2018, the ratios of operating expenses to average net assets and total expenses to average net assets would be 3.60%1.89% and 5.15%3.06%, respectively, without the voluntary management and incentive fee waivers.waiver.

Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. Our stockholders approved being subject to a 150% asset coverage ratio effective October 12, 2018.

Information about our senior securities is shown in the following table as of each year ended December 31 since the Company commenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.

 

Class and Year

 Total Amount
Outstanding(1)		 Asset
Coverage
Per Unit(2)		 Involuntary
Liquidating
Preference
Per Unit(3)		 Average
Market Value
Per Unit(4)		   Total Amount
Outstanding(1)		   Asset
Coverage
Per Unit(2)		   Involuntary
Liquidating
Preference
Per Unit(3)		   Average
Market Value
Per Unit(4)		 

Revolving Credit Facility

    

Fiscal 2017 (through September 30, 2017)

 $91,000  $3,961  $—    N/A 

Credit Facility

        

Fiscal 2019 (through June 30, 2019)

  $162,800   $1,630   $—      N/A 

Fiscal 2018

   119,200    1,770  �� —      N/A 

Fiscal 2017

   124,200    3,175    —      N/A 

Fiscal 2016

 98,300  3,738   —    N/A    98,300    3,738    —      N/A 

Fiscal 2015

 116,200  2,621   —    N/A    116,200    2,621    —      N/A 

Fiscal 2014

 143,200  2,421   —    N/A    143,200    2,421    —      N/A 

Fiscal 2013

 61,400  4,388   —    N/A    61,400    4,388    —      N/A 

Fiscal 2012

 39,100  5,453   —    N/A    39,100    5,453    —      N/A 

Fiscal 2011

 8,600  21,051   —    N/A    8,600    21,051    —      N/A 

FLLP Facility

        

Fiscal 2019 (through June 30, 2019)

   56,452    565    —      N/A 

Fiscal 2018

   51,371    762    —      N/A 

Total Senior Securities

        

Fiscal 2019 (through June 30, 2019)

  $219,252   $2,195   $—      N/A 

Fiscal 2018

   170,571    2,532    —      N/A 

Fiscal 2017

   124,200    3,175    —      N/A 

Fiscal 2016

   98,300    3,738    —      N/A 

Fiscal 2015

   116,200    2,621    —      N/A 

Fiscal 2014

   143,200    2,421    —      N/A 

Fiscal 2013

   61,400    4,388    —      N/A 

Fiscal 2012

   39,100    5,453    —      N/A 

Fiscal 2011

   8,600    21,051    —      N/A 

 

(1)

Total amount of each class of senior securities outstanding at the end of the period presented.

(2)

The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit was divided based on the amount outstanding at the end of the period for each. As of SeptemberJune 30, 2017,2019, asset coverage was 396.1%219.5%.

(3)

The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4)

Not applicable, we do not have senior securities that are registered for public trading.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

Note 9. Gemino Healthcare Finance, LLC

We acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured Healthcare Finance) (“Gemino”) on September 30, 2013. Gemino is a commercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small andmid-sized companies operating in the healthcare industry. Our initial investment in Gemino was $32,839. The management team of Geminoco-invested in the transaction and continues to lead Gemino. As of June 30, 2019, Gemino’s management team and Solar Senior own approximately 7% and 93% of the equity in Gemino, respectively.

Concurrent with the closing of the transaction, Gemino entered into a new, four-year,non-recourse, $100,000 credit facility withnon-affiliates, which was expandable to $150,000 under its accordion feature. Effective March 31, 2014, the credit facility was expanded to $105,000 and again on June 27, 2014 to $110,000. On May 27, 2016, Gemino entered into a new $125,000 credit facility which replaced the previously existing facility. The new facility has similar terms as compared to the previous facility and includes an accordion feature increase to $200,000 and hashad a maturity date of May 27, 2020.

On December 31, 2013, we contributed our 32,839 units in GeminoJune 28, 2019, this $125,000 facility was amended, extending the maturity date to Gemino Senior Secured Healthcare LLC (“Gemino Senior Secured Healthcare”). In exchange for this contribution, we received 19,839 units of equity interests and $13,000 in floating rate secured notes of Gemino Senior Secured Healthcare bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018. However, our financial statements, including our schedule of investments, reflected our investments in Gemino Senior Secured Healthcare on a consolidated basis.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

On OctoberJune 28, 2016, Gemino Senior Secured Healthcare was dissolved. As of September 30, 2017, Gemino’s management team and Solar Senior own approximately 7% and 93% of the equity in Gemino, respectively.2023.

Gemino currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of SeptemberJune 30, 2017,2019, the portfolio totaled approximately $190,153$187,252 of commitments, of which $106,455$119,065 were funded, on total assets of $112,131.$107,012. As of December 31, 2016,2018, the portfolio totaled approximately $186,360$174,083 of commitments, of which $114,386$108,643 were funded, on total assets of $118,490.$108,640. At SeptemberJune 30, 2017,2019, the portfolio consisted of 3233 issuers with an average balance of approximately $3,327$3,608 versus 3534 issuers with an average balance of approximately $3,268$3,195 at December 31, 2016.2018. All of the commitments in Gemino’s portfolio are floating-rate, senior-secured,cash-pay loans. Gemino’s credit facility, which isnon-recourse to us, had approximately $77,000$73,000 and $83,000$75,000 of borrowings outstanding at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. For the three months ended SeptemberJune 30, 20172019 and 2016,2018, Gemino had net income of $1,139$948 and $1,027,$668, respectively, on gross income of $3,111$3,382 and $3,207,$2,745, respectively. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, Gemino had net income of $2,562$1,879 and $3,415,$1,380, respectively, on gross income of $8,723$6,537 and $10,340,$5,464, respectively. Due to timing andnon-cash items, there may be material differences between GAAP net income and cash available for distributions. The latest audited financial statements for Gemino were attached to our most recent Form10-K filing with the SEC.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

Note 10. Commitments and Contingencies

The Company had unfunded debt and equity commitments to various revolving and delayed draw and revolving loans as well as to Gemino.Gemino Healthcare Finance, LLC. The total amount of these unfunded commitments as of SeptemberJune 30, 20172019 and December 31, 20162018 is $16,232$34,674 and $13,073,$23,619, respectively, comprised of the following:

 

  September 30,
2017		  December 31,
2016		 

Gemino Healthcare Finance, LLC

 $5,000  $5,000 

PetVet Care Centers, LLC

  2,670   —   

MRI Software LLC

  2,361   —   

Engineering Solutions & Products, LLC

  1,736   1,736 

Alera Group Intermediate Holdings, Inc

  1,312   3,860 

MHE Intermediate Holdings, LLC

  983   —   

The Hilb Group, LLC & Gencorp Insurance Group, Inc.

  881   —   

Ministry Brands, LLC

  809   1,507 

VT Buyer Acquisition Corp. (Veritext)

  340   486 

TwentyEighty, Inc

  140   —   

CIBT Holdings, Inc

  —     484 
 

 

 

  

 

 

 

Total Commitments*

 $16,232  $13,073 
 

 

 

  

 

 

 
   June 30,
2019		   December 31,
2018		 

Unified Physician Management, LLC

  $10,030   $—   

MSHC, Inc.

   8,322    3,326 

Solara Medical Supplies, Inc.

   3,930    2,056 

WIRB-Copernicus Group, Inc.

   2,393    2,649 

Rubius Therapeutics, Inc.

   2,061    4,121 

GenMark Diagnostics, Inc.

   1,628   700

Gemino Healthcare Finance, LLC*

   1,400   1,400

Edgewood Partners Holdings, LLC

   1,008    —   

Composite Technology Acquisition Corp.

   1,000   —   

Cerapedics, Inc.

   824    —   

MRI Software LLC

   803   2,446

DISA Holdings Acquisition Corp.

   520    2,586 

Engineering Solutions & Products, LLC

   334   535

AQA Acquisition Holding, Inc.

   142    142 

TwentyEighty, Inc.

   140   140

Centria Healthcare LLC

   139    333 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.

   —      3,156

MHE Intermediate Holdings, LLC

   —      29
  

 

 

   

 

 

 

Total Commitments

  $34,674   $23,619 
  

 

 

   

 

 

 

 

*

The Company controls the funding of the Gemino Healthcare Finance, LLC commitment and may cancel it at its discretion.

The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the Company had sufficient cash available and/or liquid securities available to fund its commitments as well ascommitments.

Note 11. North Mill Holdco LLC

We acquired 100% of the commitmentsequity interests of North Mill Capital LLC (“NMC”) on October 20, 2017. NMC is a leading asset-backed lending commercial finance company that provides senior secured asset-backed financings to FLLP disclosedU.S. basedsmall-to-medium-sized businesses primarily in Note 11the manufacturing, services and Solar Life Science Programdistribution industries. We invested approximately $51,000 to effect the transaction. Subsequently, the Company contributed 1% of its equity interest in NMC to ESP SSC Corporation. Immediately thereafter, the Company and ESP SSC Corporation contributed their equity interests to NorthMill LLC (“LSJV”North Mill”) disclosed in Note 12.. On May 1, 2018, North Mill merged with and into NMC, with NMC being the surviving company. The Company and ESP SSC Corporation own 99% and 1% of the equity interests of NMC, respectively. The management team of NMC

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

SeptemberJune 30, 20172019

(in thousands, except share amounts)

 

Note 11. First Lien Loan Program LLC

continues to lead NMC. On September 10, 2014, the Company entered into a limited liability company agreement to create FLLP with Voya Investment ManagementJune 28, 2019, North Mill Holdco LLC (“Voya”NM Holdco”). Voya acts as the investment advisor for several wholly-owned insurance subsidiaries of Voya Financial, Inc. (NYSE: VOYA). The joint venture vehicle, structured as an unconsolidated Delaware limited liability company, is expected to invest primarily in senior secured floating rate term loans to middle market companies predominantly owned by private equity sponsors or entrepreneurs. Solar Senior and Voya have committed to provide $50,750 and $7,250, respectively, of capital to the joint venture. All portfolio decisions and generally all other decisions in respect of the FLLP must be approved by an investment committee of the FLLP consisting of representatives of the Company and Voya (with approval from a representative of each required). On February 13, 2015, FLLP commenced operations. On February 13, 2015, FLLP as transferor and FLLP2015-1, LLC,, a newly formed wholly owned subsidiaryentity and ESP SSC Corporation acquired Summit Financial Resources, a Salt Lake City-based provider of FLLP, as borrower entered intoasset-backed financing to small andmedium-sized businesses. As part of this transaction, the Company’s 99% interest in the equity of NMC was contributed to NM Holdco. This approximately $15,500 transaction was financed with borrowings on NMC’s credit facility.

NM Holdco currently manages a $75,000highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of June 30, 2019, the portfolio totaled approximately $363,904 of commitments, of which $173,889 were funded, on total assets of $209,021. As of December 31, 2018, the portfolio totaled approximately $247,259 of commitments, of which $122,323 were funded, on total assets of $155,568. At June 30, 2019, the portfolio consisted of 151 issuers with an average balance of approximately $1,152 versus 80 issuers with an average balance of approximately $1,529 at December 31, 2018. NMC has a senior secured revolving credit facility (the “FLLP Facility”) with Wells Fargo Securities, LLC acting as administrative agent. Solar Senior Capital Ltd. acts as servicer under the FLLP Facility. The FLLP Facility was scheduleda bank lending group for $160,000 which expires on October 20, 2020. Borrowings are secured by substantially all of NMC’s assets. NMC’s credit facility, which isnon-recourse to mature on February 13, 2020. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of2.25%-2.50%. FLLPus, had approximately $135,462 and FLLP2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facility also includes usual and customary events of default for credit facilities of this nature. On August 15, 2016, the FLLP Facility was amended, expanding commitments to $100,000 and extending the maturity date to August 16, 2021. There were $79,858 and $75,941$88,892 of borrowings outstanding as of Septemberat June 30, 2017 and Dec, 31 2016, respectively. As of September 30, 20172019 and December 31, 2016, Solar Senior and Voya contributed combined equity capital in the amount of $45,211 and $47,071, respectively. Of the $45,211 of contributed equity capital at September 30, 2017, the Company contributed $29,584 in the form of investments and $9,976 in the form of cash and Voya contributed $5,651 in the form of cash. As of September 30, 2017, Solar Senior and Voya’s remaining commitments totaled $11,190 and $1,599, respectively. The Company, along with Voya, controls the funding of FLLP and FLLP may not call the unfunded commitments without approval of both the Company and Voya.

