UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
(Mark one):
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 20172020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER:814-00237
GLADSTONE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND | 54-2040781 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
1521 WESTBRANCH DRIVE, SUITE 100 MCLEAN, VIRGINIA | 22102 | ||
(Address of principal executive office) | (Zip Code) |
(703)287-5800
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, $0.001 par value per share | GLAD | The Nasdaq Global Stock Market LLC | ||
5.375% Notes due 2024, $25.00 par value per note | GLADL | The Nasdaq Global Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
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 of RegulationS-T 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer |
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Non-accelerated filer | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the issuer’s common stock, $0.001 par value per share, outstanding as of February 2, 20182020 was 26,632,182.32,490,392.
GLADSTONE CAPITAL CORPORATION
1
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
December 31, | September 30, | |||||||||||||||
December 31, 2017 | September 30, 2017 | 2020 | 2020 | |||||||||||||
ASSETS | ||||||||||||||||
Investments, at fair value: | ||||||||||||||||
Non-Control/Non-Affiliate investments (Cost of$357,481and $318,952, respectively) | $ | 330,297 | $ | 290,860 | ||||||||||||
Affiliate investments (Cost of$50,036and $49,868, respectively) | 43,856 | 42,648 | ||||||||||||||
Control investments (Cost of$42,615 and $42,615 respectively) | 18,277 | 18,865 | ||||||||||||||
Non-Control/Non-Affiliate investments (Cost of $411,458 and $427,798, respectively) | $ | 392,594 | $ | 401,047 | ||||||||||||
Affiliate investments (Cost of $48,322 and $38,322, respectively) | 43,084 | 33,179 | ||||||||||||||
Control investments (Cost of $28,331 and $28,527, respectively) | 16,681 | 16,174 | ||||||||||||||
Cash and cash equivalents | 4,503 | 5,012 | 1,464 | 2,420 | ||||||||||||
Restricted cash and cash equivalents | 228 | 258 | 90 | 49 | ||||||||||||
Interest receivable, net | 2,167 | 1,699 | 2,129 | 3,001 | ||||||||||||
Due from custodian | 7,418 | 3,086 | ||||||||||||||
Deferred financing fees | 668 | 853 | ||||||||||||||
Due from administrative agent | 2,357 | 2,103 | ||||||||||||||
Deferred financing costs, net | 360 | 372 | ||||||||||||||
Other assets, net | 2,308 | 2,579 | 647 | 832 | ||||||||||||
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TOTAL ASSETS | $ | 409,722 | $ | 365,860 | $ | 459,406 | $ | 459,177 | ||||||||
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LIABILITIES | ||||||||||||||||
Borrowings, at fair value (Cost of$130,500 and $93,000, respectively) | $ | 130,833 | $ | 93,115 | ||||||||||||
Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference per share;5,440,000 and 5,440,000 shares authorized, respectively, and2,070,000 and 2,070,000 shares issued and outstanding, respectively | 49,870 | 49,849 | ||||||||||||||
Borrowings, at fair value (Cost of $16,300 and $128,000, respectively) | $ | 16,270 | $ | 127,650 | ||||||||||||
Notes payable, net of unamortized deferred financing costs of $4,527 and $2,428, respectively | 191,786 | 93,885 | ||||||||||||||
Accounts payable and accrued expenses | 511 | 522 | 600 | 377 | ||||||||||||
Interest payable | 330 | 264 | 1,336 | 1,181 | ||||||||||||
Fees due to Adviser(A) | 1,291 | 1,292 | 1,710 | 1,686 | ||||||||||||
Fee due to Administrator(A) | 272 | 244 | 434 | 329 | ||||||||||||
Other liabilities | 898 | 924 | 153 | 326 | ||||||||||||
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TOTAL LIABILITIES | $ | 184,005 | $ | 146,210 | $ | 212,289 | $ | 225,434 | ||||||||
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Commitments and contingencies(B) | ||||||||||||||||
NET ASSETS | ||||||||||||||||
Common stock, $0.001 par value,44,560,000 and 44,560,000 shares authorized, respectively, and26,632,182and26,160,684 shares issued and outstanding, respectively | $ | 27 | $ | 26 | ||||||||||||
Common stock, $0.001 par value per share, 44,560,000 and 44,560,000 shares authorized, respectively, and 32,490,392 and 31,566,850 shares issued and outstanding, respectively | $ | 33 | $ | 32 | ||||||||||||
Capital in excess of par value | 352,540 | 348,248 | 374,296 | 367,125 | ||||||||||||
Cumulative net unrealized depreciation of investments | (57,702 | ) | (59,062 | ) | (35,752 | ) | (44,247 | ) | ||||||||
Cumulative net unrealized depreciation of other | (333 | ) | (115 | ) | ||||||||||||
Cumulative net unrealized appreciation of other | 30 | 350 | ||||||||||||||
Over distributed net investment income | (207 | ) | (139 | ) | (59 | ) | (39 | ) | ||||||||
Accumulated net realized losses | (68,608 | ) | (69,308 | ) | (91,431 | ) | (89,478 | ) | ||||||||
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Total distributable loss | (127,212 | ) | (133,414 | ) | ||||||||||||
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TOTAL NET ASSETS | $ | 225,717 | $ | 219,650 | $ | 247,117 | $ | 233,743 | ||||||||
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NET ASSET VALUE PER COMMON SHARE | $ | 8.48 | $ | 8.40 | $ | 7.61 | $ | 7.40 | ||||||||
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(A) | Refer to Note 4—Related Party Transactions in the accompanyingNotes to Consolidated Financial Statements for additional information. |
(B) | Refer to Note 10—Commitments and Contingencies in the accompanyingNotes to Consolidated Financial Statements for additional information. |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
INVESTMENT INCOME | ||||||||||||||||
Interest income | ||||||||||||||||
Non-Control/Non-Affiliate investments | $ | 7,684 | $ | 5,809 | $ | 10,222 | $ | 9,648 | ||||||||
Affiliate investments | 1,111 | 1,162 | 910 | 1,046 | ||||||||||||
Control investments | 687 | 445 | 415 | 422 | ||||||||||||
Cash and cash equivalents | 12 | 2 | — | 8 | ||||||||||||
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Total interest income (excluding PIK interest income) | 9,494 | 7,418 | 11,547 | 11,124 | ||||||||||||
PIK interest income | ||||||||||||||||
Non-Control/Non-Affiliate investments | 1,106 | 997 | 535 | 332 | ||||||||||||
Affiliate investments | 70 | 218 | ||||||||||||||
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Total PIK interest income | 1,176 | 1,215 | 535 | 332 | ||||||||||||
Total interest income | 10,670 | 8,633 | 12,082 | 11,456 | ||||||||||||
Success fee income | ||||||||||||||||
Dividend income | ||||||||||||||||
Non-Control/Non-Affiliate investments | — | 391 | 366 | 164 | ||||||||||||
Affiliate investments | — | 1,142 | ||||||||||||||
Control investments | 222 | 186 | ||||||||||||||
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Total success fee income | — | 1,533 | ||||||||||||||
Total dividend income | 588 | 350 | ||||||||||||||
Other income | 189 | (192 | ) | 212 | 353 | |||||||||||
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Total investment income | 10,859 | 9,974 | 12,882 | 12,159 | ||||||||||||
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EXPENSES | ||||||||||||||||
Base management fee(A) | 1,676 | 1,378 | 2,002 | 1,852 | ||||||||||||
Loan servicing fee(A) | 1,186 | 983 | 1,348 | 1,403 | ||||||||||||
Incentive fee(A) | 1,373 | 1,293 | 1,367 | 1,394 | ||||||||||||
Administration fee(A) | 272 | 300 | 355 | 371 | ||||||||||||
Interest expense on borrowings | 1,231 | 556 | ||||||||||||||
Dividend expense on mandatorily redeemable preferred stock | 776 | 1,029 | ||||||||||||||
Amortization of deferred financing fees | 248 | 273 | ||||||||||||||
Interest expense on borrowings and notes payable | 2,568 | 2,537 | ||||||||||||||
Dividends on mandatorily redeemable preferred stock | — | 9 | ||||||||||||||
Amortization of deferred financing costs | 418 | 361 | ||||||||||||||
Professional fees | 255 | 236 | 218 | 185 | ||||||||||||
Other general and administrative expenses | 292 | 401 | 324 | 346 | ||||||||||||
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Expenses, before credits from Adviser | 7,309 | 6,449 | ||||||||||||||
Expenses before credits from Adviser | 8,600 | 8,458 | ||||||||||||||
Credit to base management fee - loan servicing fee(A) | (1,186 | ) | (983 | ) | (1,348 | ) | (1,403 | ) | ||||||||
Credit to fees from Adviser - other(A) | (841 | ) | (699 | ) | (650 | ) | (1,313 | ) | ||||||||
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Total expenses, net of credits | 5,282 | 4,767 | 6,602 | 5,742 | ||||||||||||
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NET INVESTMENT INCOME | 5,577 | 5,207 | 6,280 | 6,417 | ||||||||||||
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NET REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||
Net realized (loss) gain: | ||||||||||||||||
Net realized gain (loss): | ||||||||||||||||
Non-Control/Non-Affiliate investments | 602 | 3,882 | (2,143 | ) | (4,434 | ) | ||||||||||
Affiliate investments | — | (2,330 | ) | |||||||||||||
Control investments | (28 | ) | (5,000 | ) | (1 | ) | — | |||||||||
Other | (133 | ) | — | (8 | ) | (1,407 | ) | |||||||||
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Total net realized gain (loss) | 441 | (3,448 | ) | (2,152 | ) | (5,841 | ) | |||||||||
Net unrealized appreciation (depreciation): | ||||||||||||||||
Non-Control/Non-Affiliate investments | 908 | (5,867 | ) | 7,887 | 2,742 | |||||||||||
Affiliate investments | 1,040 | 706 | (95 | ) | (140 | ) | ||||||||||
Control investments | (588 | ) | 4,106 | 703 | (2,463 | ) | ||||||||||
Other | (218 | ) | 212 | (320 | ) | (17 | ) | |||||||||
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Total net unrealized appreciation (depreciation) | 1,142 | (843 | ) | 8,175 | 122 | |||||||||||
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Net realized and unrealized gain (loss) | 1,583 | (4,291 | ) | 6,023 | (5,719 | ) | ||||||||||
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 7,160 | $ | 916 | ||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 12,303 | $ | 698 | ||||||||||||
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
3
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
BASIC AND DILUTED PER COMMON SHARE: | ||||||||
Net investment income | $ | 0.21 | $ | 0.21 | ||||
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Net increase in net assets resulting from operations | $ | 0.27 | $ | 0.04 | ||||
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Distributions declared and paid per common share | $ | 0.21 | $ | 0.21 | ||||
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WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:Basic and Diluted | 26,522,788 | 24,778,970 |
BASIC AND DILUTED PER COMMON SHARE: | ||||||||
Net investment income | $ | 0.20 | $ | 0.21 | ||||
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Net increase (decrease) in net assets resulting from operations | $ | 0.38 | $ | 0.02 | ||||
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WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted | 32,097,542 | 30,513,530 |
(A) | Refer to Note 4—Related Party Transactions in the accompanyingNotes to Consolidated Financial Statements for additional information. |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
4
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended December 31, | 2020 | 2019 | ||||||||||||||
2017 | 2016 | |||||||||||||||
NET ASSETS, SEPTEMBER 30 | $ | 233,743 | $ | 249,330 | ||||||||||||
OPERATIONS | ||||||||||||||||
Net investment income | $ | 5,577 | $ | 5,207 | 6,280 | 6,417 | ||||||||||
Net realized gain (loss) on investments | 574 | (3,448 | ) | (2,144 | ) | (4,434 | ) | |||||||||
Realized loss on other | (133 | ) | — | |||||||||||||
Realized gain (loss) on other | (8 | ) | (1,407 | ) | ||||||||||||
Net unrealized appreciation (depreciation) of investments | 1,360 | (1,055 | ) | 8,495 | 139 | |||||||||||
Net unrealized (depreciation) appreciation of other | (218 | ) | 212 | |||||||||||||
Net unrealized depreciation (appreciation) of other | (320 | ) | (17 | ) | ||||||||||||
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Net increase in net assets resulting from operations | 7,160 | 916 | ||||||||||||||
Net increase (decrease) in net assets resulting from operations | 12,303 | 698 | ||||||||||||||
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DISTRIBUTIONS | ||||||||||||||||
Distributions to common stockholders from net investment income | (5,577 | ) | (5,207 | ) | ||||||||||||
Distributions to common stockholders from net investment income ($0.19 per share and $0.21 per share, | (6,100 | ) | (6,417 | ) | ||||||||||||
Distributions to common stockholders from return of capital ($0.01 per share and $0.00 per share, respectively)(A) | (180 | ) | — | |||||||||||||
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Net decrease in net assets from distributions | (5,577 | ) | (5,207 | ) | (6,280 | ) | (6,417 | ) | ||||||||
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CAPITAL TRANSACTIONS | ||||||||||||||||
Issuance of common stock | 4,567 | 17,344 | 7,491 | 7,315 | ||||||||||||
Discounts, commissions and offering costs for issuance of common stock | (83 | ) | (875 | ) | (140 | ) | (137 | ) | ||||||||
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Net increase in net assets resulting from capital transactions | 4,484 | 16,469 | ||||||||||||||
Net increase (decrease) in net assets resulting from capital transactions | 7,351 | 7,178 | ||||||||||||||
NET INCREASE (DECREASE) IN NET ASSETS | 13,374 | 1,459 | ||||||||||||||
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NET INCREASE IN NET ASSETS | 6,067 | 12,178 | ||||||||||||||
NET ASSETS, BEGINNING OF PERIOD | 219,650 | 201,207 | ||||||||||||||
NET ASSETS, DECEMBER 31 | $ | 247,117 | $ | 250,789 | ||||||||||||
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NET ASSETS, END OF PERIOD | $ | 225,717 | $ | 213,385 | ||||||||||||
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(A) | Refer to Note 9 – Distributions to Common Stockholders in the accompanying Notes to Consolidated Financial Statements for additional information. |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net increase in net assets resulting from operations | $ | 7,160 | $ | 916 | ||||
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: | ||||||||
Purchase of investments | (56,938 | ) | (20,047 | ) | ||||
Principal repayments on investments | 18,569 | 42,234 | ||||||
Net proceeds from sale of investments | 1,274 | 8,219 | ||||||
Increase in investments due topaid-in-kind interest or other | (983 | ) | (1,095 | ) | ||||
Net change in premiums, discounts and amortization | (45 | ) | 54 | |||||
Net realized (gain) loss on investments | (574 | ) | 3,448 | |||||
Net unrealized (appreciation) depreciation of investments | (1,360 | ) | 1,055 | |||||
Net unrealized appreciation (depreciation) of other | 218 | (213 | ) | |||||
Changes in assets and liabilities: | ||||||||
Decrease in restricted cash and cash equivalents | 30 | 355 | ||||||
Amortization of deferred financing fees | 248 | 273 | ||||||
(Increase) decrease in interest receivable, net | (468 | ) | 380 | |||||
Increase in due from custodian | (4,332 | ) | (779 | ) | ||||
Decrease (increase) in other assets, net | 256 | (3,495 | ) | |||||
Decrease in accounts payable and accrued expenses | (11 | ) | (405 | ) | ||||
Increase (decrease) in interest payable | 66 | (91 | ) | |||||
Decrease in fees due to Adviser(A) | (1 | ) | (11 | ) | ||||
Increase in fee due to Administrator(A) | 28 | 18 | ||||||
(Decrease) increase in other liabilities | (26 | ) | 650 | |||||
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Net cash (used in) provided by operating activities | (36,889 | ) | 31,466 | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from borrowings | 61,100 | 24,200 | ||||||
Repayments on borrowings | (23,600 | ) | (67,300 | ) | ||||
Deferred financing fees | (42 | ) | — | |||||
Proceeds from issuance of common stock | 4,567 | 17,344 | ||||||
Discounts, commissions and offering costs for issuance of common stock | (68 | ) | (875 | ) | ||||
Distributions paid to common stockholders | (5,577 | ) | (5,207 | ) | ||||
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Net cash provided by (used in) financing activities | 36,380 | (31,838 | ) | |||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS | (509 | ) | (372 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 5,012 | 6,152 | ||||||
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CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 4,503 | $ | 5,780 | ||||
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Three Months Ended December 31, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net increase (decrease) in net assets resulting from operations | $ | 12,303 | $ | 698 | ||||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||||
Purchase of investments | (29,098 | ) | (42,535 | ) | ||||
Principal repayments on investments | 30,631 | 12,656 | ||||||
Net proceeds from sale of investments | 3,511 | (25 | ) | |||||
Increase in investments due to PIK interest | (654 | ) | (328 | ) | ||||
Net change in premiums, discounts and amortization | 2 | (196 | ) | |||||
Net realized loss (gain) on investments | 2,144 | 4,434 | ||||||
Net realized loss (gain) on other | 8 | 1,407 | ||||||
Net unrealized depreciation (appreciation) of investments | (8,495 | ) | (139 | ) | ||||
Net unrealized appreciation (depreciation) of other | 320 | 17 | ||||||
Changes in assets and liabilities: | ||||||||
Amortization of deferred financing fees | 418 | 361 | ||||||
Decrease (increase) in interest receivable, net | 872 | (279 | ) | |||||
Decrease (increase) in funds due from administrative agent | (254 | ) | (347 | ) | ||||
Decrease (increase) in other assets, net | 157 | (123 | ) | |||||
Increase (decrease) in accounts payable and accrued expenses | 223 | 84 | ||||||
Increase (decrease) in interest payable | 155 | 395 | ||||||
Increase (decrease) in fees due to Adviser(A) | 24 | (582 | ) | |||||
Increase (decrease) in fees due to Administrator(A) | 105 | 104 | ||||||
Increase (decrease) in other liabilities | (173 | ) | 85 | |||||
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Net cash provided by (used in) operating activities | 12,199 | (24,313 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from line of credit | 21,500 | 84,300 | ||||||
Repayments on line of credit | (133,200 | ) | (60,400 | ) | ||||
Redemption of preferred stock | — | (51,750 | ) | |||||
Proceeds from issuance of long-term debt | 100,000 | 38,813 | ||||||
Deferred financing fees | (2,513 | ) | (1,383 | ) | ||||
Proceeds from issuance of common stock | 7,491 | 7,315 | ||||||
Discounts, commissions and offering costs for issuance of common stock | (112 | ) | (112 | ) | ||||
Distributions paid to common stockholders | (6,280 | ) | (6,417 | ) | ||||
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Net cash provided by (used in) financing activities | (13,114 | ) | 10,366 | |||||
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NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS | (915 | ) | (13,947 | ) | ||||
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD | 2,469 | 15,748 | ||||||
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CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD | �� | $ | 1,554 | $ | 1,801 | |||
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CASH PAID FOR INTEREST | $ | 2,413 | $ | 2,142 | ||||
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(A) | Refer to Note 4—Related Party Transactions in the accompanyingNotes to Consolidated Financial Statements for additional information. |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