As of September 30, 2017 and December 31, 2016, FLLP had total assets of $125,991 and $122,225, respectively. For the same periods, FLLP’s portfolio consisted of first lien floating rate senior secured loans to 25 and 25 different borrowers,2018, respectively. For the three months ended SeptemberJune 30, 2017, FLLP invested $7,186 across 7 portfolio companies.2019 and 2018, NMC had net income of $495 and $591, respectively, on gross income of $4,207 and $5,361, respectively. For the threesix months ended SeptemberJune 30, 2016, FLLP invested $15,840 across 3 portfolio companies. Investments prepaid totaled $4,6722019 and 2018, NMC had net income of $865 and $1,531, respectively, on gross income of $8,094 and $10,253, respectively. Due to timing andnon-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in NM Holdco’s funded commitments, the three months ended September 30, 2017timing of originations, and $495 for the three months ended September 30, 2016. At September 30, 2017 and December 31, 2016, the weighted average yieldrepayments of FLLP’s portfolio was 6.9% and 6.6%, respectively, measured at fair value and 6.9% and 6.5%, respectively, measured at cost. The latest audited financial statements for FLLP were attached to our most recent Form10-K filing with the SEC.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

FLLP Portfolio as of September 30, 2017

Description

 Industry  Spread
Above
Index(1)		  LIBOR
Floor		  Interest
Rate(2)		  Maturity
Date		  Par
Amount		  Cost  Fair
Value(3)		 

1A Smart Start LLC

  
Electronic Equipment,
Instruments & Components		 
 		  L+475   1.00%   6.08%   2/21/22  $7,860  $7,804  $7,860 

Alera Group Intermediate Holdings, Inc.(4)

  Insurance   L+550   1.00%   6.74%   12/30/22   3,661   3,628   3,652 

Anesthesia Consulting & Management, LP(4)

  
Health Care Providers &
Services		 
 		  L+525   1.00%   6.58%   10/31/22   4,963   4,920   4,615 

Capstone Logistics Acquisition, Inc.(4)

  Professional Services   L+450   1.00%   5.74%   10/7/21   5,284   5,250   5,244 

Confie Seguros Holding II Co.(4)

  Insurance   L+550   1.00%   6.74%   4/19/22   5,459   5,412   5,389 

DB Datacenter Holdings, Inc.(4)

  IT Services   L+475   1.00%   8.00%   7/13/21   5,500   5,458   5,500 

Edgewood Partners Holdings, LLC (Epic)

  Insurance   L+475   1.00%   5.98%   9/8/24   3,467   3,449   3,449 

Empower Payments Acquisition, Inc. (RevSpring)(4)

  Professional Services   L+550   1.00%   6.83%   11/30/23   4,590   4,507   4,590 

Falmouth Group Holdings Corp. (AMPAC)(4)

  Chemicals   L+675   1.00%   7.99%   12/14/21   5,110   5,110   5,110 

Island Medical Management Holdings, LLC(4)

  
Health Care Providers &
Services		 
 		  L+550   1.00%   6.83%   9/1/22   4,581   4,538   4,535 

Kellermeyer Bergensons Services, LLC (KBS)(4)

  
Commercial Services &
Supplies		 
 		  L+500   1.00%   6.32%   10/29/21   4,426   4,391   4,382 

Metamorph US 3, LLC (Metalogix)(4)

  Software   L+750(5)   1.00%   8.74%   12/1/20   3,987   3,929   2,871 

Ministry Brands, LLC(4)

  Software   L+500   1.00%   6.24%   12/2/22   4,639   4,598   4,604 

National Spine and Pain Centers, LLC

  
Health Care Providers &
Services		 
 		  L+450   1.00%   5.83%   6/2/24   2,993   2,978   2,978 

Pet Holdings ULC & Pet Supermarket, Inc.

  Specialty Retail   L+550   1.00%   6.80%   7/5/22   5,123   5,059   5,085 

PSP Group, LLC (Pet Supplies Plus)(4)

  Specialty Retail   L+475   1.00%   6.09%   4/6/21   5,312   5,281   5,312 

QBS Holding Company, Inc. (Quorum)(4)

  Software   L+475   1.00%   6.06%   8/7/21   3,263   3,242   3,230 

Salient Partners, L.P.(4)

  Asset Management   L+850   1.00%   9.80%   6/9/21   4,874   4,809   4,874 

Sarnova HC, LLC

  
Trading Companies and
Distributors		 
 		  L+475   1.00%   5.99%   1/28/22   4,925   4,888   4,925 

Suburban Broadband, LLC (Jab Wireless, Inc.) (4)

  

Wireless
Telecommunication
Services		 
 
 		  L+450   1.00%   5.83%   3/26/19   8,106   8,034   8,025 

Telular Corporation

  

Wireless
Telecommunication
Services		 
 
 		  L+425   1.25%   5.58%   6/24/19   5,830   5,814   5,801 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(4)

  Insurance   L+475   1.00%   6.08%   6/24/21   3,983   3,925   3,954 

Tronair Parent Inc.

  Aerospace & Defense   L+475   1.00%   6.06%   9/8/23   4,950   4,906   4,925 

VT Buyer Acquisition Corp. (Veritext)(4)

  Professional Services   L+475   1.00%   6.08%   1/29/22   5,542   5,514   5,514 

Wirb-Copernicus Group, Inc.(4)

  Professional Services   L+500   1.00%   6.33%   8/12/22   5,943   5,895   5,943 
       

 

 

  

 

 

 
       $123,339  $122,367 
       

 

 

  

 

 

 

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

(1)Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
(2)Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2017.
(3)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.
(4)The Company also holds this security on its Consolidated Statements of Assets and Liabilities.
(5)Spread is 5.50% Cash / 2.0% PIK.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

FLLP Portfolio as of December 31, 2016 (audited)

Description

 Industry  Spread
Above
Index(1)		  LIBOR
Floor		  Interest
Rate(2)		  Maturity
Date		  Par
Amount		  Cost  Fair
Value(3)		 

1A Smart Start LLC

  
Electronic Equipment,
Instruments & Components		 
 		  L+475   1.00%   5.75%   2/21/22  $7,920  $7,855  $7,920 

Alera Group Intermediate Holdings, Inc.(4)

  Insurance   L+550   1.00%   6.50%   12/30/22   3,456   3,422   3,422 

Anesthesia Consulting & Management, LP(4)

  
Health Care Providers &
Services		 
 		  L+500   1.00%   6.00%   10/31/22   5,000   4,951   4,950 

Capstone Logistics Acquisition, Inc.(4)

  Professional Services   L+450   1.00%   5.50%   10/7/21   5,361   5,320   5,308 

CIBT Holdings, Inc.(4)

  Professional Services   L+525   1.00%   6.25%   6/28/22   2,620   2,596   2,594 

Confie Seguros Holding II Co.(4)

  Insurance   L+475   1.00%   5.75%   4/19/22   5,500   5,447   5,537 

DB Datacenter Holdings, Inc.(4)

  IT Services   L+475   1.00%   5.75%   7/13/21   5,500   5,450   5,417 

Empower Payments Acquisition, Inc. (RevSpring)(4)

  Professional Services   L+550   1.00%   6.50%   11/30/23   4,625   4,533   4,532 

Falmouth Group Holdings Corp. (AMPAC)(4)

  Chemicals   L+675   1.00%   7.75%   12/14/21   5,486   5,486   5,486 

Kellermeyer Bergensons Services, LLC (KBS)(4)

  
Commercial Services &
Supplies		 
 		  L+500   1.00%   6.00%   10/29/21   2,438   2,419   2,389 

MedRisk, LLC

  
Health Care Providers &
Services		 
 		  L+525   1.00%   6.25%   3/1/23   3,970   3,934   3,970 

Metamorph US 3, LLC (Metalogix)(4)

  Software   L+650   1.00%   7.50%   12/1/20   4,000   3,928   2,860 

Ministry Brands, LLC(4)

  Software   L+500   1.00%   6.00%   12/2/22   2,746   2,719   2,719 

Pearl Merger Sub, LLC (PetVet)(4)

  Health Care Facilities   L+475   1.00%   5.75%   12/17/20   5,390   5,313   5,329 

Pet Holdings ULC & Pet Supermarket, Inc.

  Specialty Retail   L+550   1.00%   6.50%   7/5/22   4,538   4,474   4,481 

PSP Group, LLC (Pet Supplies Plus)(4)

  Specialty Retail   L+475   1.00%   5.75%   4/6/21   5,353   5,315   5,327 

QBS Holding Company, Inc. (Quorum)(4)

  Software   L+475   1.00%   5.75%   8/7/21   3,430   3,404   3,293 

Salient Partners, L.P.(4)

  Asset Management   L+850   1.00%   9.50%   6/9/21   5,154   5,073   5,025 

Sarnova HC, LLC

  
Trading Companies and
Distributors		 
 		  L+475   1.00%   5.75%   1/28/22   4,963   4,919   4,962 

Suburban Broadband, LLC (Jab Wireless, Inc.) (4)

  

Wireless
Telecommunication
Services		 
 
 		  L+450   1.00%   5.50%   3/26/19   8,168   8,060   8,086 

Telular Corporation

  

Wireless
Telecommunication
Services		 
 
 		  L+425   1.25%   5.50%   6/24/19   5,063   5,047   5,051 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(4)

  Insurance   L+500   1.00%   6.00%   6/24/21   3,814   3,747   3,776 

Tronair Parent Inc.

  Aerospace & Defense   L+475   1.00%   5.75%   9/8/23   4,988   4,939   4,963 

VT Buyer Acquisition Corp. (Veritext)(4)

  Professional Services   L+500   1.00%   6.00%   1/29/22   4,481   4,443   4,459 

Wirb-Copernicus Group, Inc.

  Professional Services   L+500   1.00%   6.00%   8/12/22   5,486   5,434   5,431 
       

 

 

  

 

 

 
       $118,228  $117,287 
       

 

 

  

 

 

 

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

(1)Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
(2)Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2016.
(3)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.
(4)The Company also holds this security on its Consolidated Statements of Assets and Liabilities.

Below is certain summarized financial information for FLLP as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016:

   September 30,
2017		   December 31,
2016 (audited)		 

Selected Balance Sheet Information for FLLP:

    

Investments at fair value (cost $123,339 and $118,228, respectively)

  $122,367   $117,287 

Cash and other assets.

   3,624    4,938 
  

 

 

   

 

 

 

Total assets

  $125,991   $122,225 
  

 

 

   

 

 

 

Debt outstanding

  $79,858   $75,941 

Distributions payable

   1,123    981 

Payable for investments purchased

   980    —   

Interest payable and other credit facility related expenses

   804    708 

Accrued expenses and other payables

   178    241 
  

 

 

   

 

 

 

Total liabilities

  $82,943   $77,871 
  

 

 

   

 

 

 

Members’ equity

  $43,048   $44,354 
  

 

 

   

 

 

 

Total liabilities and members’ equity

  $125,991   $122,225 
  

 

 

   

 

 

 

   Three months
ended
September 30,
2017		   Three months
ended
September 30,
2016		  Nine months
ended
September 30,
2017		  Nine months
ended
September 30,
2016		 

Selected Income Statement Information for FLLP:

      

Interest income

  $2,160   $1,622  $6,260  $4,505 
  

 

 

   

 

 

  

 

 

  

 

 

 

Service fees*

  $20   $17  $59  $47 

Interest and other credit facility expenses

   786    1,412**   2,229   2,385** 

Other general and administrative expenses

   49    46   89   132 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total expenses

   855    1,475   2,377   2,564 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net investment income

  $1,305   $147  $3,883  $1,941 
  

 

 

   

 

 

  

 

 

  

 

 

 

Realized gain on investments

   —      —     69   —   

Net change in unrealized gain (loss) on investments

   486    (73)   (30)   302 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net realized and unrealized gain (loss) on investments

   486    (73)   39   302 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net income

  $1,791   $74  $3,922  $2,243 
  

 

 

   

 

 

  

 

 

  

 

 

 

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

September 30, 2017

(in thousands, except share amounts)

*Service fees are included within the Company’s Consolidated Statements of Operations as other income.
**FLLP made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC825-10. As such, all expenses related to the amendment of the FLLP Facility were expensed during the periods shown. For the three and nine months ended September 30, 2016, these amounts totaled $822 and $822, respectively.

Note 12. Solar Life Science Program LLC

On February 22, 2017,financings, the Company and Solar Capital Ltd. formed LSJV with an affiliate of Deerfield Management. The Company committed $75,000cannot guarantee that NM Holdco will be able to LSJV. As of September 30, 2017, LSJV has not commenced operations.maintain consistent dividend payments to us.

Note 13.12. Capital Share Transactions

As of SeptemberJune 30, 20172019 and December 31, 2016,June 30, 2018, 200,000,000 shares of $0.01 par value capital stock were authorized.

Transactions in capital stock were as follows:

 

  Shares   Amount   Shares   Amount 
  Nine months
ended
September 30,
2017		   Year ended
December 31,
2016		   Nine months
ended
September 30,
2017		   Year ended
December 31,
2016		   Three months
ended
June 30, 2019		   Three months
ended
June 30, 2018		   Three months
ended
June 30, 2019		   Three months
ended
June 30, 2018		 

Shares sold (less offering costs)

   —      4,490,152   $—     $74,879 

Shares issued in reinvestment of distributions

   8,722    1,544    151    26    2,131    1,279   $36   $22 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Net increase

   8,722    4,491,696   $151   $74,905    
2,131
 
   1,279   $36   $22 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  Shares   Amount 
  Six months
ended
June 30, 2019		   Six months
ended
June 30, 2018		   Six months
ended
June 30, 2019		   Six months
ended
June 30, 2018		 

Shares issued in reinvestment of distributions

   3,250    3,755   $55   $65 
  

 

   

 

   

 

   

 

 

Net increase

   3,250    3,755   $55   $65 
  

 

   

 

   

 

   

 

 

Note 14.13. Subsequent Events

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued.

SOLAR SENIOR CAPITAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

June 30, 2019

(in thousands, except share amounts)

On October 5, 2017,July 2, 2019, the Board declared a monthly distribution of $0.1175 per share payable on NovemberAugust 1, 20172019 to holders of record as of October 19, 2017.July 25, 2019.

On October 24, 2017, the Company announced that it acquired 100% of the equity interests of North Mill Capital LLC (“North Mill”). North Mill is a leading asset-based lending commercial finance company that provides senior secured asset-backed financings to U.S. basedsmall-to-medium-sized businesses primarily in the manufacturing, services, and distribution industries. The Company invested approximately $51,000 to effect the transaction.

On November 2, 2017,August 5, 2019, the Board declared a monthly distribution of $0.1175 per share payable on December 1, 2017August 30, 2019 to holders of record as of NovemberAugust 22, 2017.2019.

Report of Independent Registered Public Accounting Firm

TheTo the Stockholders and Board of Directors and Stockholders

Solar Senior Capital Ltd.:

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of assets and liabilities of Solar Senior Capital Ltd. (and consolidated subsidiaries) (the Company), including the consolidated schedule of investments, as of June 30, 2019, the related consolidated statements of operations for the three-month andsix-month periods ended June 30, 2019 and 2018, the related consolidated statements of changes in net assets for the three-month andsix-month periods ended June 30, 2019 and 2018, the related consolidated statements of cash flows for thesix-month periods ended June 30, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the Company as of December 31, 2018, and the related consolidated statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Solar Senior Capital Ltd. (the “Company”) as of September 30, 2017,December 31, 2018, is fairly stated, in all material respects, in relation to the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2017 and 2016, the related consolidated statement of changes in net assets and liabilities, including the consolidated schedule of investments, from which it has been derived.

Basis for the nine-month period ended September 30, 2017, and the related consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016. TheseReview Results

This consolidated interim financial statements areinformation is the responsibility of the Company’s management. We are a public accounting firm registered with the 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 reviewreviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Solar Senior Capital Ltd., as of December 31, 2016 and the related consolidated statement of operations, changes in net assets, and cash flows for the year ended December 31, 2016, and in our report dated February 22, 2017, we expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

New York, New York

November 2, 2017August 5, 2019

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:

 

our future operating results;

 

our business prospects and the prospects of our portfolio companies;

 

the impact of investments that we expect to make;

 

our contractual arrangements and relationships with third parties;

 

the dependence of our future success on the general economy and its impact on the industries in which we invest;

 

the ability of our portfolio companies to achieve their objectives;

 

our expected financings and investments;

 

the adequacy of our cash resources and working capital; and

 

the timing of cash flows, if any, from the operations of our portfolio companies.

We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form10-K, quarterly reports on Form10-Q and current reports on Form8-K.

Overview

Solar Senior Capital Ltd. (“Solar Senior”, the “Company”, “we” or “our”), a Maryland corporation formed in December 2010, is aclosed-end, externally managed,non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, the Company has elected to be regulatedtreated, and intend to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 24, 2011, we priced our initial public offering, selling 9.0 million shares, including the underwriters’ over-allotment, raising approximately $168 million in net proceeds. Concurrent with this offering, Solar Senior Capital Investors LLC, an entity controlled by Michael S. Gross, our Chairman, and ChiefCo-Chief Executive Officer and President, and Bruce Spohler, ourCo-Chief Executive Officer and Chief Operating Officer, purchased an additional 500,000 shares through a concurrent private placement, raising another $10 million.

On August 26, 2011, we established a $200 million senior secured revolving credit facility (the “Credit Facility”) with Citigroup Global Markets Inc. acting as administrative agent. In connection with the Credit Facility, our wholly-owned subsidiary, SUNS SPV LLC (the “SPV”) was formed. The Credit Facility, as amended, currently has an aggregate of $200 million of commitments available. It can also be expanded up to $600 million. The stated interest rate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement and the current final maturity date is June 30, 2020. The Credit Facility is secured by all of the assets held by the SPV. Under the terms of the Credit Facility, Solar Senior Capital and the SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature. The Credit Facility was amended on November 7, 2012, June 30, 2014 and May 29, 2015 to extend maturities and add greater investment flexibility, among other changes.

We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. We define “middle market” to refer to companies with annual revenues between $50 million and $1 billion. Our investment objective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve our investment objective by directly and indirectly investing in senior loans, including first lien, unitranche,stretch-senior, and second lien debt instruments, made to private middle-market companies whose debt is rated below investment grade, which we refer to collectively as “senior loans.” We may also invest in debt of public companies that are thinly traded or in equity securities. Under normal market conditions, at least 80% of the value of our net assets (including the amount of any borrowings for investment purposes) will be invested in senior loans. Senior loans typically pay interest at rates which are determined periodically on the basis of a floating base lending rate, primarily LIBOR, plus a premium. Senior loans in which we invest are typically made to U.S. and, to a limited extent,non-U.S. corporations, partnerships and other business entities which operate in various industries and geographical regions. Senior loans typically are rated below investment grade. Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” or “junk” securities, and may be considered “high risk” compared to debt instruments that are rated investment grade. In addition, some of our debt investments are not scheduled to fully amortize over their stated terms, which could cause us to suffer losses if the respective issuer of such debt investment is unable to refinance or repay their remaining indebtedness at maturity. While the Company does not typically seek to invest in traditional equity securities as part of its investment objective, the Company may occasionally acquire some equity securities in connection with senior loan investments and in certain other unique circumstances, such as the Company’s equity investments in Gemino Healthcare Finance, LLC (“Gemino”) and First Lien Loan ProgramNorth Mill Holdco LLC (“FLLP”NM Holdco”).

We invest in senior loans made primarily to private, leveraged middle-market companies with approximately $20 million to $100 million of earnings before income taxes, depreciation and amortization (“EBITDA”). Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our direct investments in individual securities will generally range between $5 million and $30 million each, although we expect that this investment size will vary proportionately with the size of our capital base and/or strategic initiatives. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These opportunistic investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States. We may invest up to 30% of our total assets in such opportunistic investments, including loans issued bynon-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act. Our investment activities are managed by Solar Capital Partners, LLC (“Solar Capital Partners” or “Investment Adviser”) and supervised by our board of directors, a majority of whom arenon-interested, as such term is defined in the 1940 Act. Solar Capital Management, LLC (“Solar Capital Management” or “Administrator”) provides the administrative services necessary for us to operate.

As of SeptemberJune 30, 2017,2019, the Investment Adviser has directly invested approximately $6.6$8.5 billion in more than 310375 different portfolio companies since 2006. Over the same period, the Investment Adviser completed transactions with more than 185approximately 200 different financial sponsors.

Recent Developments

On October 5, 2017,July 2, 2019, the Board declared a monthly distribution of $0.1175 per share payable on NovemberAugust 1, 20172019 to holders of record as of October 19, 2017.July 25, 2019.

On October 24, 2017, the Company announced that it acquired 100% of the equity interests of North Mill Capital LLC (“North Mill”). North Mill is a leading asset-based lending commercial finance company that provides senior secured asset-backed financings to U.S. basedsmall-to-medium-sized businesses primarily in the manufacturing, services, and distribution industries. The Company invested approximately $51 million to effect the transaction.

On November 2, 2017,August 5, 2019, the Board declared a monthly distribution of $0.1175 per share payable on December 1, 2017August 30, 2019 to holders of record as of NovemberAugust 22, 2017.2019.

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” The definition of “eligible portfolio company” includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

Revenue

We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark London interbank offered rate (“LIBOR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be monthlybi-monthly or semi-annually. In addition, our investments may providepayment-in-kind (“PIK”) interest. Such amounts of accrued PIK interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.

Expenses

All investment professionals of the investment adviserInvestment Adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by Solar Capital Partners. We bear all other costs and expenses of our operations and transactions, including (without limitation):

 

the cost of our organization and public offerings;

 

the cost of calculating our net asset value, including the cost of any third-party valuation services;

the cost of effecting sales and repurchases of our shares and other securities;

 

interest payable on debt, if any, to finance our investments;

 

fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and advisory fees;

 

transfer agent and custodial fees;

 

fees and expenses associated with marketing efforts;

 

federal and state registration fees, any stock exchange listing fees;

 

federal, state and local taxes;

 

independent directors’ fees and expenses;

 

brokerage commissions;

 

fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;

direct costs and expenses of administration, including printing, mailing, long distance telephone and staff;

 

fees and expenses associated with independent audits and outside legal costs;

 

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and

 

all other expenses incurred by either Solar Capital Management or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Solar Capital Management in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and any administrative support staff.their respective staffs.

We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.