6
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 20172020
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 158.9% | ||||||||||||
Secured First Lien Debt – 80.3% | ||||||||||||
Aerospace and Defense – 5.0% | ||||||||||||
Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(E) | $ | 12,411 | $ | 12,411 | $ | 12,411 | ||||||
Beverage, Food, and Tobacco – 10.4% | ||||||||||||
Café Zupas – Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C) | — | — | — | |||||||||
Café Zupas – Delayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C) | 1,970 | 1,970 | 1,955 | |||||||||
Café Zupas – Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024)(C) | 24,000 | 24,000 | 23,820 | |||||||||
|
|
|
| |||||||||
25,970 | 25,775 | |||||||||||
Buildings and Real Estate – 0.7% | ||||||||||||
GFRC 360, LLC – Line of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2021)(C) | 700 | 700 | 690 | |||||||||
GFRC 360, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 9/2021)(C) | 1,000 | 1,000 | 985 | |||||||||
|
|
|
| |||||||||
1,700 | 1,675 | |||||||||||
Diversified/Conglomerate Service – 23.7% | ||||||||||||
DKI Ventures, LLC – Line of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2021)(C) | — | — | — | |||||||||
DKI Ventures, LLC – Term Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023)(C) | 6,001 | 6,001 | 4,802 | |||||||||
ENET Holdings, LLC – Term Debt (10.2% Cash, Due 12/2022)(C)(F) | 1,000 | 1,000 | 795 | |||||||||
ENET Holdings, LLC – Term Debt (10.2% Cash, Due 4/2025)(C)(F) | 29,000 | 29,000 | 23,055 | |||||||||
R2i Holdings, LLC – Line of Credit, $1,171 available (8.0% Cash, Due 12/2021)(C)(F) | 829 | 829 | 808 | |||||||||
R2i Holdings, LLC – Term Debt (8.0% Cash, Due 12/2023)(C)(F) | 19,625 | 19,625 | 19,134 | |||||||||
Vision Government Solutions, Inc. – Line of Credit, $2,500 available (L + 8.8%, 9.8% Cash, Due 12/2022)(C) | — | — | — | |||||||||
Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 12/2022)(C) | 9,975 | 9,945 | 9,925 | |||||||||
|
|
|
| |||||||||
66,400 | 58,519 | |||||||||||
Healthcare, Education, and Childcare – 27.5% | ||||||||||||
ALS Education, LLC – Line of Credit, $4,000 available (L + 7.5%, 9.0% Cash, Due 5/2025)(C) | — | — | — | |||||||||
ALS Education, LLC – Term Debt (L + 7.5%, 9.0% Cash, Due 5/2025)(C) | 21,340 | 21,340 | 21,313 | |||||||||
Effective School Solutions LLC – Line of Credit, $2,000 available (L + 7.8%, 8.8% Cash, Due 12/2025)(C) | — | — | — | |||||||||
Effective School Solutions LLC – Term Debt (L + 7.8%, 8.8% Cash, Due 12/2025)(C) | 19,000 | 19,000 | 19,000 | |||||||||
Effective School Solutions LLC – Delayed Draw Term Loan, $3,200 available (L + 7.8%, 8.8% Cash, Due 12/2025)(C) | — | — | — | |||||||||
EL Academies, Inc. – Delayed Draw Term Loan, $0 available (L + 8.0%, 9.0% Cash, Due 8/2022)(C) | 16,000 | 15,988 | 15,840 | |||||||||
EL Academies, Inc. – Term Debt (L + 8.0%, 9.0% Cash, Due 8/2022)(C) | 12,000 | 11,985 | 11,880 | |||||||||
|
|
|
| |||||||||
68,313 | 68,033 | |||||||||||
Machinery – 2.5% | ||||||||||||
Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 9.3% Cash, Due 11/2022)(C) | 125 | 125 | 121 | |||||||||
Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, Due 11/2022)(C) | 5,916 | 5,916 | 5,741 | |||||||||
Precision International, LLC – Line of Credit, $500 available (L + 7.5%, 8.5% Cash, Due 9/2021)(C) | — | — | — | |||||||||
Precision International, LLC – Term Debt (10.0% Cash, Due 9/2021)(C)(F) | 286 | 286 | 280 | |||||||||
|
|
|
| |||||||||
6,327 | 6,142 | |||||||||||
Printing and Publishing – 0.0% | ||||||||||||
Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due 2/2015)(E)(V) | 107 | 107 | — | |||||||||
Telecommunications – 10.5% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Line of Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2021)(C)(H) | 1,200 | 1,200 | 1,101 | |||||||||
B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)(H) | 6,000 | 6,000 | 5,505 | |||||||||
NetFortris Corp. – Term Debt (L + 9.0%, 9.5% Cash, Due 2/2021)(C) | 23,302 | 23,302 | 19,224 | |||||||||
|
|
|
| |||||||||
30,502 | 25,830 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 211,730 | $ | 198,385 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 146.3% | ||||||||||||
Secured First Lien Debt – 74.8% | ||||||||||||
Automobile – 1.5% | ||||||||||||
Meridian Rack & Pinion, Inc. (S) – Term Debt (L + 11.5%, 13.5% Cash, Due 12/2018) (C) | $ | 4,140 | $ | 4,140 | $ | 3,312 | ||||||
Beverage, Food, and Tobacco – 3.0% | ||||||||||||
Triple H Food Processors, LLC - Line of Credit, $1,500 available (L + 6.8%, 8.3% Cash, Due 8/2018)(C) | — | — | — | |||||||||
Triple H Food Processors, LLC – Term Debt (L + 8.3%, 9.8% Cash, Due 8/2020)(C) | 6,600 | 6,600 | 6,666 | |||||||||
|
|
|
| |||||||||
6,600 | 6,666 | |||||||||||
Buildings and Real Estate – 0.9% | ||||||||||||
GFRC Holdings, LLC – Line of Credit, $165 available (L + 8.0%, 9.6% Cash, Due 9/2018)(E) | 1,035 | 1,035 | 1,035 | |||||||||
GFRC Holdings, LLC – Term Debt (L + 8.0%, 9.6% Cash, Due 9/2018)(E) | 1,000 | 1,000 | 1,000 | |||||||||
|
|
|
| |||||||||
2,035 | 2,035 | |||||||||||
Diversified/Conglomerate Service – 19.7% | ||||||||||||
IA Tech, LLC – Term Debt (L + 11.0%, 12.6% Cash, Due 6/2021)(C) | 23,000 | 23,000 | 23,690 | |||||||||
Travel Sentry, Inc. – Term Debt (L + 8.0%, 9.7% Cash, Due 12/2021)(C)(U) | 8,902 | 8,902 | 9,192 | |||||||||
Vision Government Solutions, Inc. – Line of Credit, $0 available (L + 8.8%, 10.3% Cash, Due 1/2019)(C) | 1,450 | 1,450 | 1,431 | |||||||||
Vision Government Solutions, Inc. – Delayed Draw Term Loan, $900 available (10.0% Cash, Due 1/2019)(C)(F) | 1,600 | 1,600 | 1,511 | |||||||||
Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 10.3% Cash, Due 1/2019)(C) | 9,000 | 9,000 | 8,531 | |||||||||
|
|
|
| |||||||||
43,952 | 44,355 | |||||||||||
Healthcare, education, and childcare – 8.7% | ||||||||||||
EL Academies, Inc. – Line of Credit, $2,000 available (L + 8.8%, 10.3% Cash, Due 8/2020)(C) | — | — | — | |||||||||
EL Academies, Inc. – Delayed Draw Term Loan, $10,000 available (L + 8.8%, 10.3% Cash, Due 8/2022)(C) | — | — | — | |||||||||
EL Academies, Inc. – Term Debt (L + 8.8%, 10.3% Cash, Due 8/2022)(C) | 12,000 | 12,000 | 12,030 | |||||||||
TWS Acquisition Corporation – Term Debt (L + 8.0%, 9.6% Cash, Due 7/2020)(C) | 7,353 | 7,353 | 7,537 | |||||||||
|
|
|
| |||||||||
19,353 | 19,567 | |||||||||||
Machinery – 3.0% | ||||||||||||
Arc Drilling Holdings LLC – Line of Credit, $1,000 available (L + 8.0%, 9.6% Cash, Due 11/2020)(I) | — | — | — | |||||||||
Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 11.1% Cash, Due 11/2022)(I) | 5,880 | 5,880 | 5,880 | |||||||||
Precision International, LLC – Term Debt (10.0% PIK, Due 9/2021)(C)(F) | 830 | 830 | 822 | |||||||||
|
|
|
| |||||||||
6,710 | 6,702 | |||||||||||
Oil and Gas – 16.9% | ||||||||||||
Impact! Chemical Technologies, Inc. – Line of Credit, $2,164 available (L + 8.8%, 10.3% Cash, Due 12/2020)(I) | 336 | 336 | 336 | |||||||||
Impact! Chemical Technologies, Inc. – Term Debt (L + 8.8%, 10.8% Cash, Due 12/2020)(I) | 20,000 | 20,000 | 20,000 | |||||||||
WadeCo Specialties, Inc. – Line of Credit, $2,425 available (L + 7.0%, 8.6% Cash, Due 4/2018)(C) | 575 | 575 | 580 | |||||||||
WadeCo Specialties, Inc. – Term Debt (L + 7.0% 8.6% Cash, Due 3/2019)(C) | 10,191 | 10,191 | 10,292 | |||||||||
WadeCo Specialties, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 3/2019)(C) | 7,000 | 7,000 | 7,035 | |||||||||
|
|
|
| |||||||||
38,102 | 38,243 | |||||||||||
Personal andNon-Durable Consumer Products (Manufacturing Only) – 2.8% | ||||||||||||
Canopy Safety Brands, LLC – Line of Credit, $500 available (L + 6.5%, 8.1% Cash, Due 9/2019)(C) | — | — | — | |||||||||
Canopy Safety Brands, LLC – Term Debt (L + 9.5%, 11.1% Cash, Due 9/2021)(C) | 6,500 | 6,500 | 6,598 | |||||||||
|
|
|
| |||||||||
6,500 | 6,598 | |||||||||||
Printing and Publishing – 0.0% | ||||||||||||
Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 8.5% Cash, Due 2/2015)(E)(V) | 107 | 107 | — | |||||||||
Telecommunications – 18.3% | ||||||||||||
Applied Voice & Speech Technologies, Inc. – Term Debt (L + 9.3%, 10.8% Cash, Due 10/2022)(I) | 11,000 | 11,000 | 11,000 | |||||||||
B+T Group Acquisition Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, | 6,000 | 6,000 | 5,978 | |||||||||
NetFortris Corp. – Term Debt (L + 8.4%, 10.0% Cash, Due 2/2021)(C) | 24,000 | 24,000 | 24,420 | |||||||||
|
|
|
| |||||||||
41,000 | 41,398 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 168,499 | $ | 168,876 | ||||||||
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
7
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 20172020
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Secured Second Lien Debt – 67.2% | ||||||||||||
Automobile – 3.9% | ||||||||||||
Sea Link International IRB, Inc. – Term Debt (11.3% Cash, 2.0% PIK, Due 3/2023)(C)(F) | $ | 10,729 | $ | 10,729 | $ | 9,575 | ||||||
Beverage, Food, and Tobacco – 1.5% | ||||||||||||
8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 7.9% Cash, Due 10/2026)(D) | 3,683 | 3,704 | 3,618 | |||||||||
Cargo Transportation – 12.5% | ||||||||||||
AG Transportation Holdings, LLC – Term Debt (L + 10.0%, 13.3% Cash, Due 12/2021)(C) | 13,000 | 12,978 | 12,984 | |||||||||
American Trailer Rental Group LLC – Term Debt (L + 8.9%, 10.4% Cash, Due 8/2025)(C) | 18,000 | 18,000 | 17,910 | |||||||||
|
|
|
| |||||||||
30,978 | 30,894 | |||||||||||
Chemicals, Plastics, and Rubber – 4.0% | ||||||||||||
Phoenix Aromas & Essential Oils, LLC – Term Debt (L + 11.5%, 12.5% Cash, Due 5/2024)(C) | 10,012 | 10,012 | 9,962 | |||||||||
Diversified/Conglomerate Manufacturing – 13.1% | ||||||||||||
Magpul Industries Corp. – Term Debt (L + 10.5%, 11.5% Cash, Due 5/2026)(C) | 28,000 | 28,000 | 28,210 | |||||||||
Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 9.1% Cash, Due 5/2027)(D) | 5,000 | 4,783 | 4,150 | |||||||||
|
|
|
| |||||||||
32,783 | 32,360 | |||||||||||
Diversified/Conglomerate Service – 13.1% | ||||||||||||
CHA Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026)(D)(U) | 3,000 | 2,955 | 2,700 | |||||||||
Drive Chassis Holdco, LLC – Term Debt (L + 8.3%, 8.4% Cash, Due 4/2026)(D) | 5,000 | 4,793 | 4,962 | |||||||||
Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 12/2026)(C)(F) | 8,100 | 8,060 | 8,039 | |||||||||
Keystone Acquisition Corp. – Term Debt (L + 9.3%, 10.3% Cash, Due 5/2025)(D)(U) | 4,000 | 3,947 | 3,560 | |||||||||
Prophet Brand Strategy – Delayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due 2/2025)(C) | — | — | — | |||||||||
Prophet Brand Strategy – Term Debt (L + 8.5%, 10.5% Cash, Due 2/2025)(C) | 13,000 | 13,000 | 13,033 | |||||||||
|
|
|
| |||||||||
32,755 | 32,294 | |||||||||||
Healthcare, Education, and Childcare – 2.3% | ||||||||||||
Medical Solutions Holdings, Inc. – Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025)(D) | 3,000 | 2,970 | 2,850 | |||||||||
Medical Solutions Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025)(D) | 3,000 | 2,950 | 2,850 | |||||||||
|
|
|
| |||||||||
5,920 | 5,700 | |||||||||||
Home and Office Furnishings, Housewares and Durable Consumer Products – 3.9% | ||||||||||||
Belnick, Inc. – Term Debt (11.0% Cash, Due 8/2023)(C)(F) | 10,000 | 10,000 | 9,750 | |||||||||
Hotels, Motels, Inns, and Gaming – 3.3% | ||||||||||||
Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 11.0% Cash, 3.0% PIK, Due 6/2023)(C) | 8,113 | 8,113 | 8,113 | |||||||||
Machinery – 0.4% | ||||||||||||
CPM Holdings, Inc. – Term Debt (L + 8.3%, 8.4% Cash, Due 11/2026)(D) | 1,000 | 1,000 | 970 | |||||||||
Oil and Gas – 9.2% | ||||||||||||
Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.3% Cash, 1.8% PIK, Due 9/2022)(C) | 27,706 | 27,706 | 22,719 | |||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 173,700 | $ | 165,955 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Secured Second Lien Debt – 65.1% | ||||||||||||
Automobile – 2.2% | ||||||||||||
Sea Link International IRB, Inc. – Term Debt (11.3% Cash, Due 3/2023)(C)(F) | $ | 5,000 | $ | 4,976 | $ | 5,031 | ||||||
Beverage, Food, and Tobacco – 3.0% | ||||||||||||
The Mochi Ice Cream Company – Term Debt (L + 10.5%, 12.1% Cash, Due 1/2021)(C) | 6,750 | 6,750 | 6,826 | |||||||||
Cargo Transportation – 5.9% | ||||||||||||
AG Transportation Holdings, LLC. – Term Debt (L + 10.0%, 13.3% Cash, Due 3/2020)(C) | 13,000 | 13,000 | 13,098 | |||||||||
Chemicals, Plastics, and Rubber – 0.4% | ||||||||||||
Vertellus Holdings LLC – Term Debt (L + 12.0%, 13.6% Cash, Due 10/2021)(C) | 1,099 | 1,099 | 922 | |||||||||
Diversified/Conglomerate Manufacturing – 9.6% | ||||||||||||
Alloy Die Casting Co.(S) – Term Debt (L + 11.5%, 13.5% Cash, Due 4/2021)(C)(H) | 5,235 | 5,235 | 3,350 | |||||||||
Alloy Die Casting Co.(S) – Term Debt (L + 11.5%, 13.5% Cash, Due 4/2021)(C)(H) | 75 | 75 | 48 | |||||||||
Alloy Die Casting Co.(S) – Term Debt (Due 4/2021)(C)(P) | 390 | 390 | 252 | |||||||||
United Flexible, Inc. – Term Debt (L + 9.5%, 11.1% Cash, 2.0% PIK, Due 2/2022)(C) | 18,085 | 18,005 | 18,107 | |||||||||
|
|
|
| |||||||||
23,705 | 21,757 | |||||||||||
Diversified/Conglomerate Service – 20.5% | ||||||||||||
DigiCert Holdings, Inc. – Term Debt (L + 8.0%, 9.6% Cash, Due 10/2025)(D) | 5,000 | 4,975 | 5,013 | |||||||||
Gray Matter Systems, LLC – Delayed Draw Term Loan, $2,000 available (12.0% Cash, Due 11/2023)(F)(I) | — | — | — | |||||||||
Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 11/2023)(F)(I) | 7,500 | 7,500 | 7,500 | |||||||||
Keystone Acquisition Corp. – Term Debt (L + 9.3%, 10.9% Cash, Due 5/2025)(D)(U) | 4,000 | 3,924 | 3,980 | |||||||||
LDiscovery, LLC – Term Debt (L + 10.0%, 11.6% Cash, Due 12/2023)(D) | 5,000 | 4,820 | 4,000 | |||||||||
Red Ventures, LLC – Term Debt (L + 8.0%, 9.6% Cash, Due 11/2025)(D) | 3,625 | 3,566 | 3,625 | |||||||||
TapRoot Partners, Inc. – Term Debt (L + 10.3%, 11.8% Cash, Due 10/2022)(C) | 22,000 | 22,000 | 22,220 | |||||||||
|
|
|
|
|
| |||||||
46,785 | 46,338 | |||||||||||
Healthcare, education, and childcare – 8.0% | ||||||||||||
Medical Solutions Holdings, Inc. – Term Debt (L + 8.3%, 9.8% Cash, Due 12/2023)(D) | 3,000 | 2,957 | 2,970 | |||||||||
Merlin International, Inc. – Term Debt (L + 10.0%, 11.6% Cash, Due 8/2022)(C) | 10,000 | 10,000 | 10,225 | |||||||||
NetSmart Technologies, Inc. – Term Debt (L + 9.5%, 11.1% Cash, Due 10/2023)(D) | 3,660 | 3,610 | 3,660 | |||||||||
New Trident Holdcorp, Inc. – Term Debt (L + 10.0%, 11.7% PIK, Due 7/2020)(D)(U) | 4,000 | 4,000 | 1,191 | |||||||||
|
|
|
| |||||||||
20,567 | 18,046 | |||||||||||
Home and Office Furnishings, Housewares and Durable Consumer Products – 4.5% | ||||||||||||
Belnick, Inc. – Term Debt (11.0% Cash, Due 8/2023)(C)(F) | 10,000 | 10,000 | 10,150 | |||||||||
Hotels, Motels, Inns, and Gaming – 3.2% | ||||||||||||
Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 11.6% Cash, 3.0% PIK, | 7,199 | 7,199 | 6,938 | |||||||||
Oil and Gas – 7.0% | ||||||||||||
Francis Drilling Fluids, Ltd. – Term Debt (L + 10.4%, 11.9% PIK, Due 4/2020)(C) | 17,245 | 17,128 | 10,766 | |||||||||
Francis Drilling Fluids, Ltd. – Term Debt (L + 9.3%, 10.8% PIK, Due 4/2020)(C) | 7,945 | 7,891 | 4,954 | |||||||||
|
|
|
| |||||||||
25,019 | 15,720 | |||||||||||
Telecommunications – 0.4% | ||||||||||||
Neustar, Inc. – Term Debt (L + 8.0%, 9.6% Cash, Due 8/2025)(D) | 1,000 | 1,000 | 1,008 | |||||||||
Textiles and Leather – 0.4% | ||||||||||||
ABG Intermediate Holdings 2 LLC – Term Debt (L + 7.8%, 9.4% Cash, Due 9/2025)(D)(U) | 1,000 | 1,000 | 1,010 | |||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 161,100 | $ | 146,844 | ||||||||
|
|
|
| |||||||||
Unsecured Debt – 1.5% | ||||||||||||
Healthcare, education, and childcare – 1.5% | ||||||||||||
Edmentum Ultimate Holdings, LLC – Term Debt (10.0% PIK, Due 6/2020)(C)(F) | $ | 3,352 | $ | 3,352 | $ | 3,356 | ||||||
Preferred Equity – 1.9% | ||||||||||||
Automobile – 0.1% | ||||||||||||
Meridian Rack & Pinion, Inc. (S)– Preferred Stock(E)(G) | 1,449 | $ | 1,449 | $ | 161 | |||||||
Buildings and Real Estate – 0.3% | ||||||||||||
GFRC Holdings, LLC – Preferred Stock(E)(G) | 1,000 | 1,025 | 674 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
8
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 20172020
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Unsecured Debt – 0.0% | ||||||||||||
Diversified/Conglomerate Service – 0.0% | ||||||||||||
Frontier Financial Group Inc. – Convertible Debt (6.0%, Due 6/2022)(E)(F) | $ | 198 | $ | 198 | $ | 15 | ||||||
Preferred Equity – 2.0% | ||||||||||||
Automobile – 0.1% | ||||||||||||
Sea Link International IRB, Inc. – Preferred Stock(E)(G) | 98,039 | 98 | 111 | |||||||||
Beverage, Food, and Tobacco – 0.0% | ||||||||||||
Triple H Food Processors, LLC – Preferred Stock(E)(G) | 75 | 75 | 86 | |||||||||
Buildings and Real Estate – 0.6% | ||||||||||||
GFRC 360, LLC – Preferred Stock(E)(G) | 1,000 | 1,025 | 1,565 | |||||||||
Diversified/Conglomerate Service – 0.0% | ||||||||||||
Frontier Financial Group Inc. – Preferred Stock(E)(G) | 766 | 500 | — | |||||||||
Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G) | 168 | — | — | |||||||||
|
|
|
| |||||||||
500 | — | |||||||||||
Oil and Gas – 0.4% | ||||||||||||
FES Resources Holdings LLC – Preferred Equity Units(E)(G) | 6,350 | 6,350 | — | |||||||||
Imperative Holdings Corporation – Preferred Equity Units(E)(G) | 13,740 | 632 | 1,073 | |||||||||
|
|
|
| |||||||||
6,982 | 1,073 | |||||||||||
Telecommunications – 0.9% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G) | 6,130 | 2,024 | — | |||||||||
NetFortris Corp. – Preferred Stock(E)(G) | 7,890,860 | 789 | 2,162 | |||||||||
|
|
|
| |||||||||
2,813 | 2,162 | |||||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 11,493 | $ | 4,997 | ||||||||
|
|
|
| |||||||||
Common Equity – 9.4% | ||||||||||||
Aerospace and Defense – 1.9% | ||||||||||||
Antenna Research Associates, Inc. – Common Equity Units(E)(G) | 4,283 | $ | 4,283 | $ | 4,632 | |||||||
Automobile– 0.1% | ||||||||||||
Sea Link International IRB, Inc.– Common Equity Units(E)(G) | 823,333 | 823 | 321 | |||||||||
Beverage, Food, and Tobacco – 0.2% | ||||||||||||
Triple H Food Processors, LLC – Common Stock(E)(G) | 250,000 | 250 | 599 | |||||||||
Buildings and Real Estate – 0.0% | ||||||||||||
GFRC 360, LLC – Common Stock Warrants(E)(G) | 45.0 | % | — | — | ||||||||
Cargo Transportation – 2.1% | ||||||||||||
AG Transportation Holdings, LLC – Member Profit Participation(E)(G) | 27.0 | % | 1,350 | 3,518 | ||||||||
AG Transportation Holdings, LLC – Profit Participation Warrants(E)(G) | 5.0 | % | 244 | 492 | ||||||||
American Trailer Rental Group LLC – Common Stock(E)(G) | 6,667 | 1,000 | 1,117 | |||||||||
|
|
|
| |||||||||
2,594 | 5,127 | |||||||||||
Healthcare, Education, and Childcare – 2.1% | ||||||||||||
GSM MidCo LLC – Common Stock(E)(G) | 767 | 767 | 676 | |||||||||
Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($843 uncalled capital commitment)(G)(L)(R) | 3.5 | % | 1,499 | 4,409 | ||||||||
|
|
|
| |||||||||
2,266 | 5,085 | |||||||||||
Machinery – 0.3% | ||||||||||||
Arc Drilling Holdings LLC – Common Stock(E)(G) | 15,000 | 1,500 | 271 | |||||||||
Precision International, LLC – Membership Unit Warrant(E)(G) | 33.3 | % | — | 529 | ||||||||
|
|
|
| |||||||||
1,500 | 800 |
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Diversified/Conglomerate Manufacturing – 0.3% | ||||||||||||
Alloy Die Casting, Co.(S)– Preferred Stock(E)(G) | 2,192 | 2,192 | — | |||||||||
United Flexible, Inc. – Preferred Stock(E)(G) | 538 | 538 | 631 | |||||||||
|
|
|
| |||||||||
2,730 | 631 | |||||||||||
Diversified/Conglomerate Service – 0.2% | ||||||||||||
Frontier Financial Group Inc. – Preferred Stock(E)(G) | 766 | 500 | 500 | |||||||||
Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G) | 168 | — | — | |||||||||
|
|
|
| |||||||||
500 | 500 | |||||||||||
Oil and Gas – 0.8% | ||||||||||||
Francis Drilling Fluids, Ltd. – Preferred Equity Units(E)(G) | 1,656 | 1,215 | — | |||||||||
WadeCo. Specialties, Inc. – Preferred Stock(E)(G) | 1,000 | 618 | 2,098 | |||||||||
|
|
|
| |||||||||
1,833 | 2,098 | |||||||||||
Telecommunications – 0.2% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G)(J) | 5,503 | 1,799 | — | |||||||||
NetFortris Corp. – Preferred Stock(E)(G) | 1,250,000 | 125 | 375 | |||||||||
|
|
|
| |||||||||
1,924 | 375 | |||||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 9,461 | $ | 4,439 | ||||||||
|
|
|
| |||||||||
Common Equity – 3.0% | ||||||||||||
Aerospace and Defense – 0.3% | ||||||||||||
FedCap Partners, LLC – Class A Membership Units ($0 Uncalled | 80 | $ | 1,634 | $ | 751 | |||||||
Automobile – 0.2% | ||||||||||||
Sea Link International IRB, Inc. – Common Equity Units(E)(G) | 494,902 | 495 | 378 | |||||||||
Beverage, Food, and Tobacco – 0.2% | ||||||||||||
The Mochi Ice Cream Company – Common Stock(E)(G) | 450 | 450 | — | |||||||||
Triple H Food Processors, LLC – Common Stock(E)(G) | 250,000 | 250 | 442 | |||||||||
|
|
|
| |||||||||
700 | 442 | |||||||||||
Buildings and Real Estate – 0.0% | ||||||||||||
GFRC Holdings, LLC – Common Stock Warrants(E)(G) | 45.0 | % | — | — | ||||||||
Cargo Transportation – 0.0% | ||||||||||||
AG Transportation Holdings, LLC – Member Profit Participation(E)(G) | 18.0 | % | 1,000 | — | ||||||||
AG Transportation Holdings, LLC – Profit Participation Warrants(E)(G) | 12.0 | % | 244 | — | ||||||||
|
|
|
| |||||||||
1,244 | — | |||||||||||
Chemicals, Plastics, and Rubber – 0.2% | ||||||||||||
Vertellus Holdings LLC – Common Stock Units(E)(G) | 879,121 | 3,017 | 527 | |||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
Alloy Die Casting, Co.(S) – Common Stock(E)(G) | 270 | 18 | — | |||||||||
United Flexible, Inc. – Common Stock(E)(G) | 1,158 | 148 | — | |||||||||
|
|
|
| |||||||||
166 | — | |||||||||||
Healthcare, education, and childcare – 1.1% | ||||||||||||
Edmentum Ultimate Holdings, LLC – Common Stock(E)(G) | 21,429 | 2,636 | — | |||||||||
EL Academies, Inc. – Common Stock(E)(G) | 500 | 500 | 432 | |||||||||
Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($986 uncalled capital commitment)(G)(L)(R) | 3.5 | % | 2,010 | 2,098 | ||||||||
|
|
|
| |||||||||
5,146 | 2,530 | |||||||||||
Machinery – 0.7% | ||||||||||||
Arc Drilling Holdings LLC – Common Stock(I)(G) | 16.7 | % | 1,500 | 1,500 | ||||||||
Precision International, LLC – Membership Unit Warrant(E)(G) | 33.3 | % | — | 41 | ||||||||
|
|
|
| |||||||||
1,500 | 1,541 | |||||||||||
Oil and Gas – 0.1% | ||||||||||||
Francis Drilling Fluids, Ltd. – Common Equity Units(E)(G) | 1,656 | 1 | — | |||||||||
W3, Co. – Common Equity(D)(G) | 435 | 499 | 131 | |||||||||
|
|
|
| |||||||||
500 | 131 | |||||||||||
Personal andNon-Durable Consumer Products (Manufacturing Only) – 0.2% | ||||||||||||
Canopy Safety Brands, LLC – Participation Warrant(E)(G) | 1 | 500 | 325 | |||||||||
Funko Acquisition Holdings, LLC(S) – Common Units(G)(T) | 67,873 | 166 | 157 | |||||||||
|
|
|
| |||||||||
666 | 482 | |||||||||||
Telecommunications – 0.0% | ||||||||||||
NetFortris Corp. – Common Stock Warrant(E)(G) | 1 | 1 | — | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 15,069 | $ | 6,782 | ||||||||
|
|
|
| |||||||||
TotalNon-Control/Non-Affiliate Investments | $ | 357,481 | $ | 330,297 | ||||||||
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
9
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 20172020
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Oil and Gas – 0.1% | ||||||||||||
FES Resources Holdings LLC – Common Equity Units(E)(G) | 6,233 | — | — | |||||||||
Total Safety Holdings, LLC – Common Equity(E)(G) | 435 | 499 | 280 | |||||||||
|
|
|
| |||||||||
499 | 280 | |||||||||||
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0% | ||||||||||||
Funko Acquisition Holdings, LLC(S) – Common Units(G)(T) | 12,180 | 59 | 86 | |||||||||
Telecommunications – 0.0% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Common Stock Warrant(E)(G) | 1.5 | % | — | — | ||||||||
NetFortris Corp. – Common Stock Warrant(E)(G) | 1 | 1 | — | |||||||||
|
|
|
| |||||||||
1 | — | |||||||||||
Textiles and Leather – 2.6% | ||||||||||||
Targus Cayman HoldCo, Ltd. – Common Stock(E)(G) | 3,076,414 | 2,062 | 6,312 | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 14,337 | $ | 23,242 | ||||||||
|
|
|
| |||||||||
Total Non-Control/Non-Affiliate Investments | $ | 411,458 | $ | 392,594 | ||||||||
|
|
|
| |||||||||
AFFILIATE INVESTMENTS(N) – 17.4% | ||||||||||||
Secured First Lien Debt – 6.7% | ||||||||||||
Diversified/Conglomerate Manufacturing – 3.5% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Line of Credit, $0 available (L + 8.0%, 10.0% Cash, Due 9/2021)(C) | $ | 680 | $ | 680 | $ | 661 | ||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C) | 6,200 | 6,200 | 6,030 | |||||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 13.8% Cash, Due 2/2022)(C) | 2,000 | 2,000 | 1,945 | |||||||||
|
|
|
| |||||||||
8,880 | 8,636 | |||||||||||
Diversified/Conglomerate Service – 3.2% | ||||||||||||
Encore Dredging Holdings, LLC – Line of Credit, $3,000 available (L + 8.0%, 9.0% Cash, Due 12/2025)(C) | — | — | — | |||||||||
Encore Dredging Holdings, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 12/2025)(C) | 8,000 | 8,000 | 8,000 | |||||||||
|
|
|
| |||||||||
8,000 | 8,000 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 16,880 | $ | 16,636 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 8.2% | ||||||||||||
Diversified Natural Resources, Precious Metals and Minerals – 8.2% | ||||||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | $ | 6,000 | $ | 6,000 | $ | 5,970 | ||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | 8,000 | 8,000 | 7,960 | |||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | 3,300 | 3,300 | 3,284 | |||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | 3,000 | 3,000 | 2,985 | |||||||||
|
|
|
| |||||||||
20,300 | 20,199 | |||||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 20,300 | $ | 20,199 | ||||||||
|
|
|
| |||||||||
Preferred Equity –1.6% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Preferred Stock(E)(G) | 5,466 | $ | 5,466 | $ | — | |||||||
Diversified/Conglomerate Service– 0.8% | ||||||||||||
Encore Dredging Holdings, LLC (S) – Preferred Stock(E)(G) | 2,000,000 | 2,000 | $ | 2,000 | ||||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.6% | ||||||||||||
Lignetics, Inc. – Preferred Stock(E)(G) | 68,880 | 1,321 | 1,589 | |||||||||
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2% | ||||||||||||
Canopy Safety Brands, LLC – Preferred Stock(E)(G) | 500,000 | 500 | 449 | |||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 9,287 | $ | 4,038 | ||||||||
|
|
|
| |||||||||
Common Equity – 0.9% | ||||||||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.9% | ||||||||||||
Lignetics, Inc. – Common Stock(E)(G) | 152,603 | $ | 1,855 | $ | 2,211 | |||||||
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0% | ||||||||||||
Canopy Safety Brands, LLC – Common Stock(E)(G) | 500,000 | — | — | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 1,855 | $ | 2,211 | ||||||||
|
|
|
| |||||||||
Total Affiliate Investments | $ | 48,322 | $ | 43,084 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
AFFILIATE INVESTMENTS(N)– 19.4% | ||||||||||||
Secured First Lien Debt – 8.9% | ||||||||||||
Diversified/Conglomerate Manufacturing – 8.9% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2019)(C) | $ | 6,200 | $ | 6,200 | $ | 5,781 | ||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 13.8% Cash, Due 2/2019)(C) | 1,600 | 1,600 | 1,500 | |||||||||
LWO Acquisitions Company LLC – Line of Credit, $0 available (L + 5.5%. 7.1% Cash, 2.0% PIK, Due 12/2019)(C) | 2,762 | 2,761 | 2,555 | |||||||||
LWO Acquisitions Company LLC – Term Debt (L + 8.5%, 10.1% Cash, 2.0% PIK, Due 12/2019)(C) | 10,998 | 10,979 | 10,173 | |||||||||
|
|
|
| |||||||||
21,540 | 20,009 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 21,540 | $ | 20,009 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 7.4% | ||||||||||||
Diversified Natural Resources, Precious Metals and Minerals – 7.4% | ||||||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C) | $ | 6,000 | $ | 6,000 | $ | 5,820 | ||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C) | 8,000 | 8,000 | 7,760 | |||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 11/2022)(C) | 3,300 | 3,300 | 3,201 | |||||||||
|
|
|
| |||||||||
17,300 | 16,781 | |||||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 17,300 | $ | 16,781 | ||||||||
|
|
|
| |||||||||
Unsecured Debt – 0.0% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Term Debt (Due 12/2019)(C)(P) | $ | 95 | $ | 95 | $ | 88 | ||||||
Preferred Equity – 0.5% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.2% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Preferred Stock(E)(G) | 2,516 | $ | 2,516 | $ | 385 | |||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.3% | ||||||||||||
Lignetics, Inc. – Preferred Stock(E)(G) | 40,000 | 800 | 837 | |||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 3,316 | $ | 1,222 | ||||||||
|
|
|
| |||||||||
Common Equity – 2.6% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Common Units(E)(G) | 921,000 | $ | 921 | $ | — | |||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.5% | ||||||||||||
Lignetics, Inc. – Common Stock(E)(G) | 152,603 | 1,855 | 1,126 | |||||||||
Textiles and Leather – 2.1% | ||||||||||||
Targus Cayman HoldCo, Ltd. – Common Stock(E)(G) | 3,076,414 | 5,009 | 4,630 | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 7,785 | $ | 5,756 | ||||||||
|
|
|
| |||||||||
Total Affiliate Investments | $ | 50,036 | $ | 43,856 | ||||||||
|
|
|
| |||||||||
CONTROL INVESTMENTS(O) – 8.2% | ||||||||||||
Secured First Lien Debt – 3.3% | ||||||||||||
Machinery – 1.8% | ||||||||||||
PIC 360, LLC – Term Debt (14.0%, Due 12/2017)(E)(F) | $ | 4,000 | $ | 4,000 | $ | 4,000 | ||||||
Printing and Publishing – 1.5% | ||||||||||||
Sunshine Media Holdings – Line of Credit, $672 available (8.0% Cash, Due 5/2018)(E)(F) | 1,328 | 1,328 | 1,328 | |||||||||
Sunshine Media Holdings – Term Debt (8.0% Cash, Due 5/2018)(E)(F)(H) | 5,000 | 3,525 | 585 | |||||||||
Sunshine Media Holdings – Term Debt (L + 3.8%, 5.3% Cash, Due 5/2018)(E)(H) | 11,948 | 8,401 | 1,397 | |||||||||
Sunshine Media Holdings – Term Debt (L + 4.0%, 5.6% Cash, Due 5/2018)(E)(H) | 10,700 | 10,700 | — | |||||||||
|
|
|
| |||||||||
23,954 | 3,310 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 27,954 | $ | 7,310 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 3.6% | ||||||||||||
Automobile – 3.6% | ||||||||||||
Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.1% Cash, Due 8/2023)(E) | $ | 8,065 | $ | 8,065 | $ | 8,065 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
10
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 20172020
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Preferred Equity – 0.0% | ||||||||||||
Printing and Publishing – 0.0% | ||||||||||||
Sunshine Media Holdings – Preferred Stock(E)(G)(J) | 15,270 | $ | 5,275 | $ | — | |||||||
Common Equity – 1.3% | ||||||||||||
Automobile – 1.2% | ||||||||||||
Defiance Integrated Technologies, Inc. – Common Stock(E)(G) | 33,321 | $ | 580 | $ | 2,643 | |||||||
Machinery – 0.1% | ||||||||||||
PIC 360, LLC – Common Equity Units(E)(G) | 1 | 1 | 259 | |||||||||
Printing and Publishing – 0.0% | ||||||||||||
Sunshine Media Holdings – Common Stock(E)(G) | 1,867 | 740 | — | |||||||||
Sunshine Media Holdings – Common Stock Warrants(E)(G) | 72 | — | — | |||||||||
|
|
|
| |||||||||
740 | — | |||||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 1,321 | $ | 2,902 | ||||||||
|
|
|
| |||||||||
Total Control Investments | $ | 42,615 | $ | 18,277 | ||||||||
|
|
|
| |||||||||
TOTAL INVESTMENTS – 173.9% | $ | 450,132 | $ | 392,430 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
CONTROL INVESTMENTS(O) – 6.8% | ||||||||||||
Secured First Lien Debt – 2.0% | ||||||||||||
Diversified/Conglomerate Manufacturing – 1.5% | ||||||||||||
LWO Acquisitions Company LLC – Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E) | $ | 6,000 | $ | 6,000 | $ | 3,600 | ||||||
LWO Acquisitions Company LLC – Term Debt (Due 6/2021)(E)(P) | 10,632 | 10,632 | — | |||||||||
|
|
|
| |||||||||
16,632 | 3,600 | |||||||||||
Printing and Publishing – 0.5% | ||||||||||||
TNCP Intermediate HoldCo, LLC – Line of Credit, $700 available (8.0% Cash, Due 9/2021)(E)(F) | 1,300 | 1,287 | 1,300 | |||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 17,919 | $ | 4,900 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 3.3% | ||||||||||||
Automobile– 3.3% | ||||||||||||
Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026)(E) | $ | 8,065 | $ | 8,065 | $ | 8,065 | ||||||
Unsecured Debt – 0.0% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Term Debt (Due 6/2023)(E)(P) | $ | 95 | $ | 95 | $ | — | ||||||
Preferred Equity – 0.1% | ||||||||||||
Automobile– 0.1% | ||||||||||||
Defiance Integrated Technologies, Inc. – Preferred Stock(E)(G) | 6,043 | $ | 250 | $ | 201 | |||||||
Common Equity – 1.4% | ||||||||||||
Automobile– 0.0% | ||||||||||||
Defiance Integrated Technologies, Inc. – Common Stock(E)(G) | 33,321 | $ | 580 | $ | — | |||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Common Units(E)(G) | 921,000 | 921 | — | |||||||||
Machinery – 1.2% | ||||||||||||
PIC 360, LLC – Common Equity Units(E)(G) | 750 | 1 | 2,860 | |||||||||
Printing and Publishing – 0.2% | ||||||||||||
TNCP Intermediate HoldCo, LLC – Common Equity Units(E)(G) | 790,000 | 500 | 655 | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 2,002 | $ | 3,515 | ||||||||
|
|
|
| |||||||||
Total Control Investments | $ | 28,331 | $ | 16,681 | ||||||||
|
|
|
| |||||||||
TOTAL INVESTMENTS – 183.1% | $ | 488,111 | $ | 452,359 | ||||||||
|
|
|
|
(A) | Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling |
(B) | Unless indicated otherwise, all cash interest rates are indexed to30-day London Interbank Offered Rate (“LIBOR” or “L”), which was |
(C) | Fair value was based on an internal yield analysis or on estimates of value submitted by |
(D) | Fair value was based on the indicative bid price on or near December 31, |
(E) | Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure. |
(F) | Debt security has a fixed interest rate. |
(G) | Security isnon-income producing. |
(H) | Debt security is onnon-accrual status. |
(I) | Reserved. |
(J) | Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. |
(K) | Reserved. |
(L) | There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured. |
(M) | Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. |
(N) | Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. |
(O) | Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. |
(P) | Debt security does not have a stated interest rate that is payable thereon. |
(Q) | Reserved. |
(R) | Fair value was based on net asset value provided by the fund as a practical expedient. |
(S) | One of our affiliated funds, Gladstone Investment Corporation,co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. |
(T) | Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC |
(U) | The cash interest rate on this investment was indexed to90-day LIBOR, which was |
(V) | The cash interest rate on this investment was indexed to the U.S. Prime Rate (“PRIME”), which was |
(W) | Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the |
(X) | Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable. |
(Y) | Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of December 31, |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
11
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 20172020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(Z) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 132.4% | ||||||||||||
Secured First Lien Debt – 67.2% | ||||||||||||
Automobile – 1.7% | ||||||||||||
Meridian Rack & Pinion, Inc. (S) – Term Debt (L + 11.5% 13.5% Cash, Due 12/2018) (C) | $ | 4,140 | $ | 4,140 | $ | 3,643 | ||||||
Beverage, Food, and Tobacco – 3.2% | ||||||||||||
Triple H Food Processors, LLC - Line of Credit, $1,500 available (L + 6.8%, 8.0% Cash, Due 8/2018)(C) | — | — | — | |||||||||
Triple H Food Processors, LLC – Term Debt (L + 8.3%, 9.5% Cash, Due 8/2020)(C) | 6,800 | 6,800 | 6,928 | |||||||||
|
|
|
| |||||||||
6,800 | 6,928 | |||||||||||
Buildings and Real Estate – 1.0% | ||||||||||||
GFRC Holdings, LLC – Line of Credit, $20 available (L + 8.0%, 9.2% Cash, Due 9/2018)(E) | 1,180 | 1,180 | 1,180 | |||||||||
GFRC Holdings, LLC – Term Debt (L + 8.0%, 9.2% Cash, Due 9/2018)(E) | 1,000 | 1,000 | 1,000 | |||||||||
|
|
|
| |||||||||
2,180 | 2,180 | |||||||||||
Diversified/Conglomerate Service – 20.1% | ||||||||||||
IA Tech, LLC – Term Debt (L + 11.0%, 12.2% Cash, Due 6/2021)(C) | 23,000 | 23,000 | 23,633 | |||||||||
Travel Sentry, Inc. – Term Debt (L + 9.0%, 10.3% Cash, Due 12/2021)(C)(U) | 8,902 | 8,902 | 9,170 | |||||||||
Vision Government Solutions, Inc. – Line of Credit, $0 available (L + 8.8%, 10.0% Cash, Due 1/2019)(C) | 1,450 | 1,450 | 1,420 | |||||||||
Vision Government Solutions, Inc. – Delayed Draw Term Loan, $900 available (10.0% Cash, Due 1/2019)(C)(F) | 1,600 | 1,600 | 1,485 | |||||||||
Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 10.0% Cash, Due 1/2019)(C) | 9,000 | 9,000 | 8,390 | |||||||||
|
|
|
| |||||||||
43,952 | 44,098 | |||||||||||
Diversified/Conglomerate Manufacturing – 1.6% | ||||||||||||
Alloy Die Casting Co.(S) – Term Debt (L + 11.5%, 13.5% Cash, Due 10/2018)(C)(H) | 5,235 | 5,235 | 3,272 | |||||||||
Alloy Die Casting Co.(S) – Term Debt (L + 11.5%, 13.5% Cash, Due 10/2018)(C)(H) | 75 | 75 | 47 | |||||||||
Alloy Die Casting Co.(S) – Term Debt (Due 10/2018)(C)(P) | 390 | 390 | 246 | |||||||||
|
|
|
| |||||||||
5,700 | 3,565 | |||||||||||
Healthcare, education, and childcare – 9.8% | ||||||||||||
EL Academies, Inc. – Line of Credit (L + 9.5%, 10.7% Cash, Due 8/2020)(I) | — | — | — | |||||||||
EL Academies, Inc. – Delayed Draw Term Loan (L + 9.5%, 10.7% Cash, Due 8/2022)(I) | — | — | — | |||||||||
EL Academies, Inc. – Term Debt (L + 9.5%, 10.7% Cash, Due 8/2022)(I) | 12,000 | 12,000 | 12,000 | |||||||||
TWS Acquisition Corporation – Term Debt (L + 8.0%, 9.2% Cash, Due 7/2020)(C) | 9,432 | 9,432 | 9,609 | |||||||||
|
|
|
| |||||||||
21,432 | 21,609 | |||||||||||
Leisure, Amusement, Motion Pictures, Entertainment – 3.6% | ||||||||||||
Flight Fit N Fun LLC – Term Debt (L + 14.0%, 15.2% Cash, Due 9/2020)(Q)(Y) | 7,800 | 7,800 | 7,800 | |||||||||
Machinery – 0.4% | ||||||||||||
Precision International, LLC – Term Debt (10.0% PIK, Due 9/2021)(C)(F) | 808 | 808 | 798 | |||||||||
Oil and Gas – 9.2% | ||||||||||||
WadeCo Specialties, Inc. – Line of Credit, $425 available (L + 7.0%, 8.2% Cash, Due 4/2018)(E) | 2,575 | 2,575 | 2,575 | |||||||||
WadeCo Specialties, Inc. – Term Debt (L + 7.0%, 8.2% Cash, Due 3/2019)(E) | 10,441 | 10,427 | 10,440 | |||||||||
WadeCo Specialties, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 3/2019)(E) | 7,000 | 7,000 | 7,000 | |||||||||
|
|
|
| |||||||||
20,002 | 20,015 | |||||||||||
Personal andNon-Durable Consumer Products (Manufacturing Only) – 3.0% | ||||||||||||
Canopy Safety Brands, LLC – Line of Credit, $500 available (L + 6.5%, 7.7% Cash, Due 9/2019)(C) | — | — | — | |||||||||
Canopy Safety Brands, LLC – Term Debt (L + 9.5%, 10.7% Cash, Due 9/2021)(C) | 6,600 | 6,600 | 6,616 | |||||||||
|
|
|
| |||||||||
6,600 | 6,616 | |||||||||||
Printing and Publishing – 0.0% | ||||||||||||
Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 8.0% Cash, Due 2/2015)(E)(V) | 107 | 107 | — | |||||||||