Portfolio and Investment Activity

During the three months ended SeptemberJune 30, 2017,2019, we invested $18.2$18.8 million across 812 portfolio companies. This compares to investing $21.4$70.5 million in 415 portfolio companies for the three months ended SeptemberJune 30, 2016.2018. Investments sold or prepaid during the three months ended SeptemberJune 30, 20172019 totaled $26.5$11.8 million versus $20.5$24.9 million for the three months ended SeptemberJune 30, 2016.2018.

At SeptemberJune 30, 2017,2019, our portfolio consisted of 4650 portfolio companies and was invested 80.2%78.0% directly in senior secured loans and 19.8%22.0% in common equity/equity interests/warrants (of which 9.6%7.2% is Gemino Healthcare Finance, LLC and 10.2%14.2% is First Lien Loan Program LLC)NM Holdco, through which the Company indirectly invests in senior secured loans), in each case, measured at fair value versus 49 portfolio companies invested 80.3%73.3% directly in senior secured loans and 19.7%26.7% in common equity/equity interests (of which 10.7%7.2% is Gemino, Healthcare Finance, LLC6.8% is FLLP and 8.9%12.6% is First Lien Loan Program LLC)NMC) at SeptemberJune 30, 2016.2018.

At SeptemberJune 30, 2017, 96.8%2019, 97.1% or $356.1$457.1 million of our income producing investment portfolio* was floating rate and 3.2%2.9% or $11.8$13.5 million was fixed rate, measured at fair value. At SeptemberJune 30, 2016, 96.3%2018, 95.0% or $315.6$446.7 million of our income producing investment portfolio* was floating rate and 3.7%5.0% or $12.2$23.3 million was fixed rate, measured at fair value.

Since the initial public offering of Solar Senior on February 24, 2011 and through SeptemberJune 30, 2017,2019, invested capital totaled approximately $1.2$1.6 billion in more than 120over 160 portfolio companies. Over the same period, Solar Senior completed transactions with more than 75100 different financial sponsors.

Gemino Healthcare Finance, LLC

We acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured Healthcare Finance) (“Gemino”) on September 30, 2013. Gemino is a commercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small andmid-sized companies operating in the healthcare industry. Our initial investment in Gemino was $32.8

*

We have included Gemino Healthcare Finance, LLC and North Mill Holdco LLC within our income producing investment portfolio.

$32.8 million. The management team of Geminoco-invested in the transaction and continues to lead Gemino. As of June 30, 2019, Gemino’s management team and Solar Senior own approximately 7% and 93% of the equity in Gemino, respectively.

Concurrent with the closing of the transaction, Gemino entered into a new, four-year,non-recourse, $100.0 million credit facility withnon-affiliates, which was expandable to $150.0 million under its accordion feature. Effective March 31, 2014, the credit facility was expanded to $105.0 million and again on June 27, 2014 to $110.0 million. On May 27, 2016, Gemino entered into a new $125.0 million credit facility which replaced the previously existing facility. The new facility has similar terms as compared to the previous facility and includes an accordion feature increase to $200.0 million and hashad a maturity date of May 27, 2020.

On December 31, 2013, we contributed our 32,839 units in GeminoJune 28, 2019, this $125.0 million facility was amended, extending the maturity date to Gemino Senior Secured Healthcare LLC (“Gemino Senior Secured Healthcare”). In exchange for this contribution, we received 19,839 units of equity interests and $13.0 million in floating rate secured notes of Gemino Senior Secured Healthcare bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018. However, our financial statements, including our schedule of investments, reflected our investments in Gemino Senior Secured Healthcare on a consolidated basis. On OctoberJune 28, 2016, Gemino Senior Secured Healthcare was dissolved. As of September 30, 2017, Gemino’s management team and Solar Senior own approximately 7% and 93% of the equity in Gemino, respectively.2023.    

Gemino currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of SeptemberJune 30, 2017,2019, the portfolio totaled approximately $190.2$187.3 million of commitments, of which $106.5$119.1 million were funded, on total assets of $112.1$107.0 million. As of December 31, 2016,2018, the portfolio totaled approximately $186.4$174.1 million of commitments, of which $114.4$108.6 million were funded, on total assets of $118.5$108.6 million. At SeptemberJune 30, 2017,2019, the portfolio consisted of 3233 issuers with an average balance of approximately $3.3$3.6 million versus 3534 issuers with an average balance of approximately $3.3$3.2 million at December 31, 2016.2018. All of the commitments in Gemino’s portfolio are floating-rate, senior-secured,cash-pay loans. Gemino’s credit facility, which isnon-recourse to us, had approximately $77.0$73.0 million and $83.0$75.0 million of borrowings outstanding at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. For the three months ended SeptemberJune 30, 20172019 and 2016,2018, Gemino had net income of $1.1$0.9 million and $1.0$0.7 million, respectively, on gross income of $3.1$3.4 million and $3.2$2.7 million, respectively. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, Gemino had net income of $2.6$1.9 million and $3.4$1.4 million, respectively, on gross income of $8.7$6.5 million and $10.3$5.5 million, respectively. Due to timing andnon-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in Gemino’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that Gemino will be able to maintain consistent dividend payments to us.

North Mill Holdco LLC

*We have included First Lien Loan Program LLC and Gemino Healthcare Finance, LLC as 100% floating rate within our income producing investment portfolio.

We acquired 100% of the equity interests of North Mill Capital LLC (“NMC”) on October 20, 2017. NMC is a leading asset-backed lending commercial finance company that provides senior secured asset-backed financings to U.S. basedsmall-to-medium-sized businesses primarily in the manufacturing, services and distribution industries. We invested approximately $51 million to effect the transaction. Subsequently, the Company contributed 1% of its equity interest in NMC to ESP SSC Corporation. Immediately thereafter, the Company and ESP SSC Corporation contributed their equity interests to North Mill. On May 1, 2018, North Mill merged with and into NMC, with NMC being the surviving company. The Company and ESP SSC Corporation own 99% and 1% of the equity interests of NMC, respectively. The management team of NMC continues to lead NMC. On June 28, 2019, NM Holdco, a newly formed entity and ESP SSC Corporation acquired Summit Financial Resources, a Salt Lake City-based provider of asset-backed financing to small andmedium-sized businesses. As part of this transaction, the Company’s 99% interest in the equity of NMC was contributed to NM Holdco. This approximately $15.5 million transaction was financed with borrowings on NMC’s credit facility.

NM Holdco currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of June 30, 2019, the portfolio totaled approximately $363.9 million of commitments, of which $173.9 million were funded, on total assets of $209.0 million. As of December 31, 2018, the portfolio totaled approximately $247.3 million of commitments, of which $122.3 million were funded, on total assets of $155.6 million. At June 30, 2019, the portfolio consisted of 151 issuers with an average balance of approximately $1.2 million versus 80 issuers with an average balance of approximately $1.5 million at December 31, 2018. NMC has a senior credit facility with a bank lending group for $160.0 million which expires on October 20, 2020. Borrowings are secured by substantially all of NMC’s assets. NMC’s credit facility, which isnon-recourse

First Lien Loan Program LLC

On September 10, 2014, the Company entered into a limited liability company agreement to create a First Lien Loan Program (“FLLP”) with Voya Investment Management LLC (“Voya”). Voya acts as the investment advisor for several wholly-owned insurance subsidiaries of Voya Financial, Inc. (NYSE: VOYA). The joint venture vehicle, structured as an unconsolidated Delaware limited liability company, is expected to invest primarily in senior secured floating rate term loans to middle market companies predominantly owned by private equity sponsors or entrepreneurs. Solar Senior and Voya have committed to provide $50.75us, had approximately $135.5 million and $7.25 million, respectively, of capital to the joint venture. All portfolio decisions and generally all other decisions in respect of the FLLP must be approved by an investment committee of the FLLP consisting of representatives of the Company and Voya (with approval from a representative of each required). On February 13, 2015, FLLP commenced operations. On February 13, 2015, FLLP as transferor and FLLP2015-1, LLC, a newly formed wholly owned subsidiary of FLLP, as borrower entered into a $75.0 million senior secured revolving credit facility (the “FLLP Facility”) with Wells Fargo Securities, LLC acting as administrative agent. Solar Senior Capital Ltd. acts as servicer under the FLLP Facility. The FLLP Facility was scheduled to mature on February 13, 2020. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of2.25%-2.50%. FLLP and FLLP2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facility also includes usual and customary events of default for credit facilities of this nature. On August 15, 2016, the FLLP Facility was amended, expanding commitments to $100.0 million and extending the maturity date to August 16, 2021. There were $79.9 million and $75.9$88.9 million of borrowings outstanding as of Septemberat June 30, 20172019 and December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, Solar Senior and Voya contributed combined equity capital in the amount of $45.2 million and $47.1 million, respectively. Of the $45.2 million of contributed equity capital at September 30, 2017, the Company contributed $29.6 million in the form of investments and $10.0 million in the form of cash and Voya contributed $5.7 million in the form of cash. As of September 30, 2017, Solar Senior and Voya’s remaining commitments totaled $11.2 million and $1.6 million, respectively. The Company, along with Voya, controls the funding of FLLP and FLLP may not call the unfunded commitments without approval of both the Company and Voya.

As of September 30, 2017 and December 31, 2016, FLLP had total assets of $126.0 million and $122.2 million, respectively. For the same periods, FLLP’s portfolio consisted of first lien floating rate senior secured loans to 25 and 25 different borrowers,2018, respectively. For the three months ended SeptemberJune 30, 20172019 and 2016, FLLP invested $7.2 million across 7 portfolio companies and $15.8 million across 3 portfolio companies, respectively. Investments prepaid totaled $4.72018, NMC had net income of $0.5 million and $0.5$0.6 million, respectively foron gross income of $4.2 million and $5.4 million, respectively. For the threesix months ended SeptemberJune 30, 20172019 and 2016. At September 30, 20172018, NMC had net income of $0.9 million and December 31, 2016,$1.5 million, respectively on gross income of $8.1 million and $10.3 million, respectively. Due to timing andnon-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in NM Holdco’s funded commitments, the weighted average yieldtiming of FLLP’s portfolio was 6.9%originations, and 6.6%, respectively, measured at fair value and 6.9% and 6.5%, respectively, measured at cost.

FLLP Portfolio asthe repayments of September 30, 2017 (in thousands)

Description

 Industry  Spread
Above
Index(1)		  LIBOR
Floor		  Interest
Rate(2)		  Maturity
Date		  Par
Amount		  Cost  Fair
Value(3)		 

1A Smart Start LLC

  
Electronic Equipment,
Instruments & Components		 
 		  L+475   1.00%   6.08%   2/21/22  $7,860  $7,804  $7,860 

Alera Group Intermediate Holdings, Inc.(4)

  Insurance   L+550   1.00%   6.74%   12/30/22   3,661   3,628   3,652 

Anesthesia Consulting & Management, LP(4)

  
Health Care Providers &
Services		 
 		  L+525   1.00%   6.58%   10/31/22   4,963   4,920   4,615 

Capstone Logistics Acquisition, Inc.(4)

  Professional Services   L+450   1.00%   5.74%   10/7/21   5,284   5,250   5,244 

Confie Seguros Holding II Co.(4)

  Insurance   L+550   1.00%   6.74%   4/19/22   5,459   5,412   5,389 

DB Datacenter Holdings, Inc.(4)

  IT Services   L+475   1.00%   8.00%   7/13/21   5,500   5,458   5,500 

Edgewood Partners Holdings, LLC (Epic)

  Insurance   L+475   1.00%   5.98%   9/8/24   3,467   3,449   3,449 

Empower Payments Acquisition, Inc. (RevSpring)(4)

  Professional Services   L+550   1.00%   6.83%   11/30/23   4,590   4,507   4,590 

Falmouth Group Holdings Corp. (AMPAC)(4)

  Chemicals   L+675   1.00%   7.99%   12/14/21   5,110   5,110   5,110 

Island Medical Management Holdings, LLC(4)

  
Health Care Providers &
Services		 
 		  L+550   1.00%   6.83%   9/1/22   4,581   4,538   4,535 

Kellermeyer Bergensons Services, LLC (KBS)(4)

�� 
Commercial Services &
Supplies		 
 		  L+500   1.00%   6.32%   10/29/21   4,426   4,391   4,382 

Metamorph US 3, LLC (Metalogix)(4)

  Software   L+750(5)   1.00%   8.74%   12/1/20   3,987   3,929   2,871 

Ministry Brands, LLC(4)

  Software   L+500   1.00%   6.24%   12/2/22   4,639   4,598   4,604 

National Spine and Pain Centers, LLC

  
Health Care Providers &
Services		 
 		  L+450   1.00%   5.83%   6/2/24   2,993   2,978   2,978 

Pet Holdings ULC & Pet Supermarket, Inc.