Telecommunications – 13.6% | ||||||||||||
B+T Group Acquisition Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2019)(C) | 6,000 | 6,000 | 5,955 | |||||||||
NetFortris Corp. – Line of Credit, $2,000 available (L + 8.4%, 9.6% Cash, Due 11/2017)(C) | — | — | — | |||||||||
NetFortris Corp. – Term Debt (L + 8.4%, 9.6% Cash, Due 2/2021)(C) | 24,000 | 24,000 | 24,240 | |||||||||
|
|
|
| |||||||||
30,000 | 30,195 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 149,521 | $ | 147,447 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
NON-CONTROL/NON-AFFILIATE INVESTMENTS(M) – 171.6% | ||||||||||||
Secured First Lien Debt – 85.5% | ||||||||||||
Aerospace and Defense – 14.3% | ||||||||||||
Aerospace Engineering, LLC – Line of Credit, $2,350 available (L + 7.3%, 8.3% Cash, Due 8/2025)(C) | $ | 650 | $ | 650 | $ | 650 | ||||||
Aerospace Engineering, LLC – Term Debt (L + 7.3%, 8.3% Cash, Due 8/2025)(C) | 20,000 | 20,000 | 20,000 | |||||||||
Antenna Research Associates, Inc. – Term Debt (L + 10.0%, 12.0% Cash, 4.0% PIK, Due 11/2023)(E) | 12,672 | 12,672 | 12,672 | |||||||||
|
|
|
| |||||||||
33,322 | 33,322 | |||||||||||
Beverage, Food, and Tobacco – 10.9% | ||||||||||||
Café Zupas – Line of Credit, $4,000 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C) | — | — | — | |||||||||
Café Zupas – Delayed Draw Term Loan, $3,030 available (L + 7.4%, 8.9% Cash, Due 12/2024)(C) | 1,970 | 1,970 | 1,931 | |||||||||
Café Zupas – Term Debt (L + 7.4%, 8.9% Cash, Due 12/2024)(C) | 24,000 | 24,000 | 23,520 | |||||||||
|
|
|
| |||||||||
25,970 | 25,451 | |||||||||||
Buildings and Real Estate – 0.7% | ||||||||||||
GFRC 360, LLC – Line of Credit, $500 available (L + 8.0%, 9.0% Cash, Due 9/2021)(C) | 700 | 700 | 681 | |||||||||
GFRC 360, LLC – Term Debt (L + 8.0%, 9.0% Cash, Due 9/2021)(C) | 1,000 | 1,000 | 973 | |||||||||
|
|
|
| |||||||||
1,700 | 1,654 | |||||||||||
Diversified/Conglomerate Service – 24.9% | ||||||||||||
DKI Ventures, LLC – Line of Credit, $2,500 available (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2021)(C) | — | — | — | |||||||||
DKI Ventures, LLC – Term Debt (L + 8.3%, 9.3% Cash, 2.0% PIK, Due 12/2023)(C) | 5,971 | 5,971 | 4,523 | |||||||||
ENET Holdings, LLC – Term Debt (10.2% Cash, Due 12/2022)(C)(F) | 1,000 | 1,000 | 807 | |||||||||
ENET Holdings, LLC – Term Debt (10.2% Cash, Due 4/2025)(C)(F) | 29,000 | 29,000 | 23,417 | |||||||||
R2i Holdings, LLC – Line of Credit, $1,171 available (8.0% Cash, Due 12/2021)(C)(F) | 829 | 829 | 790 | |||||||||
R2i Holdings, LLC – Term Debt (8.0% Cash, Due 12/2023)(C)(F) | 19,625 | 19,625 | 18,693 | |||||||||
Vision Government Solutions, Inc. – Line of Credit, $2,500 available (L + 8.8%, 9.8% Cash, Due 12/2022)(C) | — | — | — | |||||||||
Vision Government Solutions, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 12/2022)(C) | 10,100 | 10,066 | 10,036 | |||||||||
|
|
|
| |||||||||
66,491 | 58,266 | |||||||||||
Healthcare, Education, and Childcare – 20.9% | ||||||||||||
ALS Education, LLC – Line of Credit, $4,000 available (L + 7.5%, 9.0% Cash, Due 5/2025)(C) | — | — | — | |||||||||
ALS Education, LLC – Term Debt (L + 7.5%, 9.0% Cash, Due 5/2025)(C) | 21,670 | 21,670 | 21,562 | |||||||||
EL Academies, Inc. – Delayed Draw Term Loan, $0 available (L + 8.0%, 9.0% Cash, Due 8/2022)(C) | 16,000 | 15,986 | 15,640 | |||||||||
EL Academies, Inc. – Term Debt (L + 8.0%, 9.0% Cash, Due 8/2022)(C) | 12,000 | 11,983 | 11,730 | |||||||||
|
|
|
| |||||||||
49,639 | 48,932 | |||||||||||
Machinery – 2.6% | ||||||||||||
Arc Drilling Holdings LLC – Line of Credit, $875 available (L + 8.0%, 9.3% Cash, | 125 | 125 | 121 | |||||||||
Arc Drilling Holdings LLC – Term Debt (L + 9.5%, 10.8% Cash, 3.0% PIK, | 5,871 | 5,871 | 5,689 | |||||||||
Precision International, LLC – Line of Credit, $500 available (L + 7.5%, 8.5% Cash, | — | — | — | |||||||||
Precision International, LLC – Term Debt (10.0% Cash, Due 9/2021)(C)(F) | 286 | 286 | 277 | |||||||||
|
|
|
| |||||||||
6,282 | 6,087 | |||||||||||
Printing and Publishing – 0.0% | ||||||||||||
Chinese Yellow Pages Company – Line of Credit, $0 available (PRIME + 4.0%, 7.3% Cash, Due 2/2015)(E)(V) | 107 | 107 | — | |||||||||
Telecommunications – 11.2% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Line of Credit, $0 available (L + 11.0%, 13.0% Cash, Due 12/2021)(C)(H) | 1,200 | 1,200 | 1,086 | |||||||||
B+T Group Acquisition, Inc.(S) – Term Debt (L + 11.0%, 13.0% Cash, Due 12/2021)(C)(H) | 6,000 | 6,000 | 5,430 | |||||||||
NetFortris Corp. – Term Debt (L + 9.0%, 9.5% Cash, Due 2/2021)(C) | 23,302 | 23,302 | 19,632 | |||||||||
|
|
|
| |||||||||
30,502 | 26,148 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 214,013 | $ | 199,860 | ||||||||
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
12
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 20172020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(Z) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Secured Second Lien Debt – 59.1% | ||||||||||||
Automobile – 2.2% | ||||||||||||
Sea Link International IRB, Inc. – Term Debt (11.3%, Due 11/2021)(C)(F) | $ | 5,000 | $ | 4,975 | $ | 5,025 | ||||||
Beverage, Food, and Tobacco – 3.1% | ||||||||||||
The Mochi Ice Cream Company – Term Debt (L + 10.5%, 11.7% Cash, Due 1/2021)(C) | 6,750 | 6,750 | 6,809 | |||||||||
Cargo Transportation– 6.0% | ||||||||||||
AG Transportation Holdings, LLC. – Term Debt (L + 10.0%, 13.3% Cash, Due 3/2020) (C) | 13,000 | 13,000 | 13,081 | |||||||||
Chemicals, Plastics, and Rubber – 0.4% | ||||||||||||
Vertellus Holdings LLC – Term Debt (L + 12.0%, 13.2% Cash, Due 10/2021)(D) | 1,099 | 1,099 | 929 | |||||||||
Diversified/Conglomerate Service – 16.4% | ||||||||||||
DataPipe, Inc. – Term Debt (L + 8.0%, 9.2% Cash, Due 9/2019)(D)(Y) | 2,000 | 1,966 | 2,005 | |||||||||
HB Capital Resources, Ltd. – Term Debt (L + 10.3%, 11.5% Cash, Due 10/2022)(C) | 22,000 | 22,000 | 22,110 | |||||||||
Keystone Acquisition Corp.– Term Debt (L + 9.3%, 10.5% Cash, Due 5/2025)(D) | 4,000 | 3,922 | 3,960 | |||||||||
LDiscovery, LLC – Term Debt (L + 10.0%, 11.2% Cash, Due 12/2023)(D) | 5,000 | 4,815 | 4,550 | |||||||||
PSC Industrial Holdings Corp.– Term Debt (L + 8.3%, 9.5% Cash, Due 12/2021)(Q)(Y) | 3,500 | 3,452 | 3,500 | |||||||||
|
|
|
| |||||||||
36,155 | 36,125 | |||||||||||
Diversified/Conglomerate Manufacturing – 8.2% | ||||||||||||
United Flexible, Inc.– Term Debt (L + 9.5%, 10.7% Cash, 2.0% PIK, Due 2/2022)(C) | 17,993 | 17,909 | 17,903 | |||||||||
Healthcare, education, and childcare – 8.8% | ||||||||||||
Medical Solutions Holdings, Inc. – Term Debt (L + 8.3%, 9.5% Cash, Due 12/2023)(D) | 3,000 | 2,956 | 2,970 | |||||||||
Merlin International, Inc. – Term Debt (L + 10.0%, 11.2% Cash, Due 8/2022)(C) | 10,000 | 10,000 | 10,150 | |||||||||
NetSmart Technologies, Inc.– Term Debt (L + 9.5%, 10.7% Cash, Due 10/2023)(D) | 3,660 | 3,609 | 3,678 | |||||||||
New Trident Holdcorp, Inc.– Term Debt (L + 9.5%, 10.7% Cash, Due 7/2020)(D) | 4,000 | 4,000 | 2,412 | |||||||||
|
|
|
| |||||||||
20,565 | 19,210 | |||||||||||
Home and Office Furnishings, Housewares and Durable Consumer Products – 4.6% | ||||||||||||
Belnick, Inc. – Term Debt (11.0%, Due 8/2023)(C)(F) | 10,000 | 10,000 | 10,100 | |||||||||
Hotels, Motels, Inns, and Gaming – 3.2% | ||||||||||||
Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 11.2% Cash, 3.0% PIK, Due 6/2023)(C) | 7,145 | 7,145 | 7,136 | |||||||||
Oil and Gas – 5.7% | ||||||||||||
Francis Drilling Fluids, Ltd. – Term Debt (L + 10.4%, 11.9% PIK, Due 4/2020)(C) | 16,739 | 16,611 | 8,626 | |||||||||
Francis Drilling Fluids, Ltd. – Term Debt (L + 9.3% 10.8% PIK, Due 4/2020)(C) | 7,733 | 7,673 | 3,931 | |||||||||
|
|
|
| |||||||||
24,284 | 12,557 | |||||||||||
Telecommunications – 0.5% | ||||||||||||
Neustar, Inc. – Term Debt (L + 8.0%, 9.2% Cash, Due 8/2025)(D) | 1,000 | 1,000 | 1,015 | |||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 142,882 | $ | 129,890 | ||||||||
|
|
|
| |||||||||
Unsecured Debt – 1.5% | ||||||||||||
Healthcare, education, and childcare – 1.5% | ||||||||||||
Edmentum Ultimate Holdings, LLC – Term Debt (10.0% PIK, Due 6/2020)(C)(F) | $ | 3,324 | $ | 3,324 | $ | 3,324 | ||||||
Preferred Equity – 2.6% | ||||||||||||
Automobile – 0.1% | ||||||||||||
Meridian Rack & Pinion, Inc. (S)– Preferred Stock(E)(G) | 1,449 | $ | 1,449 | $ | 133 | |||||||
Buildings and Real Estate – 0.3% | ||||||||||||
GFRC Holdings, LLC – Preferred Stock(E)(G) | 1,000 | 1,025 | 824 | |||||||||
Diversified/Conglomerate Service – 0.2% | ||||||||||||
Frontier Financial Group Inc. – Preferred Stock(I)(G) | 766 | 500 | 500 | |||||||||
Frontier Financial Group Inc. – Preferred Stock Warrant(I)(G) | 168 | — | — | |||||||||
|
|
|
| |||||||||
500 | 500 | |||||||||||
Diversified/Conglomerate Manufacturing – 0.3% | ||||||||||||
Alloy Die Casting, Co.(S)– Preferred Stock(E)(G) | 2,192 | 2,192 | — | |||||||||
United Flexible, Inc.– Preferred Stock(E)(G) | 538 | 538 | 554 | |||||||||
|
|
|
| |||||||||
2,730 | 554 | |||||||||||
Leisure, Amusement, Motion Pictures, Entertainment – 0.6% | ||||||||||||
Flight Fit N Fun LLC – Preferred Stock(G)(Q)(Y) | 700,000 | 700 | 1,425 |
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Secured Second Lien Debt – 72.2% | ||||||||||||
Automobile – 4.1% | ||||||||||||
Sea Link International IRB, Inc. – Term Debt (13.3% PIK, Due 3/2023)(C)(F) | $ | 10,576 | $ | 10,576 | $ | 9,518 | ||||||
Beverage, Food, and Tobacco – 1.6% | ||||||||||||
8th Avenue Food & Provisions, Inc. – Term Debt (L + 7.8%, 7.9% Cash, Due 10/2026)(D) | 3,683 | 3,704 | 3,637 | |||||||||
Cargo Transportation – 13.1% | ||||||||||||
AG Transportation Holdings, LLC – Term Debt (L + 10.0%, 13.3% Cash, Due 12/2021)(C) | 13,000 | 12,973 | 12,805 | |||||||||
American Trailer Rental Group LLC – Term Debt (L + 8.9%, 10.4% Cash, Due 8/2025)(C) | 18,000 | 18,000 | 17,820 | |||||||||
|
|
|
| |||||||||
30,973 | 30,625 | |||||||||||
Chemicals, Plastics, and Rubber – 4.7% | ||||||||||||
Phoenix Aromas & Essential Oils, LLC – Term Debt (L + 11.5%, 12.5% Cash, Due 5/2024)(C) | 10,012 | 10,012 | 9,911 | |||||||||
Vertellus Holdings LLC – Term Debt (L + 12.0%, 13.0% Cash, Due 7/2022)(C) | 1,099 | 1,099 | 1,099 | |||||||||
|
|
|
| |||||||||
11,111 | 11,010 | |||||||||||
Diversified/Conglomerate Manufacturing – 13.7% | ||||||||||||
Magpul Industries Corp. – Term Debt (L + 11.5%, 12.5% Cash, Due 5/2026)(C) | 28,000 | 28,000 | 28,000 | |||||||||
Tailwind Smith Cooper Intermediate Corporation – Term Debt (L + 9.0%, 9.1% Cash, Due 5/2027)(D) | 5,000 | 4,776 | 3,887 | |||||||||
|
|
|
| |||||||||
32,776 | 31,887 | |||||||||||
Diversified/Conglomerate Service – 14.9% | ||||||||||||
CHA Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 4/2026)(D)(U) | 3,000 | 2,953 | 2,700 | |||||||||
Drive Chassis Holdco, LLC – Term Debt (L + 8.3%, 8.4% Cash, Due 4/2026)(D) | 5,000 | 4,786 | 4,787 | |||||||||
Gray Matter Systems, LLC – Term Debt (12.0% Cash, Due 11/2023)(C)(F) | 11,100 | 11,100 | 10,906 | |||||||||
Keystone Acquisition Corp. – Term Debt (L + 9.3%, 10.3% Cash, Due 5/2025)(D)(U) | 4,000 | 3,945 | 3,300 | |||||||||
Prophet Brand Strategy – Delayed Draw Term Loan, $5,000 available (L + 8.5%, 10.5% Cash, Due 2/2025)(C) | — | — | — | |||||||||
Prophet Brand Strategy – Term Debt (L + 8.5%, 10.5% Cash, Due 2/2025)(C) | 13,000 | 13,000 | 12,984 | |||||||||
|
|
|
| |||||||||
35,784 | 34,677 | |||||||||||
Healthcare, Education, and Childcare – 2.3% | ||||||||||||
Medical Solutions Holdings, Inc. – Term Debt (L + 8.4%, 9.4% Cash, Due 6/2025)(D) | 3,000 | 2,969 | 2,700 | |||||||||
Medical Solutions Holdings, Inc. – Term Debt (L + 8.8%, 9.8% Cash, Due 6/2025)(D) | 3,000 | 2,948 | 2,760 | |||||||||
|
|
|
| |||||||||
5,917 | 5,460 | |||||||||||
Home and Office Furnishings, Housewares and Durable Consumer Products – 4.1% |
| |||||||||||
Belnick, Inc. – Term Debt (11.0% Cash, Due 8/2023)(C)(F) | 10,000 | 10,000 | 9,675 | |||||||||
Hotels, Motels, Inns, and Gaming – 3.4% | ||||||||||||
Vacation Rental Pros Property Management, LLC – Term Debt (L + 10.0%, 11.0% Cash, 3.0% PIK, Due 6/2023)(C) | 8,052 | 8,052 | 8,052 | |||||||||
Machinery – 0.4% | ||||||||||||
CPM Holdings, Inc. – Term Debt (L + 8.3%, 8.4% Cash, Due 11/2026)(D) | 1,000 | 1,000 | 910 | |||||||||
Oil and Gas – 9.9% | ||||||||||||
Imperative Holdings Corporation – Term Debt (L + 10.3%, 12.3% Cash, 1.8% PIK, Due 9/2022)(C) | 27,583 | 27,583 | 23,170 | |||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 177,476 | $ | 168,621 | ||||||||
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
13
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 20172020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(Z) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Oil and Gas – 0.9% | ||||||||||||
Francis Drilling Fluids, Ltd. – Preferred Equity Units(E)(G) |
| 1,656 |
| 1,215 | — | |||||||
WadeCo. Specialties, Inc. – Preferred Stock(E)(G) | 1,000 | 618 | 2,000 | |||||||||
|
|
|
| |||||||||
1,833 | 2,000 | |||||||||||
Personal andNon-Durable Consumer Products (Manufacturing Only) – 0.1% | ||||||||||||
Funko Acquisition Holdings, LLC(S) – Preferred Equity Units(E)(G) | 260 | 167 | 159 | |||||||||
Telecommunications – 0.1% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G)(J) | 5,503 | 1,799 | 140 | |||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 10,203 | $ | 5,735 | ||||||||
|
|
|
| |||||||||
Common Equity – 2.0% | ||||||||||||
Aerospace and Defense – 0.3% | ||||||||||||
FedCap Partners, LLC – Class A Membership Units ($0 Uncalled Commitment)(G)(K)(R) | 80 | $ | 1,634 | $ | 751 | |||||||
Automobile– 0.2% | ||||||||||||
Sea Link International IRB, Inc.– Common Equity Units(E)(G) | 494,902 | 495 | 362 | |||||||||
Beverage, Food, and Tobacco – 0.2% | ||||||||||||
The Mochi Ice Cream Company – Common Stock(E)(G) | 450 | 450 | — | |||||||||
Triple H Food Processors, LLC – Common Stock(E)(G) | 250,000 | 250 | 366 | |||||||||
|
|
|
| |||||||||
700 | 366 | |||||||||||
Buildings and Real Estate – 0.0% | ||||||||||||
GFRC Holdings, LLC – Common Stock Warrants(E)(G) | 45.0 | % | — | — | ||||||||
Cargo Transportation – 0.0% | ||||||||||||
AG Transportation Holdings, LLC – Member Profit Participation(E)(G) | 18.0 | % | 1,000 | — | ||||||||
AG Transportation Holdings, LLC – Profit Participation Warrants(E)(G) | 12.0 | % | 244 | — | ||||||||
|
|
|
| |||||||||
1,244 | — | |||||||||||
Chemicals, Plastics, and Rubber – 0.2% | ||||||||||||
Vertellus Holdings LLC – Common Stock Units(E)(G) | 879,121 | 3,018 | 442 | |||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
Alloy Die Casting, Co.(S) – Common Stock(E)(G) | 270 | 18 | — | |||||||||
United Flexible, Inc. – Common Stock(E)(G) | 1,158 | 148 | — | |||||||||
|
|
|
| |||||||||
166 | — | |||||||||||
Healthcare, education, and childcare – 0.9% | ||||||||||||
Edmentum Ultimate Holdings, LLC – Common Stock(E)(G) | 21,429 | 2,636 | — | |||||||||
EL Academies, Inc. – Common Stock(G)(I) | 500 | 500 | 500 | |||||||||
Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($1,581 uncalled capital commitment)(G)(L)(R) | 3.5 | % | 1,628 | 1,645 | ||||||||
|
|
|
| |||||||||
4,764 | 2,145 | |||||||||||
Machinery – 0.0% | ||||||||||||
Precision International, LLC – Membership Unit Warrant(E)(G) | 33.3 | % | — | — | ||||||||
Oil and Gas – 0.1% | ||||||||||||
Francis Drilling Fluids, Ltd. – Common Equity Units(E)(G) | 1,656 | 1 | — | |||||||||
W3, Co. – Common Equity(D)(G) | 435 | 499 | 139 | |||||||||
|
|
|
| |||||||||
500 | 139 | |||||||||||
Personal andNon-Durable Consumer Products (Manufacturing Only) – 0.1% | ||||||||||||
Canopy Safety Brands, LLC – Participation Warrant(E)(G) | 1 | 500 | 259 | |||||||||
Funko Acquisition Holdings, LLC(S) – Common Stock(E)(G) | 975 | — | — | |||||||||
|
|
|
| |||||||||
500 | 259 | |||||||||||
Telecommunications – 0.0% | ||||||||||||
NetFortris Corp.– Common Stock Warrant(E)(G) | 1 | 1 | — | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 13,022 | $ | 4,464 | ||||||||
|
|
|
| |||||||||
TotalNon-Control/Non-Affiliate Investments | $ | 318,952 | $ | 290,860 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Unsecured Debt – 1.8% | ||||||||||||
Diversified/Conglomerate Service – 0.0% | ||||||||||||
Frontier Financial Group Inc. – Convertible Debt (6.0%, Due 6/2022)(E)(F) | $ | 198 | $ | 198 | $ | 17 | ||||||
Healthcare, education, and childcare – 1.8% | ||||||||||||
Edmentum Ultimate Holdings, LLC – Term Debt (10.0% PIK, Due 12/2021)(C)(F) | 4,415 | 4,415 | 4,282 | |||||||||
|
|
|
| |||||||||
Total Unsecured Debt | $ | 4,613 | $ | 4,299 | ||||||||
|
|
|
| |||||||||
Preferred Equity – 2.0% | ||||||||||||
Beverage, Food, and Tobacco – 0.0% | ||||||||||||
Triple H Food Processors, LLC – Preferred Stock(E)(G) | 75 | 75 | 83 | |||||||||
Buildings and Real Estate – 0.6% | ||||||||||||
GFRC 360, LLC – Preferred Stock(E)(G) | 1,000 | 1,025 | 1,456 | |||||||||
Diversified/Conglomerate Service – 0.0% | ||||||||||||
Frontier Financial Group Inc. – Preferred Stock(E)(G) | 766 | 500 | — | |||||||||
Frontier Financial Group Inc. – Preferred Stock Warrant(E)(G) | 168 | — | — | |||||||||
|
|
|
| |||||||||
500 | — | |||||||||||
Oil and Gas – 0.6% | ||||||||||||
FES Resources Holdings LLC – Preferred Equity Units(E)(G) | 6,350 | 6,350 | — | |||||||||
Imperative Holdings Corporation – Preferred Equity Units(E)(G) | 13,740 | 632 | 1,292 | |||||||||
|
|
|
| |||||||||
6,982 | 1,292 | |||||||||||
Telecommunications – 0.8% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Preferred Stock(E)(G) | 6,130 | 2,024 | — | |||||||||
NetFortris Corp. – Preferred Stock(E)(G) | 7,890,860 | 789 | 1,846 | |||||||||
|
|
|
| |||||||||
2,813 | 1,846 | |||||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 11,395 | $ | 4,677 | ||||||||
|
|
|
| |||||||||
Common Equity – 10.1% | ||||||||||||
Aerospace and Defense – 1.8% | ||||||||||||
Antenna Research Associates, Inc. – Common Equity Units(E)(G) | 4,283 | $ | 4,283 | $ | 4,138 | |||||||
Automobile– 0.1% | ||||||||||||
Sea Link International IRB, Inc.– Common Equity Units(E)(G) | 823,333 | 823 | 208 | |||||||||
Beverage, Food, and Tobacco – 0.0% | ||||||||||||
Triple H Food Processors, LLC – Common Stock(E)(G) | 250,000 | 250 | — | |||||||||
Buildings and Real Estate – 0.0% | ||||||||||||
GFRC 360, LLC – Common Stock Warrants(E)(G) | 45.0 | % | — | — | ||||||||
Cargo Transportation – 1.7% | ||||||||||||
AG Transportation Holdings, LLC – Member Profit Participation(E)(G) | 27.0 | % | 1,350 | 2,345 | ||||||||
AG Transportation Holdings, LLC – Profit Participation Warrants(E)(G) | 5.0 | % | 244 | 563 | ||||||||
American Trailer Rental Group LLC – Common Stock(E)(G) | 6,667 | 1,000 | 1,009 | |||||||||
|
|
|
| |||||||||
2,594 | 3,917 | |||||||||||
Chemicals, Plastics, and Rubber – 1.2% | ||||||||||||
Vertellus Holdings LLC – Common Stock Units((E)(G) | 879,121 | 3,018 | 2,705 | |||||||||
Healthcare, Education, and Childcare – 2.3% | ||||||||||||
Edmentum Ultimate Holdings, LLC – Common Stock(E)(G) | 21,429 | 2,637 | — | |||||||||
GSM MidCo LLC – Common Stock(E)(G) | 767 | 767 | 763 | |||||||||
Leeds Novamark Capital I, L.P. – Limited Partnership Interest ($843 uncalled capital commitment)(G)(L)(R) | 3.5 | % | 1,808 | 4,718 | ||||||||
|
|
|
| |||||||||
5,212 | 5,481 | |||||||||||
Machinery – 0.4% | ||||||||||||
Arc Drilling Holdings LLC – Common Stock(E)(G) | 15,000 | 1,500 | 400 | |||||||||
Precision International, LLC – Membership Unit Warrant(E)(G) | 33.3 | % | — | 525 | ||||||||
|
|
|
| |||||||||
1,500 | 925 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
14
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 20172020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(Z) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
AFFILIATE INVESTMENTS(N)– 19.4% | ||||||||||||
Secured First Lien Debt – 8.6% | ||||||||||||
Diversified/Conglomerate Manufacturing – 8.6% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2019)(C) | $ | 6,200 | $ | 6,200 | $ | 5,704 | ||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 13.8% Cash, Due 2/2019)(C) | 1,600 | 1,600 | 1,480 | |||||||||
LWO Acquisitions Company LLC – Line of Credit, $0 available (L + 5.5%, 6.7% Cash, 2.0% PIK, Due 3/2018)(C) | 2,748 | 2,746 | 2,336 | |||||||||
LWO Acquisitions Company LLC – Term Debt (L + 8.5%, 9.7% Cash, 2.0% PIK, Due 12/2019)(C) | 10,942 | 10,921 | 9,301 | |||||||||
|
|
|
| |||||||||
21,467 | 18,821 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 21,467 | $ | 18,821 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 7.8% | ||||||||||||
Diversified Natural Resources, Precious Metals and Minerals – 7.8% | ||||||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 2/2021)(C) | $ | 6,000 | $ | 6,000 | $ | 5,998 | ||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 2/2021)(C) | 8,000 | 8,000 | 7,997 | |||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 2/2021)(C) | 3,300 | 3,300 | 3,299 | |||||||||
|
|
|
| |||||||||
17,300 | 17,294 | |||||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 17,300 | $ | 17,294 | ||||||||
|
|
|
| |||||||||
Preferred Equity – 0.4% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Preferred Stock(E)(G) | 2,516 | $ | 2,516 | $ | — | |||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.4% | ||||||||||||
Lignetics, Inc. – Preferred Stock(E)(G) | 40,000 | 800 | 826 | |||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 3,316 | $ | 826 | ||||||||
|
|
|
| |||||||||
Common Equity – 2.6% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Common Units(E)(G) | 921,000 | $ | 921 | $ | — | |||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.4% | ||||||||||||
Lignetics, Inc. – Common Stock(E)(G) | 152,603 | 1,855 | 828 | |||||||||
Textiles and Leather – 2.2% | ||||||||||||
Targus Cayman HoldCo, Ltd. – Common Stock(E)(G) | 3,076,414 | 5,009 | 4,879 | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 7,785 | $ | 5,707 | ||||||||
|
|
|
| |||||||||
Total Affiliate Investments | $ | 49,868 | $ | 42,648 | ||||||||
|
|
|
| |||||||||
CONTROL INVESTMENTS(O) – 8.6% | ||||||||||||
Secured First Lien Debt – 3.5% | ||||||||||||
Machinery – 1.8% | ||||||||||||
PIC 360, LLC – Term Debt (14.0%, Due 12/2017)(E)(F) | $ | 4,000 | $ | 4,000 | $ | 4,000 | ||||||
Printing and Publishing – 1.7% | ||||||||||||
Sunshine Media Holdings – Line of Credit, $672 available (8.0% Cash, Due 5/2018)(E)(F) | 1,328 | 1,328 | 1,328 | |||||||||
Sunshine Media Holdings – Term Debt (8.0% Cash, Due 5/2018)(E)(F)(H) | 5,000 | 3,525 | 679 | |||||||||
Sunshine Media Holdings – Term Debt (L + 3.8%, 5.0% Cash, Due 5/2018)(E)(H) | 11,948 | 8,401 | 1,621 | |||||||||
Sunshine Media Holdings – Term Debt (L + 4.0%, 5.5% Cash, Due 5/2018)(E)(H) | 10,700 | 10,700 | — | |||||||||
|
|
|
| |||||||||
23,954 | 3,628 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 27,954 | $ | 7,628 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 3.7% | ||||||||||||
Automobile – 3.7% | ||||||||||||
Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.0% Cash, Due 2/2019)(E) | $ | 8,065 | $ | 8,065 | $ | 8,065 |
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Oil and Gas – 0.1% | ||||||||||||
FES Resources Holdings LLC – Common Equity Units(E)(G) | 6,233 | — | — | |||||||||
Total Safety Holdings, LLC – Common Equity(E)(G) | 435 | 499 | 263 | |||||||||
|
|
|
| |||||||||
499 | 263 | |||||||||||
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0% | ||||||||||||
Funko Acquisition Holdings, LLC(S) – Common Units(G)(T) | 12,180 | 59 | 48 | |||||||||
Telecommunications – 0.0% | ||||||||||||
B+T Group Acquisition, Inc.(S) – Common Stock Warrant(E)(G) | 1.5 | % | — | — | ||||||||
NetFortris Corp. – Common Stock Warrant(E)(G) | 1 | 1 | — | |||||||||
|
|
|
| |||||||||
1 | — | |||||||||||
Textiles and Leather – 2.5% | ||||||||||||
Targus Cayman HoldCo, Ltd. – Common Stock(E)(G) | 3,076,414 | 2,062 | 5,905 | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 20,301 | $ | 23,590 | ||||||||
|
|
|
| |||||||||
Total Non-Control/Non-Affiliate Investments | $ | 427,798 | $ | 401,047 | ||||||||
|
|
|
| |||||||||
AFFILIATE INVESTMENTS(N) – 14.2% | ||||||||||||
Secured First Lien Debt – 3.7% | ||||||||||||
Diversified/Conglomerate Manufacturing – 3.7% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Line of Credit, $0 available (L + 8.0%, 10.0% Cash, Due 12/2020)(C) | $ | 680 | $ | 680 | $ | 663 | ||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 10.5%, 12.5% Cash, Due 2/2022)(C) | 6,200 | 6,200 | 6,045 | |||||||||
Edge Adhesives Holdings, Inc. (S) – Term Debt (L + 11.8%, 13.8% Cash, Due 2/2022)(C) | 2,000 | 2,000 | 1,950 | |||||||||
|
|
|
| |||||||||
8,880 | 8,658 | |||||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 8,880 | $ | 8,658 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 8.7% | ||||||||||||
Diversified Natural Resources, Precious Metals and Minerals – 8.7% | ||||||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | $ | 6,000 | $ | 6,000 | $ | 6,000 | ||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | 8,000 | 8,000 | 8,000 | |||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | 3,300 | 3,300 | 3,300 | |||||||||
Lignetics, Inc. – Term Debt (L + 9.0%, 12.0% Cash, Due 5/2025)(C) | 3,000 | 3,000 | 3,000 | |||||||||
|
|
|
| |||||||||
20,300 | 20,300 | |||||||||||
|
|
|
| |||||||||
Total Secured Second Lien Debt | $ | 20,300 | $ | 20,300 | ||||||||
|
|
|
| |||||||||
Preferred Equity – 0.9% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
Edge Adhesives Holdings, Inc. (S) – Preferred Stock(E)(G) | 5,466 | $ | 5,466 | $ | — | |||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.7% | ||||||||||||
Lignetics, Inc. – Preferred Stock(E)(G) | 68,880 | 1,321 | 1,562 | |||||||||
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.2% | ||||||||||||
Canopy Safety Brands, LLC – Preferred Stock(E)(G) | 500,000 | 500 | 507 | |||||||||
|
|
|
| |||||||||
Total Preferred Equity | $ | 7,287 | $ | 2,069 | ||||||||
|
|
|
| |||||||||
Common Equity – 0.9% | ||||||||||||
Diversified Natural Resources, Precious Metals and Minerals – 0.9% | ||||||||||||
Lignetics, Inc. – Common Stock(E)(G) | 152,603 | $ | 1,855 | $ | 2,152 | |||||||
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0% | ||||||||||||
Canopy Safety Brands, LLC – Common Stock(E)(G) | 500,000 | — | — | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 1,855 | $ | 2,152 | ||||||||
|
|
|
| |||||||||
Total Affiliate Investments | $ | 38,322 | $ | 33,179 | ||||||||
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
15
GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 20172020
(DOLLAR AMOUNTS IN THOUSANDS)
Company and Investment(A)(B)(W)(Z) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
Preferred Equity – 0.0% | ||||||||||||
Printing and Publishing – 0.0% | ||||||||||||
Sunshine Media Holdings – Preferred Stock(E)(G)(J) | 15,270 | $ | 5,275 | $ | — | |||||||
Common Equity – 1.4% | ||||||||||||
Automobile– 1.3% | ||||||||||||
Defiance Integrated Technologies, Inc. – Common Stock(E)(G) | 33,321 | $ | 580 | $ | 2,856 | |||||||
Machinery – 0.1% | ||||||||||||
PIC 360, LLC – Common Equity Units(E)(G) | 1 | 1 | 316 | |||||||||
Printing and Publishing – 0.0% | ||||||||||||
Sunshine Media Holdings – Common Stock(E)(G) | 1,867 | 740 | — | |||||||||
Sunshine Media Holdings – Common Stock Warrants(E)(G) | 72 | — | — | |||||||||
|
|
|
| |||||||||
740 | — | |||||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 1,321 | $ | 3,172 | ||||||||
|
|
|
| |||||||||
Total Control Investments | $ | 42,615 | $ | 18,865 | ||||||||
|
|
|
| |||||||||
TOTAL INVESTMENTS(T) – 160.4% | $ | 411,435 | $ | 352,373 | ||||||||
|
|
|
|
Company and Investment(A)(B)(W)(Y) | Principal/ Shares/ Units(J)(X) | Cost | Fair Value | |||||||||
CONTROL INVESTMENTS(O) – 6.9% | ||||||||||||
Secured First Lien Debt – 2.1% | ||||||||||||
Diversified/Conglomerate Manufacturing – 1.5% | ||||||||||||
LWO Acquisitions Company LLC – Term Debt (L + 7.5%, 10.0% Cash, Due 6/2021)(E) | $ | 6,000 | $ | 6,000 | $ | 3,450 | ||||||
LWO Acquisitions Company LLC – Term Debt (Due 6/2021)(E)(P) | 10,632 | 10,632 | — | |||||||||
|
|
|
| |||||||||
16,632 | 3,450 | |||||||||||
Printing and Publishing – 0.6% | ||||||||||||
TNCP Intermediate HoldCo, LLC – Line of Credit, $500 available (8.0% Cash, Due 9/2021)(E)(F) | 1,500 | 1,483 | 1,500 | |||||||||
|
|
|
| |||||||||
Total Secured First Lien Debt | $ | 18,115 | $ | 4,950 | ||||||||
|
|
|
| |||||||||
Secured Second Lien Debt – 3.5% | ||||||||||||
Automobile– 3.5% | ||||||||||||
Defiance Integrated Technologies, Inc. – Term Debt (L + 9.5%, 11.0% Cash, Due 5/2026)(E) | $ | 8,065 | $ | 8,065 | $ | 8,065 | ||||||
Unsecured Debt – 0.0% | ||||||||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Term Debt (Due 6/2023)(E)(P) | $ | 95 | $ | 95 | $ | — | ||||||
Preferred Equity – 0.1% | ||||||||||||
Automobile– 0.1% | ||||||||||||
Defiance Integrated Technologies, Inc. – Preferred Stock(E)(G) | 6,043 | $ | 250 | $ | 254 | |||||||
Common Equity – 1.2% | ||||||||||||
Automobile– 0.0% | ||||||||||||
Defiance Integrated Technologies, Inc. – Common Stock(E)(G) | 33,321 | $ | 580 | $ | 104 | |||||||
Diversified/Conglomerate Manufacturing – 0.0% | ||||||||||||
LWO Acquisitions Company LLC – Common Units(E)(G) | 921,000 | 921 | — | |||||||||
Machinery – 1.0% | ||||||||||||
PIC 360, LLC – Common Equity Units(E)(G) | 750 | 1 | 2,342 | |||||||||
Printing and Publishing – 0.2% | ||||||||||||
TNCP Intermediate HoldCo, LLC – Common Equity Units(E)(G) | 790,000 | 500 | 459 | |||||||||
|
|
|
| |||||||||
Total Common Equity | $ | 2,002 | $ | 2,905 | ||||||||
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Total Control Investments | $ | 28,527 | $ | 16,174 | ||||||||
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TOTAL INVESTMENTS)(Z) – 192.7% | $ | 494,647 | $ | 450,400 | ||||||||
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(A) | Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling |
(B) | Unless indicated otherwise, all cash interest rates are indexed to30-day London Interbank Offered Rate (“LIBOR” or “L”), which was |
(C) | Fair value was based on an internal yield analysis or on estimates of value submitted by |
(D) | Fair value was based on the indicative bid price on or near September 30, |
(E) | Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure. |
(F) | Debt security has a fixed interest rate. |
(G) | Security isnon-income producing. |
(H) | Debt security is onnon-accrual status. |
(I) | Reserved. |
(J) | Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. |
(K) | Reserved. |
(L) | There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May 9, 2024 or two years after all outstanding leverage has matured. |
(M) | Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. |
(N) | Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. |
(O) | Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. |
(P) | Debt security does not have a stated interest rate that is payable thereon. |
(Q) | Reserved. |
(R) | Fair value was based on net asset value provided by the fund as a practical expedient. |
(S) | One of our affiliated funds, Gladstone Investment Corporation,co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. |
(T) | Our investment in Funko was valued using Level 2 inputs within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) fair value hierarchy. Our common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a |
(U) | The cash interest rate on this investment was indexed to90-day LIBOR, which was |
(V) | The cash interest rate on this investment was indexed to the U.S. Prime Rate (“PRIME”), which was |
(W) | Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the |
(X) | Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable. |
(Y) |
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of September 30, |
(Z) | Cumulative gross unrealized depreciation for federal income tax purposes is $68.3 million; cumulative gross unrealized appreciation for federal income tax purposes is $13.4 million. Cumulative net unrealized depreciation is $54.9 million, based on a tax cost of $504.9 million. |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS..STATEMENTS.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 20172020
(DOLLAR AMOUNTS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
NOTE 1. ORGANIZATION
Gladstone Capital Corporation was incorporated under the Maryland General Corporation Law on May 30, 2001 and completed an initial public offering on August 24, 2001. The terms “the Company,” “we,” “our” and “us” all refer to Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally managed,closed-end,non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and isare applying the guidance of the Financial Accounting Standards Board (the “FASB”(“FASB”) Accounting Standards Codification (“ASC”) Topic 946Financial “Financial Services-Investment Companies(“Companies” (“ASC 946”). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States (“U.S.”). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3 million to $15 million) in the U.S. that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains.
Gladstone Business Loan, LLC (“Business Loan”), a wholly-owned subsidiary of ours, was established on February 3, 2003, for the sole purpose of owning a portion of our portfolio ofholding certain investments in connection withpledged as collateral to our line of credit. The financial statements of Business Loan are consolidated with ours.those of Gladstone Capital Corporation. We also have significant subsidiaries (as defined under Rule1-02(w) of the U.S. Securities and Exchange Commission’s (“SEC”) RegulationS-X) whose financial statements are not consolidated with ours. Refer to Note 12 –Unconsolidated– Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.
We are externally managed by Gladstone Management Corporation (the “Adviser”), a Delaware corporationan affiliate of ours and an SEC registered investment adviser, and an affiliate of ours, pursuant to an investment advisory and management agreement (the(as amended and/or restated from time to time, the “Advisory Agreement”). Administrative services are provided by our affiliate, Gladstone Administration, LLC (the “Administrator”), a Delaware limited liability company,an affiliate of ours and the Adviser, pursuant to an administration agreement (the “Administration Agreement”). Refer to Note 4—Related Party Transactions for additional information regarding these arrangements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements and Basis of Presentation
We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting onForm 10-Q and Articles 6, 10 and 1012 of RegulationS-X. Accordingly, we have not included in this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanyingConsolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with Article 6 of RegulationS-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three months ended December 31, 2017,2020 are not necessarily indicative of results that ultimately may be achieved for the fiscal year.year ending September 30, 2021 or any future interim periods. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form10-K for the fiscal year ended September 30, 2017,2020, as filed with the SEC on November 20, 2017.
Our accompanying fiscalyear-endConsolidated Statement of Assets and Liabilities was derived from audited financial statements, but does not include all disclosures required by GAAP.10, 2020.
Use of Estimates
Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated Financial Statements and accompanying notes.these Notes to Consolidated Financial Statements. Actual results may differ from those estimates.
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Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Financial Statements and the accompanying notes. Reclassifications did not impact net increase in net assets resulting from operations, total assets, total liabilities or total net assets, or Statement of Changes in Net Assets and Statement of Cash Flows classifications.
Investment Valuation Policy
Accounting Recognition
We record our investments at fair value in accordance with the FASB Accounting Standards CodificationASC Topic 820, “Fair“Fair Value Measurements and Disclosures” (“ASC 820”) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are generally measured by the difference between the net proceeds from the repayment or sale and amortizedthe cost basis of the investment, without regard to unrealized depreciationappreciation or appreciationdepreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized depreciationappreciation or appreciationdepreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized depreciationappreciation or appreciationdepreciation when gains or losses are realized.
Board Responsibility
In accordance with the 1940 Act, our Board of Directors has the ultimate responsibility for reviewing and approving,determining, in good faith, the fair value of our investments for which market quotations are not readily available based on our investment valuation policy which(which has been approved by our Board of DirectorsDirectors) (the “Policy”). Such review occurs in three phases. First, prior to its quarterly meetings, ourthe Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from ourthe chief valuation officer who reports directly to our Board of Directors (the “Valuation Team”). Second, the Valuation Committee of our Board of Directors comprised(comprised entirely of independent directors,directors) meets to review the valuation recommendations and supporting materials presented by the chief valuation officer. Third, after the Valuation Committee concludes its meeting, it and ourthe chief valuation officer present the Valuation Committee’s findings to the entire Board of Directors and, after discussion,so that the full Board of Directors ultimately approvesmay review and determine in good faith the fair value of our portfolio ofsuch investments in accordance with the Policy.
There is no single methodstandard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by ourthe chief valuation officer, uses the Policy, and each quarter the Valuation Committee and Board of Directors reviewsreview the Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team has applied the Policy consistently.
Use of Third Party Valuation Firms
The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments.
Standard & Poor’s Securities Evaluation, Inc.ICE Data Pricing and Reference Data, LLC (“SPSE”ICE”), a valuation specialist, generally provides estimates of fair value on our proprietary debt investments. The Valuation Team in accordance with the Policy, generally assigns SPSE’sICE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates SPSE’sICE’s estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimate of value on a specific debt investment may significantly differ from SPSE’s.ICE’s. When this occurs, theour Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended fair value is reasonable in light of the Policy and other facts and circumstances and then votes to accept or reject the Valuation Team’s recommendedbefore determining fair value.
We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value (“TEV”) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review ourthe valuation of each of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our total enterprise value,TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value, and whether it is reasonable in light of the Policy, as well asand other relevant facts and circumstances and then votes to accept or reject the Valuation Team’s recommendedbefore determining fair value.