  Specialty Retail   L+550   1.00%   6.80%   7/5/22   5,123   5,059   5,085 

PSP Group, LLC (Pet Supplies Plus)(4)

  Specialty Retail   L+475   1.00%   6.09%   4/6/21   5,312   5,281   5,312 

QBS Holding Company, Inc. (Quorum)(4)

  Software   L+475   1.00%   6.06%   8/7/21   3,263   3,242   3,230 

Salient Partners, L.P.(4)

  Asset Management   L+850   1.00%   9.80%   6/9/21   4,874   4,809   4,874 

Sarnova HC, LLC

  
Trading Companies and
Distributors		 
 		  L+475   1.00%   5.99%   1/28/22   4,925   4,888   4,925 

Suburban Broadband, LLC (Jab Wireless, Inc.) (4)

  
Wireless
Telecommunication Services		 
 		  L+450   1.00%   5.83%   3/26/19   8,106   8,034   8,025 

Telular Corporation

  
Wireless
Telecommunication Services		 
 		  L+425   1.25%   5.58%   6/24/19   5,830   5,814   5,801 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(4)

  Insurance   L+475   1.00%   6.08%   6/24/21   3,983   3,925   3,954 

Tronair Parent Inc.

  Aerospace & Defense   L+475   1.00%   6.06%   9/8/23   4,950   4,906   4,925 

VT Buyer Acquisition Corp. (Veritext)(4)

  Professional Services   L+475   1.00%   6.08%   1/29/22   5,542   5,514   5,514 

Wirb-Copernicus Group, Inc.(4)

  Professional Services   L+500   1.00%   6.33%   8/12/22   5,943   5,895   5,943 
       

 

 

  

 

 

 
       $123,339  $122,367 
       

 

 

  

 

 

 

(1)Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
(2)Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2017.

(3)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.
(4)The Company also holds this security on its Consolidated Statements of Assets and Liabilities.
(5)Spread is 5.50% Cash / 2.0% PIK.

FLLP Portfolio as of December 31, 2016 (audited) (in thousands)

Description

 Industry  Spread
Above
Index(1)		  LIBOR
Floor		  Interest
Rate(2)		  Maturity
Date		  Par
Amount		  Cost  Fair
Value(3)		 

1A Smart Start LLC

  
Electronic Equipment,
Instruments & Components		 
 		  L+475   1.00%   5.75%   2/21/22  $7,920  $7,855  $7,920 

Alera Group Intermediate Holdings, Inc.(4)

  Insurance   L+550   1.00%   6.50%   12/30/22   3,456   3,422   3,422 

Anesthesia Consulting & Management, LP(4)

  
Health Care Providers &
Services		 
 		  L+500   1.00%   6.00%   10/31/22   5,000   4,951   4,950 

Capstone Logistics Acquisition, Inc.(4)

  Professional Services   L+450   1.00%   5.50%   10/7/21   5,361   5,320   5,308 

CIBT Holdings, Inc.(4)

  Professional Services   L+525   1.00%   6.25%   6/28/22   2,620   2,596   2,594 

Confie Seguros Holding II Co.(4)

  Insurance   L+475   1.00%   5.75%   4/19/22   5,500   5,447   5,537 

DB Datacenter Holdings, Inc.(4)

  IT Services   L+475   1.00%   5.75%   7/13/21   5,500   5,450   5,417 

Empower Payments Acquisition, Inc. (RevSpring)(4)

  Professional Services   L+550   1.00%   6.50%   11/30/23   4,625   4,533   4,532 

Falmouth Group Holdings Corp. (AMPAC)(4)

  Chemicals   L+675   1.00%   7.75%   12/14/21   5,486   5,486   5,486 

Kellermeyer Bergensons Services, LLC (KBS)(4)

  
Commercial Services &
Supplies		 
 		  L+500   1.00%   6.00%   10/29/21   2,438   2,419   2,389 

MedRisk, LLC

  
Health Care Providers &
Services		 
 		  L+525   1.00%   6.25%   3/1/23   3,970   3,934   3,970 

Metamorph US 3, LLC (Metalogix)(4)

  Software   L+650   1.00%   7.50%   12/1/20   4,000   3,928   2,860 

Ministry Brands, LLC(4)

  Software   L+500   1.00%   6.00%   12/2/22   2,746   2,719   2,719 

Pearl Merger Sub, LLC (PetVet)(4)

  Health Care Facilities   L+475   1.00%   5.75%   12/17/20   5,390   5,313   5,329 

Pet Holdings ULC & Pet Supermarket, Inc.

  Specialty Retail   L+550   1.00%   6.50%   7/5/22   4,538   4,474   4,481 

PSP Group, LLC (Pet Supplies Plus)(4)

  Specialty Retail   L+475   1.00%   5.75%   4/6/21   5,353   5,315   5,327 

QBS Holding Company, Inc. (Quorum)(4)

  Software   L+475   1.00%   5.75%   8/7/21   3,430   3,404   3,293 

Salient Partners, L.P.(4)

  Asset Management   L+850   1.00%   9.50%   6/9/21   5,154   5,073   5,025 

Sarnova HC, LLC

  
Trading Companies and
Distributors		 
 		  L+475   1.00%   5.75%   1/28/22   4,963   4,919   4,962 

Suburban Broadband, LLC (Jab Wireless, Inc.)(4)

  
Wireless
Telecommunication Services		 
 		  L+450   1.00%   5.50%   3/26/19   8,168   8,060   8,086 

Telular Corporation

  
Wireless
Telecommunication Services		 
 		  L+425   1.25%   5.50%   6/24/19   5,063   5,047   5,051 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.(4)

  Insurance   L+500   1.00%   6.00%   6/24/21   3,814   3,747   3,776 

Tronair Parent Inc.

  Aerospace & Defense   L+475   1.00%   5.75%   9/8/23   4,988   4,939   4,963 

VT Buyer Acquisition Corp. (Veritext)(4)

  Professional Services   L+500   1.00%   6.00%   1/29/22   4,481   4,443   4,459 

Wirb-Copernicus Group, Inc.

  Professional Services   L+500   1.00%   6.00%   8/12/22   5,486   5,434   5,431 
       

 

 

  

 

 

 
       $118,228  $117,287 
       

 

 

  

 

 

 

(1)Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.
(2)Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2016.
(3)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.
(4)The Company also holds this security on its Consolidated Statements of Assets and Liabilities.

Below is certain summarized financial information for FLLP as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016:

   September 30,
2017		   December 31,
2016
(audited)		 

Selected Balance Sheet Information for FLLP (in thousands):

    

Investments at fair value (cost $123,339 and $118,228, respectively)

  $122,367   $117,287 

Cash and other assets.

   3,624    4,938 
  

 

 

   

 

 

 

Total assets

  $125,991   $122,225 
  

 

 

   

 

 

 

Debt outstanding

  $79,858   $75,941 

Distributions payable

   1,123    981 

Payable for investments purchased

   980    —   

Interest payable and other credit facility related expenses

   804    708 

Accrued expenses and other payables

   178    241 
  

 

 

   

 

 

 

Total liabilities

  $82,943   $77,871 
  

 

 

   

 

 

 

Members’ equity

  $43,048   $44,354 
  

 

 

   

 

 

 

Total liabilities and members’ equity

  $125,991   $122,225 
  

 

 

   

 

 

 

   Three months
ended
September 30,
2017		   Three months
ended
September 30,
2016		  Nine months
ended
September 30,
2017		  Nine months
ended
September 30,
2016		 

Selected Income Statement Information for FLLP (in thousands):

      

Interest income

  $2,160   $1,622  $6,260  $4,505 
  

 

 

   

 

 

  

 

 

  

 

 

 

Service fees*

  $20   $17  $59  $47 

Interest and other credit facility expenses

   786    1,412**   2,229   2,385** 

Other general and administrative expenses

   49    46   89   132 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total expenses

   855    1,475   2,377   2,564 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net investment income

  $1,305   $147  $3,883  $1,941 
  

 

 

   

 

 

  

 

 

  

 

 

 

Realized gain on investments

   —      —     69   —   

Net change in unrealized gain (loss) on investments

   486    (73)   (30)   302 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net realized and unrealized gain (loss) on investments

   486    (73)   39   302 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net income

  $1,791   $74  $3,922  $2,243 
  

 

 

   

 

 

  

 

 

  

 

 

 

*Service fees are included within the Company’s Consolidated Statements of Operations as other income.
**

FLLP made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC825-10. As such, all expenses related to the amendment of the FLLP Facility were

expensed during the periods shown. For the three and nine months ended September 30, 2016, these amounts totaled $822 and $822, respectively.

Solar Life Science Program LLC

On February 22, 2017,financings, the Company and Solar Capital Ltd. formed LSJV with an affiliate of Deerfield Management. The Company committed $75.0 millioncannot guarantee that NM Holdco will be able to LSJV. As of September 30, 2017, LSJV has not commenced operations.maintain consistent dividend payments to us.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Within the context of these critical accounting policies and disclosed subsequent events herein, we are not currently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported.

Valuation of Portfolio Investments

We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail below:

The Company conducts the valuation of its assets in accordance with GAAP and the 1940 Act. The Company generally values its assets on a quarterly basis, or more frequently if required. Investments for which market quotations are readily available on an exchange are valued at the closing price on the date of valuation. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, management determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the investment. If determined adequate, the Company uses the quote obtained. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of the Investment Adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of the Company’s board of directors (the “Board”).

Investments for which reliable market quotations are not readily available or for which the pricing sources do not provide a valuation or methodology or provide a valuation or methodology that, in the judgment of the Investment Adviser or the Board does not represent fair value, each shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuations are discussed with senior management of the Investment Adviser; (iii) independent valuation firms engaged by, or on behalf of, the Board will conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for (a) each portfolio investment that, when taken together with all other investments in the same portfolio company, exceeds 10% of estimated total assets, plus available borrowings, as of the end of the most recently completed fiscal quarter, and (b) each portfolio investment that is presently in payment default;default and the Investment Adviser does not expect to reach an agreement with the portfolio company in the subsequent quarter; (iv) the Board will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser and, where appropriate, the respective independent valuation firm.

The recommendation of fair value generally considers the following factors among others, as relevant: applicable market yields; the nature and realizable value of any collateral; the portfolio company’s ability to

make payments; the portfolio company’s earnings and discounted cash flow; the markets in which the issuer does business; and comparisons to publicly traded securities, among others.

When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

Investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the ninesix months ended SeptemberJune 30, 2017,2019, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

Accounting Standards Codification (“ASC”) Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.

Valuation of Credit Facility

The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC825-10. We believe accounting for the Credit Facility at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility.

Revenue Recognition

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that are expected to pay regularly scheduled interest and/or dividends

in cash are generally placed onnon-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be

collected. Suchnon-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may be recognized as income or applied to principal depending upon management’s judgment. Some of our investments may have contractual PIK interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed onnon-accrual status. When a PIK investment is placed onnon-accrual status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments onnon-accrual status are restored to accrual status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the effective interest method or straight-line, as applicable.method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as other income when earned.