Valuation Techniques
In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:
• | Total Enterprise Value — In determining the fair value using a |
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company (the trailing or projected twelve month revenue or |
TEV is primarily calculated using EBITDA or revenue multiples;EBITDA; however, TEV may also be calculated using revenue multiples or a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses thea DCF analysis to calculate the TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit impaired portfolio companies.
• | Yield Analysis — The Valuation Team generally determines the fair value of our debt investments |
• | Market Quotes — For our |
• | Investments in Funds — For equity investments in other funds |
In addition to the above valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair valuesvalue of our investments, including, but not limited to:including: the nature and realizable value of the collateral, including external parties’ guaranties;guaranties, any relevant offers or letters of intent to acquire the portfolio company;company, timing of expected loan repayments;repayments, and the markets in which the portfolio company operates. If applicable, new andfollow-on debt and equity investments made during the current reporting quarter are generally valued at our original cost basis, as near-measurement date transaction value is a reasonable indicator of fair value.
Fair value measurements of our investments may involve subjective judgments and estimates and due to the uncertainty inherent uncertaintyin valuing these securities, the determinations of determining these fair values, the fair value of our investments may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our exitdisposal of such securities. Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.
Refer to Note 3—Investments for additional information regarding fair value measurements and our application of ASC 820.
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Revenue Recognition
Interest Income Recognition
Interest income, including the amortization of premiums, acquisition costs and amendment fees, the accretion of original issue discounts (“OID”), andpaid-in-kind (“PIK”) interest, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan onnon-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received onnon-accrual loans may be recognized as income or applied to the cost basis depending upon management’s judgment. Generally,non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current, or due to a restructuring such that the interest income is deemed to be collectible. AtAs of December 31, 2017, certain2020, loans to two portfolio companies, Sunshine Media Holdings and Alloy Die Casting Corp.,B+T Group Acquisition Inc. (“B+T”) were onnon-accrual status with an aggregate debt cost basis of approximately $27.9$7.2 million, or 6.8%1.6% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of approximately $5.4$6.6 million, or 1.5%1.6% of the fair value of all debt investments in our portfolio. AtAs of September 30, 2017, certain2020, loans to two portfolio companies, Sunshine Media Holdings and Alloy Die Casting Corp.,B+T were onnon-accrual status with an aggregate debt cost basis of approximately $27.9$7.2 million, or 7.5%1.6% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of approximately $5.6$6.5 million, or 1.7%1.6% of the fair value of all debt investments in our portfolio.
We currently hold, and we expect to hold in the future, some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest, computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Thus, the actual collection of PIK income may be deferred until the time of debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both of our OID and PIKnon-cash income amounts in the form of distributions, even though we have not yet collected the cash on either.
As of each of December 31, 20172020 and September 30, 2017,2020, we had sixheld five OID loans, primarily from the syndicated loans in our portfolio. We recorded OID income of $0.1$21 thousand and $0.2 million and $20 forduring the three months ended December 31, 20172020 and 2016,2019, respectively. The unamortized balance of OID investments as of each of December 31, 20172020 and September 30, 20172020 totaled $0.4$0.6 million. As of December 31, 20172020 and September 30, 2017,2020, we had sevensix and sixseven investments which had a PIK interest component, respectively. We recorded PIK interest income of $1.2$0.5 million for each ofand $0.3 million during the three months ended December 31, 2017,2020 and 2016.2019, respectively. We collected $2.2 million and $0 and $1.0 million ofin PIK interest in cash forduring the three months ended December 31, 20172020 and 2016,2019, respectively.
Success Fee Income Recognition
We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale.sale, and are non-recurring.
Dividend Income Recognition
We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration. During the year ended September 30, 2017, we recharacterized $0.2 million of dividend income from our investment in Behrens Manufacturing, LLC recorded during our fiscal year ended September 30, 2016 as a return of capital.
Deferred Financing and Offering Costs
Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees and legal fees. Costs associated with our revolving line of credit are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our mandatorily redeemable preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the terms of the respective financings. See Note 5 —BorrowingsandNote 6 —Mandatorily Redeemable Preferred Stock for further discussion.
Related Party Fees
We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the terms of our Fifth Amended and Restated Credit Agreement with KeyBank National Association (“KeyBank”), as administrative agent, lead arranger and a lender (our(as amended, our “Credit Facility”). These fees are accrued at the end of the quarter when the services are performed and generally paid the following quarter.
We are also party to the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services pursuant to the Administration Agreement. These administrative fees are accrued at the
end of the quarter when the services are performed and generally paid the following quarter.services. Refer to Note 4—Related Party Transactions for additional information regarding these related party fees and agreements.
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Recent Accounting Pronouncements
In November 2016,August 2018, the FASB issued Accounting Standards Update2016-18,2018-13, “Restricted Cash (a consensus of“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Emerging Issues Task Force)Disclosure Requirements for Fair Value” (“ASU2016-18”2018-13”), which requires thatmodifies the statement of cash flows explain the change during the perioddisclosure requirements in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We are currently assessing the impact ofASC 820. ASU2016-18 and do not anticipate a material impact on our financial position, results of operations or cash flows.ASU 2016-182018-13 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early2019, and we adopted ASU 2018-13 effective October 1, 2020. Our adoption permitted.
In August 2016, the FASB issued Accounting Standards Update2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)”(“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. We are currently assessing the impact ofASU 2016-15 and do not anticipate a material impact on our cash flows. ASU2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted.
In March 2016, the FASB issued Accounting Standards Update2016-06, “Contingent Put and Call Options in Debt Instruments”(“ASU 2016-06”), which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related. The adoption ofASU 2016-062018-13 did not have a material impact on our financial position, results of operations or cash flows. ASU2016-06 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years, and we adopted ASU2016-06 effective October 1, 2017.
In January 2016, the FASB issued Accounting Standards Update2016-01,“Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”(“ASU 2016-01”), which changes how entities measure certain equity investments and how entities present changes in the fair value of financial liabilities measured under the fair value option that are attributable to instrument-specific credit risk. We are currently assessing the impact ofASU 2016-01 and do not anticipate a material impact on our financial position, results of operations or cash flows. ASU2016-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted for certain aspects ofASU 2016-01 relating to the recognition of changes in fair value of financial liabilities when the fair value option is elected.
In February 2015, the FASB issued Accounting Standards Update2015-02, “Amendments to the Consolidation Analysis”(“ASU 2015-02”), which amends or supersedes the scope and consolidation guidance under existing GAAP. The adoption ofASU 2015-02 did not have a material impact on our financial position, results of operations or cash flows.ASU 2015-02 is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those years, and we adoptedASU 2015-02 effective April 1, 2016. In October 2016, the FASB issued Accounting Standards Update2016-17, “Interests Held through Related Parties That Are under Common Control” (“ASU2016-17”), which amends the consolidation guidance inASU 2015-02 regarding the treatment of indirect interests held through related parties that are under common control. The adoption ofASU 2016-17 did not have a material impact on our financial position, results of operations or cash flows. ASU2016-17 is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those years, and we adopted ASU2015-02 effective October 1, 2017.
In May 2014, the FASB issued Accounting Standards Update2014-09, “Revenue from Contracts with Customers”(“ASU 2014-09”), which was amended in March 2016 by FASB Accounting Standards Update2016-08,“Principal versus Agent Considerations”(“ASU 2016-08”), in April 2016 by FASB Accounting Standards Update2016-10,“Identifying Performance Obligations and Licensing”(“ASU2016-10”), in May 2016 by FASB Accounting Standards Update2016-12,“Narrow-Scope Improvements and Practical Expedients”(“ASU 2016-12”), and in December 2016 by FASB Accounting Standards Update2016-20,“Technical Corrections and Improvements to Topic 606”(“ASU2016-20”). ASU2014-09, as amended, supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. In July 2015, the FASB issued Accounting Standards Update2015-14, “Deferral of the Effective Date,” which deferred the effective date ofASU 2014-09.ASU 2014-09, as amended byASU 2015-14,ASU 2016-08,ASU 2016-10,ASU 2016-12, andASU 2016-20, is now effective for annual reporting periods beginning after December 15, 2017 and interim periods within those years, with early adoption permitted for annual reporting periods beginning after December 15, 2016 and interim periods within those years. We continue to assess the impact ofASU 2014-09, as amended, and expect to identify similar performance obligations as compared to existing guidance. As a result, we do not anticipate a material change in the timing of revenue recognition or a material impact on our financial position, results of operations, or cash flows from adopting this standard.
NOTE 3. INVESTMENTS
Fair Value
In accordance with ASC 820, the fair value of each investment is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value
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definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.
• | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets; |
• | Level 2— inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and |
• | Level 3— inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team’s assumptions based upon the best available information. |
When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or components that are actively quoted and can be validated to external sources). 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. Investments in funds measured using NAV as a practical expedient are not categorized within the fair value hierarchy.
As of each of December 31, 2017,2020 and September 30, 2020, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (“Funko”), which was valued using Level 2 inputs, and our investmentsinvestment in FedCap and Leeds Novamark Capital I, L.P. (“Leeds”), which werewas valued using net asset value as a practical expedient. As of September 30, 2017, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investments in FedCap and Leeds, which were valued using net asset valueNAV as a practical expedient.
We transfer investments in and out of Level 1, 2, and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the three months ended December 31, 2017, we transferred our investment in Funko from Level 3 to Level 2 as a result of the initial public offering of Funko, Inc. in November 2017 due to convertibility of our investment into shares of Funko, Inc. During the three months ended December 31, 2016,2020 and 2019, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.
As of December 31, 20172020 and September 30, 2017,2020, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:
Fair Value Measurements | Fair Value Measurements | |||||||||||||||||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
As of December 31, 2017: | ||||||||||||||||||||||||||||||||
As of December 31, 2020: | ||||||||||||||||||||||||||||||||
Secured first lien debt | $ | 196,195 | $ | — | $ | — | $ | 196,195 | $ | 219,921 | $ | — | $ | — | $ | 219,921 | ||||||||||||||||
Secured second lien debt | 171,690 | — | — | 171,690 | 194,219 | — | — | 194,219 | ||||||||||||||||||||||||
Unsecured debt | 3,444 | — | — | 3,444 | 15 | — | — | 15 | ||||||||||||||||||||||||
Preferred equity | 5,661 | — | — | 5,661 | 9,236 | — | — | 9,236 | ||||||||||||||||||||||||
Common equity/equivalents | 12,591 | (B) | — | 157 | (A) | 12,434 | 24,559 | (A) | — | 86 | (B) | 24,473 | ||||||||||||||||||||
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Total Investments at December 31, 2017 | $ | 389,581 | $ | — | $ | 157 | $ | 389,424 | ||||||||||||||||||||||||
Total Investments at December 31, 2020 | $ | 447,950 | $ | — | $ | 86 | $ | 447,864 | ||||||||||||||||||||||||
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Fair Value Measurements | ||||||||||||||||||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
As of September 30, 2017: | ||||||||||||||||||||||||||||||||
Secured first lien debt | $ | 173,896 | $ | — | $ | — | $ | 173,896 | ||||||||||||||||||||||||
Secured second lien debt | 155,249 | — | — | 155,249 | ||||||||||||||||||||||||||||
Unsecured debt | 3,324 | — | — | 3,324 | ||||||||||||||||||||||||||||
Preferred equity | 6,561 | — | — | 6,561 | ||||||||||||||||||||||||||||
Common equity/equivalents | 13,343 | (B) | — | — | 13,343 | |||||||||||||||||||||||||||
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Total Investments at September 30, 2017 | $ | 352,373 | $ | — | $ | — | $ | 352,373 | ||||||||||||||||||||||||
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Fair Value Measurements | ||||||||||||||||
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
As of September 30, 2020: | ||||||||||||||||
Secured first lien debt | $ | 213,468 | $ | — | $ | — | $ | 213,468 | ||||||||
Secured second lien debt | 196,986 | — | — | 196,986 | ||||||||||||
Unsecured debt | 4,299 | — | — | 4,299 | ||||||||||||
Preferred equity | 7,000 | — | — | 7,000 | ||||||||||||
Common equity/equivalents | 23,929 | (A) | — | 48 | (B) | 23,881 | ||||||||||
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Total Investments as of September 30, 2020 | $ | 445,682 | $ | — | $ | 48 | $ | 445,634 | ||||||||
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(A) | Excludes our investment in Leeds with a fair value of $4.4 million and $4.7 million as of December 31, 2020 and September 30, 2020, respectively. Leeds was valued using NAV as a practical expedient. |
(B) | Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability as our investment was subject to |
22
The following table presents our portfolio investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as of December 31, 20172020 and September 30, 2017,2020, by caption on our accompanyingConsolidated Statements of Assets and Liabilities and by security type:
Total Recurring Fair Value Measurements Reported in | ||||||||||||||||
Consolidated Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3) | Total Recurring Fair Value Measurements Reported in Consolidated Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3) | |||||||||||||||
December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | |||||||||||||
Non-Control/Non-Affiliate Investments | ||||||||||||||||
Secured first lien debt | $ | 168,876 | $ | 147,447 | $ | 198,385 | $ | 199,860 | ||||||||
Secured second lien debt | 146,844 | 129,890 | 165,955 | 168,621 | ||||||||||||
Unsecured debt | 3,356 | 3,324 | 15 | 4,299 | ||||||||||||
Preferred equity | 4,439 | 5,735 | 4,997 | 4,677 | ||||||||||||
Common equity/equivalents | 3,776 | (A) | 2,068 | (B) | 18,747 | (A) | 18,824 | (B) | ||||||||
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Total Non-Control/Non-Affiliate Investments | $ | 327,291 | $ | 288,464 | $ | 388,099 | $ | 396,281 | ||||||||
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Affiliate Investments | ||||||||||||||||
Secured first lien debt | $ | 20,009 | $ | 18,821 | $ | 16,636 | $ | 8,658 | ||||||||
Secured second lien debt | 16,781 | 17,294 | 20,199 | 20,300 | ||||||||||||
Unsecured debt | 88 | — | ||||||||||||||
Preferred equity | 1,222 | 826 | 4,038 | 2,069 | ||||||||||||
Common equity/equivalents | 5,756 | 5,707 | 2,211 | 2,152 | ||||||||||||
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Total Affiliate Investments | $ | 43,856 | $ | 42,648 | $ | 43,084 | $ | 33,179 | ||||||||
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Control Investments | ||||||||||||||||
Secured first lien debt | $ | 7,310 | $ | 7,628 | $ | 4,900 | $ | 4,950 | ||||||||
Secured second lien debt | 8,065 | 8,065 | 8,065 | 8,065 | ||||||||||||
Preferred equity | 201 | 254 | ||||||||||||||
Common equity/equivalents | 2,902 | 3,172 | 3,515 | 2,905 | ||||||||||||
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Total Control Investments | $ | 18,277 | $ | 18,865 | $ | 16,681 | $ | 16,174 | ||||||||
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Total Investments at Fair Value Using Level 3 Inputs | $ | 389,424 | $ | 349,977 | $ | 447,864 | $ | 445,634 | ||||||||
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(A) | Excludes our investments in |
(B) | Excludes our investments in |
23
In accordance with ASC 820, the following table provides quantitative information about our Level 3 fair value measurements of our investments as of December 31, 20172020 and September 30, 2017.2020. The table below is not intended to beall-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity related calculations for the particular input.
Quantitative Information about Level 3 Fair Value Measurements | Quantitative Information about Level 3 Fair Value Measurements | |||||||||||||||||||||||||||||||||||||
Range / Weighted Average as of | Range / Weighted Average as of | |||||||||||||||||||||||||||||||||||||
December 31, 2017 | September 30, 2017 | Valuation Techniques/ Methodologies | Unobservable Input | December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | Valuation Techniques/ Methodologies | Unobservable Input | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
Secured first lien debt | $ | 186,850 | $ | 136,272 | Yield Analysis | Discount Rate | 7.6% - 22.9% /11.6% | 8.0% - 25.0% / 12.5% | $ | 202,610 | $ | 195,486 | Yield Analysis | Discount Rate | 8.8% - 25.4% / 13.3% | 8.3% - 24.6% / 13.4% | ||||||||||||||||||||||
9,345 | 37,624 | TEV | EBITDA multiple | 3.1x – 3.1x /3.1x | 3.2x – 10.1x / 8.2x | 17,311 | 17,622 | TEV | EBITDA multiple | 5.2x – 5.2x / 5.2x | 4.8x – 4.8x / 4.8x | |||||||||||||||||||||||||||
EBITDA | $1,408 - $1,408 / $1,408 | $1,378 - $9,420 / $6,676 | EBITDA | $ | 6,301 - $6,301 / $6,301 | $ | 6,492 - $6,492 / $6,492 | |||||||||||||||||||||||||||||||
Revenue multiple | 0.3x – 0.4x / 0.3x | 0.3x – 0.4x / 0.3x | Revenue multiple | 0.3x – 0.3x / 0.3x | 0.3x – 0.3x / 0.3x | |||||||||||||||||||||||||||||||||
Revenue | $6,219 - $11,035 /$10,719 | $6,934 - $12,094 / $11,733 | Revenue | $ | 9,122 - $12,000 / $11,791 | $ | 7,451 - $11,500 / $11,165 | |||||||||||||||||||||||||||||||
Secured second lien | 137,168 | 122,165 | Yield Analysis | Discount Rate | 10.7% - 23.9% /14.4% | 10.8% - 23.3% /14.0% | ||||||||||||||||||||||||||||||||
Secured second lien debt | 160,494 | 163,141 | Yield Analysis | Discount Rate | 10.4% - 28.3% / 15.1% | 10.5% - 25.1% / 14.5% | ||||||||||||||||||||||||||||||||
25,660 | 24,681 | Market Quote | IBP | 83.0% - 99.3% / 92.7% | 77.7% - 98.8% / 89.2% | |||||||||||||||||||||||||||||||||
25,266 | 22,607 | Market Quote | IBP | 80.0% - 101.0% / 96.1% | 84.5% - 101.5% /97.2% | 8,065 | 9,164 | TEV | EBITDA multiple | 5.3x – 5.3x / 5.3x | 5.3x – 9.0x / 5.7x | |||||||||||||||||||||||||||
9,256 | 10,477 | TEV | EBITDA multiple | 4.6x – 6.4x /5.2x | 4.8x – 6.6x /5.4x | EBITDA | $ | 2,975 - $2,975 / $2,975 | $ | 3,020 - $69,552 / $10,999 | ||||||||||||||||||||||||||||
EBITDA | $3,004 - $70,276 / $25,308 | $3,000 - $73,650 / $26,424 | ||||||||||||||||||||||||||||||||||||
Unsecured debt | 3,444 | 3,324 | Yield Analysis | Discount Rate | 10.0% - 13.9% /10.1% | 10.0% - 10.0% /10.0% | — | 4,282 | Yield Analysis | Discount Rate | — | 12.6% - 12.6% / 12.6% | ||||||||||||||||||||||||||
15 | 17 | TEV | Revenue multiple | 0.3x – 1.4x / 1.0x | 0.3x – 1.4x / 1.0x | |||||||||||||||||||||||||||||||||
Preferred and common equity / | 17,964 | 17,370 | TEV | EBITDA multiple | 3.1x – 9.7x / 6.0x | 3.2x – 10.1x / 6.1x | ||||||||||||||||||||||||||||||||
EBITDA | $301 -$30,531 /$12,270 | $890 -$84,828/ $12,835 | Revenue | $ | 947 - $12,000 / $4,531 | $ | 883 - $11,500 / $4,325 | |||||||||||||||||||||||||||||||
Preferred and common equity / equivalents(A) | 33,709 | 30,881 | TEV | EBITDA multiple | 3.2x – 9.3x / 5.8x | 3.0x – 9.2x / 6.0x | ||||||||||||||||||||||||||||||||
Revenue multiple | 0.3x – 1.7x / 0.5x | 0.3x – 6.5 x /0.7x | EBITDA | $ | 483 - $88,306 / $9,819 | $ | 483 - $88,142 / $16,403 | |||||||||||||||||||||||||||||||
Revenue | $6,219 -$513,299 /$130,351 | $2,317 -$503,620/ $128,819 | Revenue multiple | 0.3x – 1.4x / 0.8x | 0.3x – 1.4x / 0.8x | |||||||||||||||||||||||||||||||||
131 | 138 | Market Quotes | IBP | 26.2% - 26.2% /26.2% | 27.9% - 27.9% /27.9% | Revenue | $ | 947 - $141,040 / $44,403 | $ | 883 - $161,232 / $48,273 | ||||||||||||||||||||||||||||
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Total Level 3 Investments, at Fair Value | $ | 389,424 | $ | 349,977 | $ | 447,864 | $ | 445,634 | ||||||||||||||||||||||||||||||
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(A) | Fair value as of December 31, |
24
Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in market yields, discountsdiscount rates, leverage, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase or decreaseincrease/(decrease) in market yields, discount rates, or leverage or a decrease(decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a corresponding decrease or (decrease)/increase, respectively, in the fair value of certain of our investments.