The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit risk associated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also increases theloan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based onnon-cash accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation to reimburse the Company for these fees. For the three and ninesix months ended SeptemberJune 30, 2017,2019, capitalized PIK income totaled $0.2 million and $0.3 million, respectively. For the three and six months ended June 30, 2018, capitalized PIK income totaled $0.1 million and $0.4 million, respectively. For the three and nine months ended September 30, 2016, capitalized PIK income totaled $0.0 million and less than $0.1$0.2 million, respectively.

Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss

We generally measure realized gain or loss by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized origination or commitment fees and prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gain or loss, when gains or losses are realized. Gains or losses on investments are calculated by using the specific identification method.

Income Taxes

Solar Senior Capital, a U.S. corporation, has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify for taxation as a RIC, the Company is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable

income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual

taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, on estimated excess taxable income.

Recent Accounting Pronouncements

In October 2016,August 2018, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) interned to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend RegulationS-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to RegulationS-X was August 1, 2017. The Company has evaluated the impact that the adoption of the amendments to RegulationS-X on its consolidated financial statements and disclosures and determined that the adoption of the amendments to RegulationS-X has not had a material impact on its consolidated financial statements.

In November 2016, FASB issued ASU2016-18,2018-13, Statement of Cash Flows, which will amend FASB ASC 230.Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update require that a statement of cash flows explain the change during the periodmodify and eliminate certain disclosure requirements on fair value measurements 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 thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of820, Fair Value Measurement. ASU2016-18 on its consolidated financial statements and disclosures.

In December 2016, the FASB issued ASU2016-19, Technical Corrections and Improvements. As part of this guidance, ASU2016-19 amends FASB ASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU2016-192018-13 is effective on a prospective basis for financial statements issuedall entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis.2019. Early adoption is permitted. The Company has evaluatedis evaluating the impact of ASU2016-192018-13 on its consolidated financial statements and disclosures and determined that the adoption of ASU2016-19 has not had a material impact on its consolidated financial statements.disclosures.

In March 2017, the FASB issued ASU2017-08, Premium Amortization on Purchased Callable Debt Securities, which will amend FASB ASC310-20. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium, generally requiring the premium to be amortized to the earliest call date. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact ofhas adopted ASU2017-08 on its consolidated financial statements and disclosures.

In May 2014, the FASB issued ASC 606, Revenue From Contracts With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016. On August 12, 2015, the FASB issued an ASU, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASC 606 but does not currently believedetermined that the application of ASC 606 will haveadoption has not had a material impact on its consolidated financial statements and disclosures.

RESULTS OF OPERATIONS

Results comparisons are for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:

Investment Income

For the three and ninesix months ended SeptemberJune 30, 2017,2019, gross investment income totaled $8.0$10.0 million and $23.1$20.2 million, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2018, gross investment income totaled $7.0$9.5 million and $20.0$18.8 million, respectively. The increase in gross investment income for the year over year three and nine month periods was primarily due to a larger average investment portfolio size year over year along with modest yield improvement on the overall portfolio.growth.

Expenses

Net expenses totaled $2.3$4.4 million and $6.2$8.9 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2017,2019, of which $1.2$1.7 million and $3.3$3.4 million, respectively, were gross base management fees and gross performance-based incentive fees and $1.0$2.8 million and $2.7$5.5 million, respectively, were interest and other credit facility expenses. Over the same periods, $0.5 million and $2.0$0.5 million, respectively, of base management fees were waived and $0.2 million and $0.4 million, respectively, of performance-based incentive fees were waived. Administrative services and other general and administrative expenses totaled $0.9 million and $2.6 million, respectively, for the three and nine months ended September 30, 2017. Net expenses totaled $2.5 million and $7.4 million, respectively, for the three and nine months ended September 30, 2016, of which $1.5 million and $4.0 million, respectively, were gross base management fees and gross performance-based incentive fees and $0.9 million and $2.6 million, respectively, were interest and other credit facility expenses. Over the same periods, no base management fees were waived and $0.5 million and $1.1 million, respectively, of performance-based incentive fees were waived. Administrative services and other general and administrative expenses totaled $0.6$0.8 million and $1.9$1.6 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2016.2019. Net expenses totaled $3.8 million and $7.5 million, respectively, for the three and six months ended June 30, 2018, of which $1.6 million and $3.3 million, respectively, were gross base management fees and gross performance-based incentive fees and $1.8 million and $3.2 million, respectively, were interest and other credit facility expenses. Over the same periods, $0.4 million and $0.7 million, respectively, of performance-based incentive fees were waived. Administrative services and other general and administrative expenses totaled $0.8 million and $1.8 million, respectively, for the three and six months ended June 30, 2018. Expenses generally consist of management fees, performance-based incentive fees, administrative services expenses, insurance, legal expenses, directors’ expenses, audit and tax expenses, transfer agent fees and expenses, and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others. On an aggregate basis, grossThe increase in net expenses were relatively stable year over year foris primarily due to higher interest expense on a larger portfolio as compared to the year ago three and ninesix month periods.

Net Investment Income

The Company’s net investment income totaled $5.7 million and $17.0$11.3 million, or $0.35 and $1.06,$0.70, per average share, respectively, for the three and ninesix months ended SeptemberJune 30, 2017.2019. The Company’s net investment income totaled $4.5$5.7 million and $12.7$11.3 million, or $0.37$0.35 and $1.07,$0.71, per average share, respectively, for the three and ninesix months ended SeptemberJune 30, 2016.2018.

Net Realized Gain

The Company had investment sales and prepayments totaling approximately $26.5$11.8 million and $112.0$27.4 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2017.2019. Net realized gains over the same periods were $0.05$0.1 million and $0.2 million, respectively. The Company had investment sales and prepayments totaling approximately $20.5$24.9 million and $59.5$50.9 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2016.2018. Net realized gainslosses over the same periods were $0.01$5.2 million and $0.04$5.3 million, respectively. Net realized gains for the three and nine months ended SeptemberJune 30, 20172019 were primarily related to the saleCompany’s sales of select assets.Mavenir Systems, Inc. Net realized gains for the three and ninesix months ended SeptemberJune 30, 20162019 were primarily related to partial or completethe Company’s exit from its investment in Genmark Diagnostics, Inc. and the sales of select investments.Mavenir Systems, Inc. Net realized losses for the three and six months ended June 30, 2018 were primarily related to the Company’s exit from its investment in Metamorph US 3, LLC.

Net Change in Unrealized Gain (Loss)

For the three and ninesix months ended SeptemberJune 30, 2017,2019, net change in unrealized gain (loss) on the Company’s assets and liabilities totaled $0.3($1.1) million and $0.0$0.4 million, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2018, net change in unrealized gain (loss) on the Company’s assets and liabilities totaled $0.6$5.1 million and $5.6$5.0 million, respectively. Net unrealized loss for the three months ended June 30, 2019 is primarily due to depreciation on our investments in North Mill Holdco LLC, American Teleconferencing Services, Ltd. and Trident USA Health Services, among others, partially offset by appreciation in Engineering Solutions & Products, LLC and Gemino Healthcare Finance, LLC, among others. Net unrealized gain for the six months ended June 30, 2019 is primarily due to appreciation on our investments in Engineering Solutions & Products, LLC, Gemino Healthcare Finance, LLC and TwentyEighty, Inc., among others, partially offset by depreciation on our investments in Trident USA Health Services, American Teleconferencing Services, Ltd. and Aegis Toxicology Sciences Corporation, among others. Net unrealized gain for the three months ended SeptemberJune 30, 20172018 is primarily due to appreciation in the valuereversal of previously recorded unrealized loss on our investmentsinvestment in Metamorph US 3, LLC, First Lien Loan Programas well as appreciation on our investments in North Mill Capital LLC and Engineering Solutions & Products,Gemino Healthcare Finance, LLC, among others, partially offset by depreciation in Trident USA Health Services, Advantage Sales and Marketing, Inc. andFirst Lien Loan Program LLC, American Teleconferencing Services, Ltd. and Polycom, Inc., among others. Net unrealized gain for the ninesix months ended SeptemberJune 30, 2017 was unremarkable. Net unrealized gain for the three months ended September 30, 20162018 is primarily due to appreciationthe reversal of previously recorded unrealized loss on our investment in the value of our investments in American Teleconferencing Services, Inc., Securus Technologies, Inc., Gemino and Global Tel*Link Corporation partially offset by depreciation in FLLP, Hostway Corporation, Metamorph US 3, LLC, Trident USA Health Services and Engineering Solutions & Products, LLC, among others. Net unrealized gain for the nine months ended September 30, 2016 is primarily due toas well as appreciation in the value ofon our investments in Securus Technologies, Inc.,North Mill Capital LLC and Gemino Global Tel*Link Corporation, American Teleconferencing Services, Inc. and Asurion,Healthcare Finance, LLC, among others, partially offset by depreciation in Trident USAFirst Lien Loan Program LLC, PPT Management Holdings, LLC and Alteon Health, Services, Hostway Corporation, TwentyEighty, Inc. and Metamorph US 3, LLC, among others.

Net Increase in Net Assets From Operations

For the three and ninesix months ended SeptemberJune 30, 2017,2019, the Company had a net increase in net assets resulting from operations of $6.0$4.6 million and $17.2$12.0 million, respectively. For the same periods, earnings per average share were $0.37$0.29 and $1.07,$0.75, respectively. For the three and ninesix months ended SeptemberJune 30, 2016,2018, the Company had a net increase in net assets resulting from operations of $5.2$5.5 million and $18.3$11.0 million, respectively. For the same periods, earnings per average share were $0.42$0.34 and $1.55,$0.69, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity and capital resources are generally available through its Credit Facility,revolving credit facilities, through periodicfollow-on equity offerings, as well as from cash flows from operations, investment sales and

pre-payments of investments. At SeptemberJune 30, 2017,2019, the Company had $91.0$219.3 million in borrowings outstanding on its Credit Facilitycredit facilities and $109.0$80.7 million of unused capacity, subject to borrowing base limits.

In September 2016, the Company closed afollow-on public equity offering of 4.5 million shares of common stock at $16.76 per share raising approximately $75.0 million in net proceeds. In the future, the Company may raise additional equity or debt capital, among other considerations. The primary uses of funds will be investments in portfolio companies, reductions in debt outstanding and other general corporate purposes. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.

We currently expect that our liquidity needs will be met with cash flows from operations, borrowings under our Credit Facility,$225 million senior secured revolving credit facility (the “Credit Facility”), including its accordion feature, the FLLP Facility as well as from other available financing activities.

Cash Equivalents

We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, fromtime-to-time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent

to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our credit facilities, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held approximately $125$175 million inof cash equivalents as of SeptemberJune 30, 2017.2019.

Debt

Senior Secured Revolving Credit Facility—On August 26, 2011, the Company established theour wholly-owned subsidiary, SUNS SPV LLC (the “SUNS SPV”) which entered into the Credit Facility with Citigroup Global Markets Inc. acting as administrative agent. On January 10, 2017, commitments to the Credit Facility, as amended, were increased from $175 million to $200 million by utilizing the accordion feature. ItThe commitments can also be expanded up to $600 million. The stated interest rate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement and the current final maturity date is June 30, 2020.1, 2023. The Credit Facility is secured by all of the assets held by theSUNS SPV. Under the terms of the Credit Facility, Solar Senior Capital and theSUNS SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature. The Credit Facility was amended on November 7, 2012, June 30, 2014 and May 29, 2015 to extend maturities and add greater investment flexibility, among other changes. On June 1, 2018, the Credit Facility was refinanced by way of amendment, allowing for greater investment flexibility and the extension of the maturity date, among other changes. On July 13, 2018, commitments to the Credit Facility, as amended, were increased from $200 million to $225 million by utilizing the accordion feature. There were $162.8 million of borrowings outstanding under the Credit Facility as of June 30, 2019.

FLLP Facility—On May 31, 2019, the Company as transferor and FLLP2015-1, LLC, a wholly-owned subsidiary of the Company, as borrower entered into amendment number five to the $75 million FLLP Facility with Wells Fargo Bank, NA acting as administrative agent. The Company acts as servicer under the FLLP Facility. The FLLP Facility is scheduled to mature on May 31, 2024. The FLLP Facility generally bears interest

at a rate of LIBOR plus a range of2.15-2.25%. The Company and FLLP2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facility also includes usual and customary events of default for credit facilities of this nature. There were $56.5 million of borrowings outstanding as of June 30, 2019. At SeptemberJune 30, 2017,2019, the Company was in compliance with all financial and operational covenants required by the Credit Facility and FLLP Facility.

Contractual Obligations

 

   Payments due by Period as of September 30, 2017
(dollars in millions)		 
   Total   Less than
1 year		   1-3 years   3-5 years   More than
5 years		 

Senior Secured Revolving Credit Facility(1)

  $91.0   $—     $91.0   $—     $—   
   Payments due by Period as of June 30, 2019
(dollars in millions)		 
   Total   Less than
1 year		   1-3 years   3-5 years   More than
5 years		 

Revolving credit facilities(1)

  $219.3   $—     $—    $219.3   $—   

 

(1)

At SeptemberJune 30, 2017, $109.02019, we had a total of $80.7 million of unused borrowing capacity remained unused.under our revolving credit facilities, subject to borrowing base limits.

Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. Our stockholders approved being subject to a 150% asset coverage ratio effective October 12, 2018.

Information about our senior securities is shown in the following table (in thousands) as of each year ended December 31 since the Company commenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.

 

Class and Year

 Total Amount
Outstanding(1)		 Asset
Coverage
Per Unit(2)		 Involuntary
Liquidating
Preference
Per Unit(3)		 Average
Market Value
Per Unit(4)		   Total Amount
Outstanding(1)		   Asset
Coverage
Per Unit(2)		   Involuntary
Liquidating
Preference
Per Unit(3)		   Average
Market Value
Per Unit(4)		 

Revolving Credit Facility

    

Fiscal 2017 (through September 30, 2017)

 $91,000  $3,961  $—    N/A 

Credit Facility

        

Fiscal 2019 (through June 30, 2019)

  $162,800   $1,630   $—      N/A 

Fiscal 2018

   119,200    1,770    —      N/A 

Fiscal 2017

   124,200    3,175    —      N/A 

Fiscal 2016

 98,300  3,738   —    N/A    98,300    3,738    —      N/A 

Fiscal 2015

 116,200  2,621   —    N/A    116,200    2,621    —      N/A 

Fiscal 2014

 143,200  2,421   —    N/A    143,200    2,421    —      N/A 

Fiscal 2013

 61,400  4,388   —    N/A    61,400    4,388    —      N/A 

Fiscal 2012

 39,100  5,453   —    N/A    39,100    5,453    —      N/A 

Fiscal 2011

 8,600  21,051   —    N/A    8,600    21,051    —      N/A 

FLLP Facility

        

Fiscal 2019 (through June 30, 2019)

   56,452    565    —      N/A 

Fiscal 2018

   51,371    762    —      N/A 
Total Senior SecuritiesTotal Senior Securities 

Fiscal 2019 (through June 30, 2019)

  $219,252   $2,195   $—      N/A 

Fiscal 2018

   170,571    2,532    —      N/A 

Fiscal 2017

   124,200    3,175    —      N/A 

Fiscal 2016

   98,300    3,738    —      N/A 

Fiscal 2015

   116,200    2,621    —      N/A 

Fiscal 2014

   143,200    2,421    —      N/A 

Fiscal 2013

   61,400    4,388    —      N/A 

Fiscal 2012

   39,100    5,453    —      N/A 

Fiscal 2011

   8,600    21,051    —      N/A 

 

(1)

Total amount of each class of senior securities outstanding at the end of the period presented.

(2)

The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit was divided based on the amount outstanding at the end of the period for each. As of SeptemberJune 30, 2017,2019, asset coverage was 396.1%219.5%.

(3)

The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4)

Not applicable, we do not have senior securities that are registered for public trading.

We have also entered into two contracts under which we have future commitments: the Advisory Agreement, pursuant to which Solar Capital Partners LLC has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which Solar Capital Management LLC has agreed to furnish us with the facilities and administrative services necessary to conduct ourday-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) atwo-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate

each of the Advisory Agreement and Administration Agreement without penalty upon 60 days’ written notice to the other. See note 3 to our Consolidated Financial Statements.

On September 10, 2014, FLLP entered into a servicing agreement with the Company. FLLP engaged and retained the Company to provide certain administrative services relating to the facilities, supplies and necessary ongoing overhead support services for the operation of FLLP’s ongoing business affairs in exchange for a fee. Either party may terminate this agreement upon 30 days’ written notice to the other.

Off-Balance Sheet Arrangements

TheFromtime-to-time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company’s liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded debt and equitycapital commitments to delayed draw and revolving loans as well as to Gemino Healthcare Finance, LLC. The total amount of these unfunded commitments as of Septemberat June 30, 20172019 and December 31, 2016 is $16.2 million and $13.1 million, respectively, comprised of the following:2018, respectively:

 

  September 30,
2017		  December 31,
2016		 
(in millions)      

Gemino Healthcare Finance, LLC

 $5.0  $5.0 

PetVet Care Centers, LLC

  2.7   —   

MRI Software LLC

  2.4   —   

Engineering Solutions & Products, LLC

  1.7   1.7 

Alera Group Intermediate Holdings, Inc

  1.3   3.9 

MHE Intermediate Holdings, LLC

  1.0   —   

The Hilb Group, LLC & Gencorp Insurance Group, Inc.

  0.9   —   

Ministry Brands, LLC

  0.8   1.5 

VT Buyer Acquisition Corp. (Veritext)

  0.3   0.5 

TwentyEighty, Inc

  0.1   —   

CIBT Holdings, Inc

  —     0.5 
 

 

 

  

 

 

 

Total Commitments*

 $16.2  $13.1 
 

 

 

  

 

 

 
   June 30,
2019		   December 31,
2018		 

(in millions)

    

Unified Physician Management, LLC

  $ 10.0   $—   

MSHC, Inc.

   8.3    3.3 

Solara Medical Supplies, Inc.

   3.9    2.1 

WIRB-Copernicus Group, Inc.

   2.4    2.7 

Rubius Therapeutics, Inc.

   2.1    4.1 

GenMark Diagnostics, Inc.

   1.6   0.7

Gemino Healthcare Finance, LLC*

   1.4   1.4

Edgewood Partners Holdings, LLC

   1.0    —   

Composite Technology Acquisition Corp.

   1.0   —   

Cerapedics, Inc.

   0.8    —   

MRI Software LLC

   0.8    2.5

DISA Holdings Acquisition Corp.

   0.5    2.6 

Engineering Solutions & Products, LLC

   0.3   0.5

AQA Acquisition Holding, Inc.

   0.2    0.1 

TwentyEighty, Inc.

   0.2   0.1

Centria Healthcare LLC

   0.2    0.3 

The Hilb Group, LLC & Gencorp Insurance Group, Inc.

   —      3.2

MHE Intermediate Holdings, LLC

   —      —   
  

 

 

   

 

 

 

Total Commitments

  $34.7   $23.6 
  

 

 

   

 

 

 

 

*

The Company controls the funding of the Gemino Healthcare Finance, LLC commitment and may cancel it at its discretion (also see First Lien Loan Program LLC section in Item 7).discretion.

The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the Company had sufficient cash available and/or liquid securities available to fund its commitments as well as the commitments to FLLP and LSJV disclosed earlier.commitments.

In the normal course of its business, we invest or trade in various financial instruments and may enter into various investment activities withoff-balance sheet risk, which may include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees ofoff-balance

sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities.

Distributions

The following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date:

 

Date Declared

  Record Date   Payment Date   Amount 

Fiscal 2017

      

November 2, 2017

   November 22, 2017    December 1, 2017   $0.1175 

October 5, 2017

   October 19, 2017    November 1, 2017    0.1175 

September 14, 2017

   September 22, 2017    October 3, 2017    0.1175 

August 1, 2017

   August 17, 2017    August 31, 2017    0.1175 

July 6, 2017

   July 20, 2017    August 1, 2017    0.1175 

June 7, 2017

   June 22, 2017    July 6, 2017    0.1175 

May 2, 2017

   May 18, 2017    June 2, 2017    0.1175 

April 6, 2017

   April 20, 2017    May 2, 2017    0.1175 

February 22, 2017

   March 23, 2017    April 4, 2017    0.1175 

February 7, 2017

   February 23, 2017    March 1, 2017    0.1175 

January 5, 2017

   January 19, 2017    February 1, 2017    0.1175 
      

 

 

 

YTD Total (2017)

      $1.2925 
      

 

 

 

Fiscal 2016

      

December 8, 2016

   December 22, 2016    January 4, 2017   $0.1175 

November 2, 2016

   November 23, 2016    December 1, 2016    0.1175 

October 5, 2016

   October 20, 2016    November 1, 2016    0.1175 

September 12, 2016

   September 22, 2016    October 4, 2016    0.1175 

August 2, 2016

   August 18, 2016    September 1, 2016    0.1175 

July 7, 2016

   July 21, 2016    August 2, 2016    0.1175 

June 7, 2016

   June 23, 2016    July 1, 2016    0.1175 

May 3, 2016

   May 19, 2016    June 2, 2016    0.1175 

April 7, 2016

   April 21, 2016    May 3, 2016    0.1175 

February 24, 2016

   March 24, 2016    April 1, 2016    0.1175 

February 4, 2016

   February 18, 2016    March 2, 2016    0.1175 

January 7, 2016

   January 21, 2016    February 2, 2016    0.1175 
      

 

 

 

Total (2016)

      $1.41 
      

 

 

 

Fiscal 2015

      

December 2, 2015

   December 17, 2015    January 5, 2016   $0.1175 

November 3, 2015

   November 19, 2015    December 1, 2015    0.1175 

October 7, 2015

   October 22, 2015    November 3, 2015    0.1175 

September 9, 2015

   September 24, 2015    October 1, 2015    0.1175 

August 4, 2015

   August 20, 2015    September 1, 2015    0.1175 

July 8, 2015

   July 23, 2015    July 31, 2015    0.1175 

June 9, 2015

   June 25, 2015    July 1, 2015    0.1175 

May 5, 2015

   May 21, 2015    June 2, 2015    0.1175 

April 9, 2015

   April 23, 2015    May 1, 2015    0.1175 

February 25, 2015

   March 19, 2015    April 2, 2015    0.1175 

February 3, 2015

   February 19, 2015    February 27, 2015    0.1175 

January 8, 2015

   January 22, 2015    January 30, 2015    0.1175 
      

 

 

 

Total (2015)

      $1.41 
      

 

 

 

Date Declared

  Record Date   Payment Date   Amount 

Fiscal 2019

      

August 5, 2019

   August 22, 2019    August 30, 2019   $0.1175 

July 2, 2019

   July 25, 2019    August 1, 2019    0.1175 

June 5, 2019

   June 20, 2019    July 2, 2019    0.1175 

May 6, 2019

   May 23, 2019    June 4, 2019    0.1175 

April 4, 2019

   April 18, 2019    May 1, 2019    0.1175 

February 21, 2019

   March 21, 2019    April 3, 2019    0.1175 

February 6, 2019

   February 21, 2019    March 1, 2019    0.1175 

January 8, 2019

   January 24, 2019    February 1, 2019    0.1175 
      

 

 

 

YTD Total (2019)

      $0.94 
      

 

 

 

Fiscal 2018

      

December 6, 2018

   December 20, 2018    January 4, 2019    $0.1175 

November 5, 2018

   November 21, 2018    December 4, 2018    0.1175 

October 4, 2018

   October 24, 2018    November 1, 2018    0.1175 

September 6, 2018

   September 25, 2018    October 2, 2018    0.1175 

August 2, 2018

   August 23, 2018    August 31, 2018    0.1175 

July 3, 2018

   July 19, 2018    July 31, 2018    0.1175 

June 6, 2018

   June 21, 2018    July 3, 2018    0.1175 

May 7, 2018

   May 23, 2018    June 1, 2018    0.1175 

April 3, 2018

   April 19, 2018    May 2, 2018    0.1175 

February 22, 2018

   March 22, 2018    April 3, 2018    0.1175 

February 7, 2018

   February 22, 2018    March 1, 2018    0.1175 

January 5, 2018

   January 18, 2018    January 31, 2018    0.1175 
      

 

 

 

Fiscal YTD Total (2018)

      $1.41 
      

 

 

 

Fiscal 2017

      

December 7, 2017

   December 21, 2017    January 4, 2018    $0.1175 

November 2, 2017

   November 22, 2017    December 1, 2017    0.1175 

October 5, 2017

   October 19, 2017    November 1, 2017    0.1175 

September 14, 2017

   September 22, 2017    October 3, 2017    0.1175 

August 1, 2017

   August 17, 2017    August 31, 2017    0.1175 

July 6, 2017

   July 20, 2017    August 1, 2017    0.1175 

June 7, 2017

   June 22, 2017    July 6, 2017    0.1175 

May 2, 2017

   May 18, 2017    June 2, 2017    0.1175 

April 6, 2017

   April 20, 2017    May 2, 2017    0.1175 

February 22, 2017

   March 23, 2017    April 4, 2017    0.1175 

February 7, 2017

   February 23, 2017    March 1, 2017    0.1175 

January 5, 2017

   January 19, 2017    February 1, 2017    0.1175 
      

 

 

 

Total (2017)

      $1.41 
      

 

 

 

Tax characteristics of all distributions will be reported to shareholdersstockholders on Form 1099 after the end of the calendar year. Future distributions, if any, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains ornon-taxable return of capital, if any, as applicable.

We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractualpayment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.

With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders. For the ninesix months ended SeptemberJune 30, 20172019 and the year ended December 31, 2016, 14.1%2018, 13.4% and 10.9%4.9% of distributions were funded from the waiver of management andand/or incentive fees.

Related Parties

We have entered into a number of business relationships with affiliated or related parties, including the following:

 

We have entered into the Advisory Agreement with Solar Capital Partners. Mr. Gross, our Chairman, and ChiefCo-Chief Executive Officer and President and Mr. Spohler, ourCo-Chief Executive Office, Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial and controlling interests in, the Investment Adviser. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer and Corporate Secretary serves as the Chief Financial Officer for Solar Capital Partners.

 

The Administrator provides us with the office facilities and administrative services necessary to conductday-to-day operations pursuant to our Administration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief compliance officer, our chief financial officer and any administrative support staff.their respective staffs.

We have entered into a license agreement with the Investment Adviser, pursuant to which the Investment Adviser has granted us anon-exclusive, royalty-free license to use the name “Solar Capital.”

The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Investment Adviser presently serves as investment adviser to Solar Capital Ltd., a publicly traded BDC, which focuses on investing in senior secured loans, including stretch-senior and unitranche loans and to a lesser extent mezzanine loans and equity securities. In addition, Michael S. Gross, our Chairman, and ChiefCo-Chief Executive Officer and President, Bruce Spohler, ourCo-Chief Executive Officer and Chief Operating Officer, and Richard L. Peteka, our Chief Financial Officer, serve in similar capacities for Solar Capital Ltd. and SCP Private Credit Income BDC LLC. The Investment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should investside-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. On June 13, 2017, the Adviser received an exemptive order that permits the Company to participate innegotiated co-investment transactions with certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the “Order”). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating basis. Although the Adviser’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its Unitholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Adviser.

Related party transactions may occur betweenamong Solar Senior Capital Ltd., Gemino and Gemino Healthcare Finance, LLC, between Solar Senior Capital Ltd. and First Lien Loan Program LLC, between Solar Senior Capital Ltd. and Solar Life Science Program LLC and between Solar Senior Capital Ltd. and FLLP2015-1, LLC.NM Holdco. These transactions may occur in the normal course of business. No administrative fees are paid to Solar Capital Partners by Gemino Healthcare Finance, LLC, Solar Life Science Program LLC or First Lien Loan Program LLC.NM Holdco.

In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. During the ninesix months ended SeptemberJune 30, 2017, most2019, certain of the investments in our comprehensive investment portfolio had floating interest rates. Our loans areThese floating rate investments were primarily based on floating LIBOR and typically have durations of one to three months after which they reset to current market interest rates. MostAdditionally, some of our loans to portfolio companiesthese investments have LIBOR floors. The Company also has a revolving credit facilityfacilities that isare generally based on floating LIBOR and commercial paper rates.LIBOR. Assuming no changes to our balance sheet as of SeptemberJune 30, 20172019 and no new defaults by portfolio companies, a hypotheticalone-quarter of one percent decrease in LIBOR on our comprehensive floating rate assets and liabilities would decreasereduce our net investment income per average share by approximately twoten cents per average share over the next twelve months. Assuming no changes to our balance sheet as of SeptemberJune 30, 20172019 and no new defaults by portfolio companies, a hypothetical one percent increase in LIBOR on our comprehensive floating rate assets and liabilities would increase our net investment income per average share by approximately ten cents per average share over the next twelve months. However, we may hedge against interest rate fluctuations fromtime-to-time by using standard hedging instruments such as futures, options, swaps and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in any benefits of certain changes in interest rates with respect to our portfolio of investments. At June 30, 2019, we have no interest rate hedging instruments outstanding on our balance sheet.

 

Increase (Decrease) in LIBOR

   (0.25%)  1.00%    (1.00%)  1.00% 

Increase (Decrease) in Net Investment Income Per Share Per Year

  $(0.02)  $0.10   $(0.10)  $0.10 

Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of SeptemberJune 30, 20172019 (the end of the period covered by this report), we, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule13a-15(e) of the 1934 Act). Based on that evaluation, our

management, including the ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

Management has not identified any change in the Company’s internal control over financial reporting that occurred during the thirdsecond quarter of 20172019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

We, Solar Capital Management, LLC and Solar Capital Partners, LLC are not currently subject to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations beyond what has been disclosed with these financial statements.

 

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in the October 5, 2017February 21, 2019 filing of our Registration StatementAnnual Report onFormN-2, 10-K, which which could materially affect our business, financial condition and/or operating results. The risks described in our Registration Statement on FormN-2Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no material changes during the period ended June 30, 2019 to the risk factors discussed in “Risk Factors” in the February 21, 2019 filing of our Annual Report on Form10-K.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We did not engage in unregistered sales of securities during the quarter ended SeptemberJune 30, 2017.2019.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

 

Exhibit

Number

  

Description

  3.1  Articles of Amendment and Restatement(1)
  3.2  Amended and Restated Bylaws(1)
  4.1  Form of Common Stock Certificate(1)
10.1  Dividend Reinvestment Plan(1)
10.2  First Amended and Restated Investment Advisory and Management Agreement by and between Registrant and Solar Capital Partners, LLC(7)(5)
10.3  Form of Custody Agreement(4)
10.4  Amended and Restated Administration Agreement by and between Registrant and Solar Capital Management, LLC(4)
10.5  Form of Indemnification Agreement by and between Registrant and each of its directors(1)
10.6  Trademark License Agreement by and between Registrant and Solar Capital Partners, LLC(1)
10.7  Form of Share Purchase Agreement by and between Registrant and Solar Senior Capital Investors, LLC(1)
10.8  Form of Amendment No. 1 to Share Purchase Agreement by and between Registrant and Solar Senior Capital Investors, LLC(2)
10.9  Form of Contribution Agreement, dated as of August  26, 2011, by and between SUNS SPV LLC, as the contributee, and Solar Senior Capital Ltd., as the contributor(3)
10.10  Form of Loan and Servicing Agreement, dated as of August 26, 2011 (as amended through May  29, 2015)the Sixth Amendment dated as of June  1, 2018), by and among the Registrant, as the servicer and the transferor, SUNS SPV LLC, as the borrower, each of the conduit lenders from time to time party thereto, each of the liquidity banks from time to time party thereto, each of the lender agents from time to time party thereto, Citibank, N.A., as the administrative agent and collateral agent, and Wells Fargo Bank, N.A., as the account bank, the backup servicer and the collateral custodian(5)(6)
10.11  FourthConsent and Omnibus Amendment to the Loan and Servicing Agreement, dated as of May  29, 2015Transaction Documents by and among the Registrant, as the transferor and the servicer, SUNS SPVFLLP2015-1, LLC, as the borrower, Citibank, N.A., as the administrative agent and collateral agent, each of the conduit lenders from time to time party thereto, each of the lender agents from time to time party thereto, each of the liquidity banks from time to time party thereto, each of the institutional lenders from time to time party thereto,Conduit Lenders and Institutional Lenders and Wells Fargo Bank, N.A., as the account bank, theadministrative agent and collateral custodian and the backup serviceragent(5)(7)
10.1214.1  FormCode of Limited Liability Company Agreement, dated as of September  10, 2014, by and among the Registrant, Voya Retirement Insurance and Annuity Company, ReliaStar Life Insurance Company, and Voya Insurance and Annuity Company, by and through Voya Investment Management LLC, as agent and investment manager(6)
10.13Form of Solar Life Science Program LLC Limited Liability Company Agreement, dated as of February  22, 2017, by and between Solar Capital Ltd., Solar Senior Capital Ltd. and Deerfield Solar Holdings LLCEthics(8)
11.1Computation of Per Share Earnings (included in the notes to the financial statements contained in this report)

Exhibit

Number

Description

31.1  Certification of ChiefCo-Chief Executive Officer pursuant to Rule13a-14 of the Securities Exchange Act of 1934, as amended.*
31.2  Certification of Chief FinancialCo-Chief Executive Officer pursuant to Rule13a-14 of the Securities Exchange Act of 1934, as amended.*
32.131.3  Certification of Chief Financial Officer pursuant to Rule13a-14 of the Securities Exchange Act of 1934, as amended.*

Exhibit

Number

Description

32.1Certification ofCo-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.2Certification ofCo-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.3  Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

 

(1)

Previously filed in connection with Solar Senior Capital Ltd.’s registration statement on FormN-2 (FileNo. 333-171330) filed on February 14, 2011.

(2)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-K filed on February 22, 2012.

(3)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form8-K filed on August 31, 2011.

(4)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-K filed on February 25, 2014.

(5)Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-Q filed on August 4, 2015.
(6)Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-Q filed on November 4, 2014.
(7)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-Q filed on August 2, 2016.

(6)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-Q filed on August 6, 2018.

(7)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-K filed on February 21, 2019.

(8)

Previously filed in connection with Solar Senior Capital Ltd.’s report on Form10-Q filed on May 2, 2017.6, 2019.

*

Filed herewith.

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 on November 2, 2017.August 5, 2019.

 

SOLAR SENIOR CAPITAL LTD.

By:

 

/s/    MICHAEL S. GROSS

 

Michael S. Gross

ChiefCo-Chief Executive Officer

(Principal Executive Officer)

By:

/s/    BRUCE J. SPOHLER

Bruce J. Spohler

Co-Chief Executive Officer

(Principal Executive Officer)

 

By:

 

/s/    RICHARD L. PETEKA

 

Richard L. Peteka

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

6152