Changes in Level 3 Fair Value Measurements of Investments
The following tables provide the changes in fair value, broken out by security type, during the three months ended December 31, 20172020 and 20162019 for all investments for which the Adviser determineswe determine fair value using unobservable (Level 3) factors.inputs.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three months ended December 31, 2017 | Secured First Lien Debt | Secured Second Lien Debt | Unsecured Debt | Preferred Equity | Common Equity/ Equivalents | Total | ||||||||||||||||||||||||||||||||||||||||||
Fair Value as of September 30, 2017 | $ | 173,896 | $ | 155,249 | $ | 3,324 | $ | 6,561 | $ | 10,947 | $ | 349,977 | ||||||||||||||||||||||||||||||||||||
Secured | Secured | Common | ||||||||||||||||||||||||||||||||||||||||||||||
Three months ended December 31, 2020 | First Lien Debt | Second Lien Debt | Unsecured Debt | Preferred Equity | Equity/ Equivalents | Total | ||||||||||||||||||||||||||||||||||||||||||
Fair Value as of September 30, 2020 | $ | 213,468 | $ | 196,986 | $ | 4,299 | $ | 7,000 | $ | 23,881 | $ | 445,634 | ||||||||||||||||||||||||||||||||||||
Total gains (losses): | Total gains (losses): |
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Net realized gain (loss)(A) | — | — | — | 602 | (28 | ) | 574 | |||||||||||||||||||||||||||||||||||||||||
Net realized loss(A) | — | — | — | — | (2,393 | ) | (2,393 | ) | ||||||||||||||||||||||||||||||||||||||||
Net unrealized appreciation (depreciation)(B) | 1,115 | 445 | (3 | ) | 558 | (12 | ) | 2,103 | 932 | 1,009 | (2 | ) | 138 | 3,297 | 5,374 | |||||||||||||||||||||||||||||||||
Reversal of prior period net (appreciation) depreciation on realization(B) | — | (87 | ) | — | (725 | ) | — | (812 | ) | |||||||||||||||||||||||||||||||||||||||
Reversal of prior period net depreciation on realization(B) | — | — | 133 | — | 2,950 | 3,083 | ||||||||||||||||||||||||||||||||||||||||||
New investments, repayments and settlements: (C) | New investments, repayments and settlements: (C) |
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Issuances/originations | 37,426 | 18,365 | 123 | 125 | 1,500 | 57,539 | 27,204 | 337 | 113 | 2,098 | — | 29,752 | ||||||||||||||||||||||||||||||||||||
Settlements/repayments | (12,677 | ) | (5,847 | ) | — | — | — | (18,524 | ) | (1,683 | ) | (24,113 | ) | (4,528 | ) | — | — | (30,324 | ) | |||||||||||||||||||||||||||||
Net proceeds from sales | — | — | — | (1,301 | ) | 27 | (1,274 | ) | ||||||||||||||||||||||||||||||||||||||||
Sales | — | — | — | — | (3,262 | ) | (3,262 | ) | ||||||||||||||||||||||||||||||||||||||||
Transfers | (3,565 | ) | 3,565 | — | (159 | ) | — | (159 | ) | (20,000 | ) | 20,000 | — | — | — | — | ||||||||||||||||||||||||||||||||
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Fair Value as of December 31, 2017 | $ | 196,195 | $ | 171,690 | $ | 3,444 | $ | 5,661 | $ | 12,434 | $ | 389,424 | ||||||||||||||||||||||||||||||||||||
Fair Value as of December 31, 2020 | $ | 219,921 | $ | 194,219 | $ | 15 | $ | 9,236 | $ | 24,473 | $ | 447,864 | ||||||||||||||||||||||||||||||||||||
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Three months ended December 31, 2016 | Secured First Lien Debt | Secured Second Lien Debt | Unsecured Debt | Preferred Equity | Common Equity/ Equivalents | Total | ||||||||||||||||||||||||||||||||||||||||||
Fair Value as of September 30, 2016 | $ | 198,721 | $ | 100,320 | $ | 3,012 | $ | 10,262 | $ | 7,755 | $ | 320,070 | ||||||||||||||||||||||||||||||||||||
Total gains (losses): | ||||||||||||||||||||||||||||||||||||||||||||||||
Net realized (loss) gain(A) | (4,899 | ) | 25 | — | 1,426 | — | (3,448 | ) | ||||||||||||||||||||||||||||||||||||||||
Net unrealized appreciation (depreciation)(B) | 2,656 | (3,220 | ) | 1 | 1,116 | (3,246 | ) | (2,693 | ) | |||||||||||||||||||||||||||||||||||||||
Reversal of prior period net depreciation (appreciation) on realization(B) | 2,210 | 66 | — | (1,059 | ) | 370 | 1,587 | |||||||||||||||||||||||||||||||||||||||||
New investments, repayments and settlements: (C) | ||||||||||||||||||||||||||||||||||||||||||||||||
Issuances/originations | 548 | 19,358 | 75 | 394 | 344 | 20,719 | ||||||||||||||||||||||||||||||||||||||||||
Settlements/repayments | (38,865 | ) | (3,426 | ) | 3 | — | — | (42,288 | ) | |||||||||||||||||||||||||||||||||||||||
Net proceeds from sales | (101 | ) | (25 | ) | — | (7,724 | ) | (370 | ) | (8,220 | ) | |||||||||||||||||||||||||||||||||||||
Transfers | (3,940 | ) | 923 | — | — | 3,017 | — | |||||||||||||||||||||||||||||||||||||||||
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Fair Value as of December 31, 2016 | $ | 156,330 | $ | 114,021 | $ | 3,091 | $ | 4,415 | $ | 7,870 | $ | 285,727 | ||||||||||||||||||||||||||||||||||||
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Secured | Secured | Common | ||||||||||||||||||||||
Three months ended December 31, 2019 | First Lien Debt | Second Lien Debt | Unsecured Debt | Preferred Equity | Equity/ Equivalents | Total | ||||||||||||||||||
Fair Value as of September 30, 2019 | $ | 178,213 | $ | 181,541 | $ | 3,933 | $ | 9,854 | $ | 25,104 | $ | 398,645 | ||||||||||||
Total gains (losses): |
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Net realized loss(A) | — | (4,409 | ) | — | — | — | (4,409 | ) | ||||||||||||||||
Net unrealized appreciation (depreciation)(B) | (537 | ) | (132 | ) | 14 | (680 | ) | (2,921 | ) | (4,256 | ) | |||||||||||||
Reversal of prior period net depreciation on realization(B) | — | 4,307 | — | — | — | 4,307 | ||||||||||||||||||
New investments, repayments and settlements: (C) |
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Issuances/originations | 39,403 | 3,058 | 102 | 300 | — | 42,863 | ||||||||||||||||||
Settlements/repayments | (1,739 | ) | (10,721 | ) | — | — | — | (12,460 | ) | |||||||||||||||
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Fair Value as of December 31, 2019 | $ | 215,340 | $ | 173,644 | $ | 4,049 | $ | 9,474 | $ | 22,183 | $ | 424,690 | ||||||||||||
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(A) | Included in net realized gain (loss) on investments on our accompanyingConsolidated Statements of Operations for the |
(B) | Included in net unrealized appreciation (depreciation) on investments on our accompanying Consolidated Statements of |
(C) | Includes increases in the cost basis of investments resulting from new portfolio investments, accretion of discounts, PIK, and othernon-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and acquisition costs and other cost-basis adjustments. |
25
Investment Activity
Proprietary Investments
As of December 31, 20172020 and September 30, 2017,2020, we held 38 and 3537 proprietary investments with an aggregate fair value of $356.4$420.1 million and $318.6$411.5 million, or 90.8%92.9% and 90.4%91.4% of the total aggregateinvestment portfolio at fair value, respectively. The following significant proprietary investment transactions occurred during the three months ended December 31, 2017:2020:
In October 2017, we sold our investment in Flight Fit N Fun LLC for a realized gain of $0.6 million. In connection with the sale, we received net cash proceeds of approximately $9.4 million, including the repayment of our debt investment of $7.8 million at par.
In November 2017,December 2020, we invested $7.5$10.0 million in Arc DrillingEncore Dredging Holdings, LLC through a combination of secured first lien debt and equity.
Syndicated Investments
As of December 31, 20172020 and September 30, 2017,2020, we held 13nine and 1211 syndicated investments with an aggregate fair value of $36.0$32.3 million and $33.8$38.9 million, or 9.2%7.1% and 9.6%8.6% of the total investment portfolio at fair value, respectively. The following significant syndicated investment transactions occurred during the three months ended December 31, 2017:2020:
In October 2017, PSC IndustrialDecember 2020, our investment in Edmentum Ultimate Holdings, LLC paid off at par forwas sold, which resulted in a realized loss of approximately $2.4 million on our equity investment. In connection with the sale, we received net cash proceeds of $3.5 million.approximately $4.9 million, including the repayment of our debt investment of $4.6 million at par.
In November 2017, DataPipe, Inc. paid off at par forDecember 2020, our investment in Vertellus Holdings LLC was sold, which resulted in a realized loss of approximately $41 thousand. In connection with the sale, we received net cash proceeds of $2.0 million.
at par.
Investment Concentrations
As of December 31, 2017,2020, our investment portfolio consisted of investments in 5147 portfolio companies located in 24 states in 18 different industries, with an aggregate fair value of $392.4$452.4 million. The five largest investments at fair value as of December 31, 2020 totaled $111.0$130.2 million, or 28.3%28.8% of our total investment portfolio, as compared to the five largest investments at fair value as of September 30, 20172020 totaling $110.9$130.3 million, or 31.5%28.9% of our total investment portfolio. As of December 31, 20172020 and September 30, 20172020, our average investment by obligor was $8.8$10.4 million and $10.3 million at cost.cost, respectively.
The following table outlines our investments by security type atas of December 31, 20172020 and September 30, 2017:2020:
December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost | Fair Value | Cost | Fair Value | Cost | Fair Value | Cost | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured first lien debt | $ | 217,993 | 48.4 | % | $ | 196,195 | 50.0 | % | $ | 198,942 | 48.4 | % | $ | 173,896 | 49.4 | % | $ | 246,529 | 50.5 | % | $ | 219,921 | 48.6 | % | $ | 241,008 | 48.7 | % | $ | 213,468 | 47.4 | % | ||||||||||||||||||||||||||||||||
Secured second lien debt | 186,465 | 41.4 | 171,690 | 43.7 | 168,247 | 40.9 | 155,249 | 44.1 | 202,065 | 41.4 | 194,219 | 42.9 | 205,841 | 41.6 | 196,986 | 43.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unsecured debt | 3,447 | 0.8 | 3,444 | 0.9 | 3,324 | 0.8 | 3,324 | 0.9 | 293 | 0.1 | 15 | 0.0 | 4,708 | 1.0 | 4,299 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total debt investments | 407,905 | 90.6 | 371,329 | 94.6 | 370,513 | 90.1 | 332,469 | 94.4 | 448,887 | 92.0 | 414,155 | 91.5 | 451,557 | 91.3 | 414,753 | 92.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred equity | 18,052 | 4.0 | 5,661 | 1.5 | 18,794 | 4.5 | 6,561 | 1.9 | 21,030 | 4.3 | 9,236 | 2.1 | 18,932 | 3.8 | 7,000 | 1.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Common equity/equivalents | 24,175 | 5.4 | 15,440 | 3.9 | 22,128 | 5.4 | 13,343 | 3.7 | 18,194 | 3.7 | 28,968 | 6.4 | 24,158 | 4.9 | 28,647 | 6.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total equity investments | 42,227 | 9.4 | 21,101 | 5.4 | 40,922 | 9.9 | 19,904 | 5.6 | 39,224 | 8.0 | 38,204 | 8.5 | 43,090 | 8.7 | 35,647 | 7.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total Investments | $ | 450,132 | 100.0 | % | $ | 392,430 | 100.0 | % | $ | 411,435 | 100.0 | % | $ | 352,373 | 100.0 | % | $ | 488,111 | 100.0 | % | $ | 452,359 | 100.0 | % | $ | 494,647 | 100.0 | % | $ | 450,400 | 100.0 | % | ||||||||||||||||||||||||||||||||
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26
Our investments at fair value consisted of the following industry classifications atas of December 31, 20172020 and September 30, 2017:2020:
December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||||
Industry Classification | Fair Value | Percentage of Total Investments | Fair Value | Percentage of Total Investments | Fair Value | Percentage of Total Investments | Fair Value | Percentage of Total Investments | ||||||||||||||||||||||||
Diversified/Conglomerate Service | $ | 91,193 | 23.2 | % | $ | 80,723 | 22.9 | % | $ | 100,828 | 22.3 | % | $ | 92,960 | 20.6 | % | ||||||||||||||||
Oil and gas | 56,192 | 14.3 | 34,712 | 9.9 | ||||||||||||||||||||||||||||
Healthcare, education and childcare | 43,499 | 11.1 | 46,288 | 13.1 | ||||||||||||||||||||||||||||
Healthcare, Education, and Childcare | 78,818 | 17.4 | 64,155 | 14.3 | ||||||||||||||||||||||||||||
Diversified/Conglomerate Manufacturing | 42,870 | 10.9 | 40,843 | 11.6 | 44,596 | 9.9 | 43,995 | 9.8 | ||||||||||||||||||||||||
Cargo Transportation | 36,021 | 8.0 | 34,542 | 7.7 | ||||||||||||||||||||||||||||
Beverage, Food, and Tobacco | 30,078 | 6.6 | 29,171 | 6.5 | ||||||||||||||||||||||||||||
Telecommunications | 42,781 | 10.9 | 31,350 | 8.9 | 27,992 | 6.2 | 27,994 | 6.2 | ||||||||||||||||||||||||
Oil and Gas | 24,072 | 5.3 | 24,725 | 5.5 | ||||||||||||||||||||||||||||
Diversified Natural Resources, Precious Metals, and Minerals | 23,999 | 5.3 | 24,014 | 5.3 | ||||||||||||||||||||||||||||
Automobile | 19,590 | 5.0 | 20,082 | 5.7 | 18,273 | 4.0 | 18,149 | 4.0 | ||||||||||||||||||||||||
Diversified natural resources, precious metals and minerals | 18,744 | 4.8 | 18,949 | 5.4 | ||||||||||||||||||||||||||||
Beverage, food and tobacco | 13,934 | 3.6 | 14,103 | 4.0 | ||||||||||||||||||||||||||||
Cargo Transportation | 13,098 | 3.3 | 13,081 | 3.7 | ||||||||||||||||||||||||||||
Aerospace and Defense | 17,043 | 3.8 | 37,460 | 8.3 | ||||||||||||||||||||||||||||
Machinery | 12,502 | 3.2 | 5,114 | 1.4 | 10,772 | 2.4 | 10,264 | 2.3 | ||||||||||||||||||||||||
Home and Office Furnishings, Housewares and Durable Consumer Products | 10,150 | 2.6 | 10,100 | 2.9 | ||||||||||||||||||||||||||||
Personal andnon-durable consumer products | 7,080 | 1.8 | 7,035 | 2.0 | ||||||||||||||||||||||||||||
Chemicals, Plastics, and Rubber | 9,962 | 2.2 | 13,715 | 3.0 | ||||||||||||||||||||||||||||
Home and Office Furnishings, Housewares, and Durable Consumer Products | 9,750 | 2.2 | 9,675 | 2.2 | ||||||||||||||||||||||||||||
Hotels, Motels, Inns, and Gaming | 6,938 | 1.8 | 7,136 | 2.0 | 8,113 | 1.8 | 8,052 | 1.8 | ||||||||||||||||||||||||
Textiles and leather | 5,640 | 1.4 | 4,879 | 1.4 | ||||||||||||||||||||||||||||
Printing and publishing | 3,310 | 0.8 | 3,628 | 1.0 | ||||||||||||||||||||||||||||
Leisure, Amusement, Motion Pictures, Entertainment | — | — | 9,225 | 2.6 | ||||||||||||||||||||||||||||
Textiles and Leather | 6,312 | 1.4 | 5,905 | 1.3 | ||||||||||||||||||||||||||||
Buildings and Real Estate | 3,240 | 0.7 | 3,110 | 0.7 | ||||||||||||||||||||||||||||
Other, < 2.0% | 4,909 | 1.3 | 5,125 | 1.5 | 2,490 | 0.5 | 2,514 | 0.5 | ||||||||||||||||||||||||
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Total Investments | $ | 392,430 | 100.0 | % | $ | 352,373 | 100.0 | % | $ | 452,359 | 100.0 | % | $ | 450,400 | 100.0 | % | ||||||||||||||||
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Our investments at fair value were included in the following U.S. geographic regions atas of December 31, 20172020 and September 30, 2017:2020:
December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||||
Geographic Region | Fair Value | Percentage of Total Investments | Fair Value | Percentage of Total Investments | ||||||||||||||||||||||||||||
Location | Fair Value | Percentage of Total Investments | Fair Value | Percentage of Total Investments | ||||||||||||||||||||||||||||
South | $ | 163,988 | 41.8 | % | $ | 150,727 | 42.8 | % | $ | 225,199 | 49.8 | % | $ | 214,808 | 47.7 | % | ||||||||||||||||
West | 128,806 | 32.8 | 116,302 | 33.0 | 119,672 | 26.4 | 138,746 | 30.8 | ||||||||||||||||||||||||
Northeast | 57,336 | 12.7 | 40,740 | 9.0 | ||||||||||||||||||||||||||||
Midwest | 66,481 | 17.0 | 58,915 | 16.7 | 50,152 | 11.1 | 56,106 | 12.5 | ||||||||||||||||||||||||
Northeast | 33,155 | 8.4 | 26,429 | 7.5 | ||||||||||||||||||||||||||||
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Total Investments | $ | 392,430 | 100.0 | % | $ | 352,373 | 100.0 | % | $ | 452,359 | 100.0 | % | $ | 450,400 | 100.0 | % | ||||||||||||||||
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The geographic regioncomposition indicates the location of the headquarters for our portfolio companies. A portfolio company may have a number of other businessadditional locations in other geographic regions.
Investment Principal Repayments
The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2017:2020:
Amount(A) | Amount | |||||||||||
For the remaining nine months ending September 30: | 2018 | $ | 33,643 | 2021 | $ | 48,332 | ||||||
For the fiscal years ending March 31: | 2019 | 53,920 | ||||||||||
For the fiscal years ending September 30: | 2022 | 88,085 | ||||||||||
2020 | 82,103 | 2023 | 48,440 | |||||||||
2021 | 81,813 | 2024 | 44,834 | |||||||||
2022 | 45,022 | 2025 | 132,500 | |||||||||
Thereafter | 117,154 | Thereafter | 87,407 | |||||||||
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Total contractual repayments | $ | 413,655 | Total contractual repayments | $ | 449,598 | |||||||
Adjustments to cost basis of debt investments | (5,750 | ) | Adjustments to cost basis of debt investments | (711 | ) | |||||||
Investments in equity securities | 42,227 | Investments in equity securities | 39,224 | |||||||||
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Investments held as of December 31, 2017 at Cost: | $ | 450,132 | Investments held as of December 31, 2020 at cost: | $ | 488,111 | |||||||
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Receivables from Portfolio Companies
Receivables from portfolio companies representnon-recurring costs incurred on behalf of such portfolio companies and are included in other assets on our accompanyingConsolidated Statements of Assets and Liabilities.Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon management’s judgment, that the portfolio company is unable to pay its obligations. Wewrite-off write off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of December 31, 20172020 and September 30, 2017,2020, we had gross receivables from portfolio companies of $0.4$0.1 million and $0.5$0.4 million, respectively. The allowance
for uncollectible receivables was $32$0 and $44 at$11 thousand as of December 31, 20172020 and September 30, 2017,2020, respectively.
27
NOTE 4. RELATED PARTY TRANSACTIONS
Transactions with the Adviser
We have been externally managed by the Adviser pursuant to the Advisory Agreement since October 1, 2004 pursuant to which we pay the Adviser a base management fee and an incentive fee for its services. The Advisory Agreement originally included administrative services; however, it was amended and restated on October 1, 2006. Simultaneously, we entered into the Administration Agreement with the Administrator (discussed further below) to provide those services. With the unanimous approval of our Board of Directors, the Advisory Agreement was later amended in October 2015 to reduce the base management fee payable under the agreement from 2.0% per annum to 1.75% per annum, effective July 1, 2015, with all other terms remaining unchanged. On July 11, 2017,14, 2020, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party, unanimously approved the annual renewal of the Advisory Agreement through August 31, 2018.2021.
We also pay the Adviser a loan servicing fee for its role of servicer pursuant to our Credit Facility. The entire loan servicing fee paid to the Adviser by Business Loan isnon-contractually, unconditionally and irrevocably credited against the base management fee otherwise payable to the Adviser, since Business Loan is a consolidated subsidiary of ours, and overall, the base management fee (including any loan servicing fee) cannot exceed 1.75% of total assets (as reduced by(including investments made with proceeds of borrowings, less any uninvested cash andor cash equivalents pledged to creditors)resulting from borrowings) during any given fiscal year pursuant to the Advisory Agreement.
Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by Mr. Gladstone. Robert Marcotte (our president) also serves as an executive managing directorvice president of private equity (debt) of the Adviser. Michael LiCalsi, our general counsel and secretary (who also serves as the Administrator’s president, general counsel and secretary), is also the executive vice president of administration of our Adviser.
The following table summarizes the base management fee, incentive fee, and loan servicing fee and associatednon-contractual, unconditional and irrevocable credits reflected in our accompanyingConsolidated Statements of Operations:
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Average total assets subject to base management fee(A) | $ | 383,086 | $ | 315,000 | $ | 457,600 | $ | 423,314 | ||||||||
Multiplied by prorated annual base management fee of 1.75% | 0.4375 | % | 0.4375 | % | 0.4375 | % | 0.4375 | % | ||||||||
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Base management fee(B) | $ | 1,676 | $ | 1,378 | $ | 2,002 | $ | 1,852 | ||||||||
Portfolio company fee credit | (664 | ) | (649 | ) | (352 | ) | (352 | ) | ||||||||
Senior syndicated loan fee credit | (92 | ) | (13 | ) | ||||||||||||
Syndicated loan fee credit | (87 | ) | (121 | ) | ||||||||||||
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Net Base Management Fee | $ | 920 | $ | 716 | $ | 1,563 | $ | 1,379 | ||||||||
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Loan servicing fee(B) | 1,186 | 983 | 1,348 | 1,403 | ||||||||||||
Credit to base management fee - loan servicing fee(B) | (1,186 | ) | (983 | ) | (1,348 | ) | (1,403 | ) | ||||||||
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Net Loan Servicing Fee | $ | — | $ | — | $ | — | $ | — | ||||||||
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Incentive fee(B) | 1,373 | 1,293 | 1,367 | 1,394 | ||||||||||||
Incentive fee credit | (85 | ) | (37 | ) | (211 | ) | (840 | ) | ||||||||
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Net Incentive Fee | $ | 1,288 | $ | 1,256 | $ | 1,156 | $ | 554 | ||||||||
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Portfolio company fee credit | (664 | ) | (649 | ) | (352 | ) | (352 | ) | ||||||||
Senior syndicated loan fee credit | (92 | ) | (13 | ) | ||||||||||||
Syndicated loan fee credit | (87 | ) | (121 | ) | ||||||||||||
Incentive fee credit | (85 | ) | (37 | ) | (211 | ) | (840 | ) | ||||||||
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Credits to Fees From Adviser - other(B) | $ | (841 | ) | $ | (699 | ) | $ | (650 | ) | $ | (1,313 | ) | ||||
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(A) | Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the |
(B) | Reflected |
Base Management Fee
The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 1.75%, computed on the basis of the value of our average total assets at the end of the two most recently-completed quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings and adjusted appropriately for any share issuances or repurchases during the period.
Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may
28
receive fees for services other than managerial assistance. Such services may include, but are not limited to:include: (i) assistance obtaining, sourcing or structuring credit facilities,
long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Advisernon-contractually, unconditionally, and irrevocably credits 100% of theseany fees for such services against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $8 and $28$15 thousand for each of the three months ended December 31, 20172020 and 2016, respectively,2019, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser primarily for the valuation of portfolio companies.
Our Board of Directors accepted anon-contractual, unconditional, and irrevocable credit from the Adviser to reduce the annual base management fee on syndicated loan participations to 0.5%, to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations, for each of the three months ended December 31, 20172020 and 2016.2019.
Loan Servicing Fee
The Adviser also services the loans held by Business Loan (the borrower under the Credit Facility), in return for which the Adviser receives a 1.5% annual fee payable monthly based on the aggregate outstanding balance of loans pledged under our Credit Facility. As discussed in the notes to the table above, we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100% non-contractually, unconditionally and irrevocably credited back to us by the Adviser.
Incentive Fee
The incentive fee consists of two parts: an income-based incentive fee and a capital gainsgains-based incentive fee. The income-based incentive fee rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% (2.0% during the one year period from April 1, 2020 through March 31, 2021) of our net assets, which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually due but not payable during the period, at the end of the immediately preceding calendar quarter, adjusted appropriately for any share issuances or repurchases during the period (the “hurdle rate”). The income-based incentive fee with respect to ourpre-incentive fee net investment income is generally payable quarterly to the Adviser and is computed as follows:
no incentive fee in any calendar quarter in which ourpre-incentive fee net investment income does not exceed the hurdle rate (7.0% annualized);rate;
100.0% of ourpre-incentive fee net investment income with respect to that portion of suchpre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% (2.4375% during the one year period from April 1, 2020 through March 31, 2021) of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter (8.75% annualized);quarter; and
20.0% of the amount of ourpre-incentive fee net investment income, if any, that exceeds 2.1875% (2.4375% during the one year period from April 1, 2020 through March 31, 2021) of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter.
As reflected above, on April 14, 2020, our Board of Directors approved the amendment of the Advisory Agreement, which temporarily revised the hurdle rate, for the period beginning April 1, 2020 and ending March 31, 2021, increasing the hurdle rate from 1.75% per quarter (7% annualized) to 2.00% per quarter (8% annualized) and increasing the excess incentive fee hurdle rate from 2.1875% per quarter (8.75% annualized) to 2.4375% per quarter (9.75% annualized).
The second part of the incentive fee is a capital gains-based incentive fee that will beis determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of our “net realized capital gainsgains” (as defined herein) as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the Adviser, we calculate the cumulative aggregate“net realized capital gains andgains” at the end of each applicable year by subtracting the sum of our cumulative aggregate realized capital losses sinceand our inception, and the entire portfolio’s aggregate unrealized capital depreciation if any and excluding any unrealizedfrom our cumulative aggregate realized capital appreciation, as of the date of the calculation.gains. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since inception. The entire portfolio’s aggregate unrealized capital depreciation, if any, equals the sum of the difference between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable fiscal year, the amount of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less the entire portfolio’s aggregate unrealized capital depreciation, if any. If this number is positive at the end of such fiscal year, then the capital gains-based incentive fee for such year equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. No capital gains-based incentive fee has been recorded or paid since our inception through December 31, 2017,2020, as cumulative unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.
In accordance with GAAP, a capital gains-based incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains-based incentive fee.appreciation and depreciation. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such period. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based incentive fee has been recorded or paid from our inception through December 31, 2017.2020.
Our Board of Directors acceptednon-contractual, unconditional and irrevocable credits from the Adviser to reduce the income-based incentive fee to the extent net investment income did not 100.0% cover distributions to common stockholders for the three months ended December 31, 20172020 and 2016.
29
Loan Servicing Fee
The Adviser also services the loans held by Business Loan (the borrower under the Credit Facility), in return for which the Adviser receives a 1.5% annual fee payable monthly based on the aggregate outstanding balance of loans pledged under our Credit Facility. As discussed in the notes to the table above, we treat payment of the loan servicing fee pursuant to our line of credit as apre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100%non-contractually, unconditionally and irrevocably credited back to us by the Adviser.2019.
Transactions with the Administrator
We payhave entered into the Administration Agreement with the Administrator to provide administrative services. We reimburse the Administrator pursuant to the Administration Agreement for the portion of expenses the Administrator incurs while performing services for us. The Administrator’s expenses are primarily rent and the salaries, benefits and expenses of the Administrator’s employees, including, but not limited to,including: our chief financial officer and treasurer, chief compliance officer, chief valuation officer, and general counsel and secretary (who also serves as the Administrator’s president, general counsel and secretary) and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone. Another of our officers, Michael LiCalsi (our general counsel and secretary), serves as the Administrator’s president as well as the executive vice president of administration for the Adviser.
Our allocable portion of the Administrator’s expenses areis generally derived by multiplying the Administrator’s total expenses by the approximate percentage of time during the current quarter the Administrator’s employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. These administrative fees are accrued at the end of the quarter when the services are performed and recorded on our accompanyingConsolidated Statements of Operations and generally paid the following quarter to the Administrator. On July 11, 2017,14, 2020, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of sucheither party, approved the annual renewal of the Administration Agreement through August 31, 2018.2021.
Other Transactions
Gladstone Securities, LLC (“Gladstone Securities”), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or thenon-contractual, unconditional and irrevocable credits against the base management fee or incentive fee. Gladstone Securities received fees from portfolio companies totaling $0.5$0.2 million and $0.1$0.3 million during the three months ended December 31, 20172020 and 2016,2019, respectively.
Related Party Fees Due
Amounts due to related parties on our accompanyingConsolidated Statements of Assets and Liabilities were as follows:
December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | |||||||||||||
Base management fee due (from) to Adviser | $ | (267 | ) | $ | 45 | |||||||||||
Base management fee due to Adviser | $ | 215 | $ | 95 | ||||||||||||
Loan servicing fee due to Adviser | 270 | 242 | 339 | 355 | ||||||||||||
Incentive fee due to Adviser | 1,288 | 1,005 | 1,156 | 1,236 | ||||||||||||
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Total fees due to Adviser | 1,291 | 1,292 | 1,710 | 1,686 | ||||||||||||
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Fee due to Administrator | 272 | 244 | 434 | 329 | ||||||||||||
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Total Related Party Fees Due | $ | 1,563 | $ | 1,536 | $ | 2,144 | $ | 2,015 | ||||||||
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In addition to the above fees, other operating expenses due to the Adviser as of December 31, 20172020 and September 30, 2017,2020, totaled $16$22 thousand and $12,$31 thousand, respectively. In addition, net expenses payable to Gladstone Investment Corporation (for reimbursement purposes), which includes certainco-investment expenses, totaled $24$40 thousand and $55$0 as of December 31, 20172020 and September 30, 2017,2020, respectively. These amounts are generally settled in the quarter subsequent to being incurred and have beenare included in other assets, net and other liabilities as appropriate, on the accompanyingConsolidated Statements of Assets and Liabilitiesas of December 31, 20172020 and September 30, 2017.2020.
NOTE 5. BORROWINGS
Revolving Credit Facility
On May 1, 2015,December 9, 2020, we, through Business Loan, entered into Amendment No. 8 to our Credit Facility with KeyBank, which increased the commitment amount from $137.0$180 million to $140.0$205 million.
On November 2, 2020, we, through Business Loan, entered into Amendment No. 7 to our Credit Facility with KeyBank, which provided consent for relevant amendments to our credit agreements with certain of our portfolio companies.
On April 29, 2020, we, through Business Loan, entered into Amendment No. 6 to our Credit Facility with KeyBank, which extended the revolving period end date to July 15, 2021, included certain LIBOR transition provisions and decreased the commitment amount from $190 million to $180 million.
On July 10, 2019, we, through Business Loan, entered into Amendment No. 5 to our Credit Facility with KeyBank, which (i) modified the covenants to reduce our minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), (ii) amended the excess concentration limits definition to decrease the limit for non-first lien loans from 60% to 50% under certain circumstances and (iii) amended the distributions covenant to allow a distribution to be applied towards the redemption of our 6.00% Series 2024 Term Preferred Stock, par value $0.001 per share (“Series 2024 Term Preferred Stock”).
On March 9, 2018, we, through Business Loan, entered into Amendment No. 4 to our Credit Facility with KeyBank, which increased the commitment amount from $170.0 million to $190.0 million, extended the revolving period end date by threeapproximately two years to January 19, 2019,15, 2021, decreased the marginal interest rate added to30-day LIBOR from 3.75%3.25% to 3.25%2.85% per annum, setand changed the unused commitment fee atfrom 0.50% on all
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undrawn amounts, expandedof the scope of eligible collateral,total unused commitment amount to 0.50% when the average unused commitment amount for the reporting period is less than or equal to 50%, 0.75% when the average unused commitment amount for the reporting period is greater than 50% but less than or equal to 65%, and amended certain other terms and conditions. If our Credit Facility1.00% when the average unused commitment amount for the reporting period is not renewed or extended by January 19, 2019, all principal and interest will be due and payable on or before April 19, 2020 (fifteen months after the revolving period end date)greater than 65%. Subject to certain terms and conditions, our Credit Facility may be expanded up to a total of $250.0$265.0 million through additional commitments of new or existing lenders. We incurred fees of approximately $1.1$1.2 million in connection with this amendment, which are being amortized through our Credit Facility’s revolving period end date of January 19, 2019.
On June 19, 2015, we through Business Loan entered into certain joinder and assignment agreements with three new lenders to increase borrowing capacity under our Credit Facility by $30.0 million to $170.0 million. We incurred fees of approximately $0.6 million in connection with this expansion, which are being amortized through our Credit Facility’s revolving period end date of January 19, 2019.
On October 9, 2015, August 18, 2016, and August 24, 2017, we entered into Amendments No. 1, 2 and 3 to our Credit Facility, respectively, each of which clarified or modified various constraints on available borrowings.July 15, 2021.
The following tables summarize noteworthy information related to our Credit Facility (at cost):Facility:
December 31, 2017 | September 30, 2017 | December 31, 2020 | September 30, 2020 | |||||||||||||
Commitment amount | $ | 170,000 | $ | 170,000 | $ | 205,000 | $ | 180,000 | ||||||||
Borrowings outstanding, at cost | 130,500 | 93,000 | 16,300 | 128,000 | ||||||||||||
Availability(A) | 28,940 | 58,576 | 168,807 | 17,641 |
For the Three Months Ended December 31, | For the Three Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Weighted average borrowings outstanding, at cost | $ | 98,228 | $ | 39,278 | $ | 105,074 | $ | 88,160 | ||||||||
Weighted average interest rate(B) | 5.0 | % | 5.7 | % | ||||||||||||
Weighted average interest rate(B) | 3.6 | % | 5.4 | % | ||||||||||||
Commitment (unused) fees incurred | $ | 92 | $ | 166 | $ | 152 | $ | 190 |
(A) | Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required. |
(B) | Includes unused commitment fees and excludes the impact of deferred financing fees. |
Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower
into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once aeach month. Amounts collected in the lockbox account with KeyBank are presented as Due from administrative agent on the accompanying Consolidated Statement of Assets and Liabilities as of December 31, 2020 and September 30, 2020.
Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies without the lenders’ consent. Our Credit Facility also generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base.
Additionally, we are subject to a performance guaranty that requires usrequired to maintain (i) a minimum net worth (defined in our Credit Facility to include ourany outstanding mandatorily redeemable preferred stock) of $205.0 million plus 50.0% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt retired or redeemed after May 1, 2015, which equates to $224.1$323.2 million as of December 31, 2017,2020, (ii) asset coverage with respect to “senior securities representing indebtedness” of at least 200%,150% (or such percentage as may be set forth in accordance with SectionsSection 18 andof the 1940 Act, as modified by Section 61 of the 1940 Act,Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.
As of December 31, 2017,2020, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $274.9$438.5 million, asset coverage on our “senior securities representing indebtedness” of 310.4%213.2%, calculated in complianceaccordance with the requirements of Section 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. In addition, we had 3532 obligors in our Credit Facility’s borrowing base as of December 31, 2017.2020. As of December 31, 2017,2020, we were in compliance with all of our Credit Facility covenants.
Fair Value
We elected to apply the fair value option of ASC 825, “Financial Instruments,” specifically for the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of our Credit Facility is determined using a yield analysis which includes a DCF calculation and the assumptions that the Valuation Team believes market participants would use, including but not limited to, the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of
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similar securities as of the measurement date. As of December 31, 2017,2020, the discount rate used to determine the fair value of our Credit Facility was30-day LIBOR, plus 3.00%3.20% per annum, plus a 0.50%1.00% unused commitment fee. As of September 30, 2017,2020, the discount rate used to determine the fair value of our Credit Facility was30-day LIBOR, plus 3.15%3.20% per annum, plus a 0.50% unused commitment fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding increasedecrease or decrease,increase, respectively, in the fair value of our Credit Facility. As of December 31, 20172020 and September 30, 2017,2020, our Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in net unrealized depreciation (appreciation) of other on our accompanyingConsolidated Statements of Operations.
The following tables present our Credit Facility carried at fair value as of December 31, 20172020 and September 30, 2017,2020, on our accompanyingConsolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and the changes in fair value of our Credit Facility during the three months ended December 31, 20172020 and 2016:2019:
Total Recurring Fair Value Measurement Reported in | ||||||||
Consolidated Statements of Assets and LiabilitiesUsing Significant Unobservable Inputs (Level 3) | ||||||||
December 31, 2017 | September 30, 2017 | |||||||
Credit Facility | $ | 130,833 | $ | 93,115 | ||||
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Total Recurring Fair Value Measurement Reported in | ||||||||
Consolidated Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3) | ||||||||
December 31, 2020 | September 30, 2020 | |||||||
Credit Facility | $ | 16,270 | $ | 127,650 | ||||
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Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Data Inputs (Level 3) | ||||||||||||||
Three Months Ended December 31, | ||||||||||||||||
2017 | 2016 | Three Months Ended December 31, | ||||||||||||||
Fair value as of September 30, 2017 and 2016, respectively | $ | 93,115 | $ | 71,300 | ||||||||||||
2020 | 2019 | |||||||||||||||
Fair value as of September 30, 2020 and 2019, respectively | $ | 127,650 | $ | 67,067 | ||||||||||||
Borrowings | 61,100 | 24,200 | 21,500 | 84,300 | ||||||||||||
Repayments | (23,600 | ) | (67,300 | ) | (133,200 | ) | (60,400 | ) | ||||||||
Net unrealized appreciation (depreciation)(A) | 218 | (213 | ) | |||||||||||||
Net unrealized appreciation(A) | 320 | 17 | ||||||||||||||
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Fair Value as of December 31, 2017 and 2016, respectively | $ | 130,833 | $ | 27,987 | ||||||||||||
Fair Value as of December 31, 2020 and 2019, respectively | $ | 16,270 | $ | 90,984 | ||||||||||||
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(A) | Included in net unrealized appreciation (depreciation) of other on our accompanyingConsolidated Statements of Operations for the three months ended December 31, |
The fair value of the collateral under our Credit Facility totaled approximately $348.8$421.5 million and $317.4$412.5 million as of December 31, 20172020 and September 30, 2017,2020, respectively.
Notes Payable
In December 2020, we completed a debt offering of $100.0 million aggregate principal amount of 5.125% Notes due 2026 (the “2026 Notes”) for net proceeds of approximately $97.7 million after deducting underwriting discounts, commissions and offering expenses borne by us. The 2026 Notes will mature on January 31, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option prior to maturity at par plus a “make-whole” premium, if applicable. The 2026 Notes bear interest at a rate of 5.125% per year. Interest is payable semi-annually on January 31 and July 31 of each year (which equates to approximately $5.1 million per year) beginning July 31, 2021.
In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of 5.375% Notes due 2024 (the “2024 Notes”), inclusive of the overallotment option exercised by the underwriters, for net proceeds of approximately $37.5 million after deducting underwriting discounts, commissions and offering expenses borne by us. The 2024 Notes are traded under the ticker symbol “GLADL” on the Nasdaq Global Select Market (“Nasdaq”). The 2024 Notes and will mature on November 1, 2024 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 1, 2021. The 2024 Notes bear interest at a rate of 5.375% per year, payable quarterly on February 1, May 1, August 1, and November 1 of each year (which equates to approximately $2.1 million per year).
In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of 6.125% Notes due 2023 (the “2023 Notes”), inclusive of the overallotment option exercised by the underwriters, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us. As of December 31, 2020, the 2023 Notes were traded under the ticker symbol GLADD on Nasdaq. On January 7, 2021, we voluntarily redeemed the 2023 Notes with an aggregate principal amount outstanding of $57.5 million. The net redemption amount was $58.1 million inclusive of accrued interest through the date of redemption. The 2021 Notes would have otherwise matured on November 1, 2023.
The indenture relating to the 2026 Notes, the 2024 Notes and the 2023 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2026 Notes, the 2024 Notes, and the 2023 Notes, as applicable, and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.
The 2026 Notes, 2024 Notes, and 2023 Notes are recorded at the principal amount, less discounts and offering costs, on our Consolidated Statements of Assets and Liabilities.
The fair value, based on the last quoted closing price, of the 2023 Notes as of December 31, 2020 and September 30, 2020 was $58.3 million and $57.8 million, respectively. The fair value, based on the last quoted closing price, of the 2024 Notes as of December 31, 2020 and September 30, 2020 was $40.0 million and $38.7 million, respectively. We consider the trading price of the 2024 Notes and 2023 Notes to be a Level 1 input within the ASC 820 hierarchy. The fair value, based on a DCF analysis, of the 2026 Notes as of December 31, 2020 was $100.0 million. We consider the instrument to be Level 3 within the ASC 820 fair value hierarchy.
NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK
In September 2017, we completed a public offering of approximately 2.1 million shares of 6.00%our Series 2024 Term Preferred Stock par value $0.001 per share (“Series 2024 Term Preferred Stock”), at a public offering price of $25.00 per share. Gross proceeds totaled $51.8 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were approximately $49.8 million. We incurred approximately $1.9 million in total underwriting discounts and offering costs related to the issuanceThe shares of theour Series 2024 Term Preferred Stock which have been recordedwere traded under the ticker symbol “GLADN” on Nasdaq as discounts to the liquidation value on our accompanyingConsolidated Statements of Assets and Liabilities and are being amortized from issuance through September 30, 2024, the mandatory redemption date. The proceeds plus borrowings under our Credit Facility were used to2019.
On October 2, 2019, we voluntarily redeemredeemed all 2.4 million2,070,000 outstanding shares of our then existing 6.75% Series 20212024 Term Preferred Stock par value $0.001at a redemption price of $25.00 per share, (“Series 2021 Term Preferred Stock”).which represents the liquidation preference per share, plus accrued and unpaid dividends through October 1, 2019 in the amount of $0.004166 per share, for a total payment per share of $25.004166 and an aggregate redemption price of approximately $51.8 million. In connection with the voluntary redemption of our Series 20212024 Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.3$1.4 million, during the three months ended September 30, 2017,which has been reflected in Realized loss on other in our accompanying Consolidated Statement of Operations and which is primarily comprised of the unamortized deferred issuance costs at the time of redemption.
The shares of our Series 2024 Term Preferred Stock are traded under the ticker symbol “GLADN” on the Nasdaq Global Select Market. Our Series 2024 Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed dividend equal to 6.00% per year, payable monthly (which equates in total to approximately $3.1 million per year). We are required to redeem all of the outstanding Series 2024 Term Preferred Stock on September 30, 2024 for cash at a redemption price equal to $25.00 per share plus an amount equal to all unpaid dividends and distributions on such share accumulated to (but excluding) the date of redemption (the “Redemption Price”). We may additionally be required to mandatorily redeem some or all of the shares of our Series 2024 Term Preferred Stock early, at the Redemption Price, in the event of the following: (1) upon the occurrence of certain events that would constitute a change in control, and (2) if we fail to maintain an asset coverage of at least 200% on our “senior securities that are stock” (which is currently only our Series 2024 Term Preferred Stock) and the failure remains for a period of 30 days following the filing date of our next SEC quarterly or annual report. The asset coverage on our “senior securities that are stock” as of December 31, 2017 was 222.4%, calculated in accordance with Sections 18 and 61 of the 1940 Act.
We may also voluntarily redeem all or a portion of the Series 2024 Term Preferred Stock at our option at the Redemption Price at any
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time after September 30, 2019. If we fail to redeem our Series 2024 Term Preferred Stock pursuant to the mandatory redemption date of September 30, 2024, or in any other circumstance in which we are required to mandatorily redeem our Series 2024 Term Preferred Stock, then the fixed dividend rate will increase by 4.0% for so long as such failure continues. As of December 31, 2017, we have not redeemed, nor have we been required to redeem, any shares of our outstanding Series 2024 Term Preferred Stock.
In May 2014, we completed a public offering of approximately 2.4 million shares of Series 2021 Term Preferred Stock, at a public offering price of $25.00 per share. Gross proceeds totaled $61.0 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were approximately $58.5 million, a portion of which was used to voluntarily redeem all 1.5 million outstanding shares of our then existing 7.125% Series 2016 Term Preferred Stock, par value $0.001 per share and the remainder was used to repay a portion of outstanding borrowings under our Credit Facility. We incurred $2.5 million in total offering costs related to the issuance of our Series 2021 Term Preferred Stock, which were recorded as discounts to the liquidation value on our accompanying Consolidated Statements of Assets and Liabilities and were amortized over the redemption period ending June 30, 2021. In September 2017, when we voluntarily redeemed all of our outstanding Series 2021 Term Preferred Stock, the remaining unamortized costs were fully written off as part of the realized loss discussed above.
We paid the following monthly distributions on our Series 2024 Term Preferred Stock for the three months ended December 31, 2017:
Fiscal Year | Declaration Date | Record Date | Payment Date | Distribution per Series 2024 Term Preferred Share(A) | ||||||
2018 | October 10, 2017 | October 20, 2017 | October 31, 2017 | $ | 0.141667 | |||||
October 10, 2017 | November 20, 2017 | November 30, 2017 | 0.125 | |||||||
October 10, 2017 | December 19, 2017 | December 29, 2017 | 0.125 | |||||||
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Three Months Ended December 31, 2017: | $ | 0.391667 | ||||||||
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We paid the following monthly distributions on our Series 2021 Term Preferred Stock for the three months ended December 31, 2016:
Fiscal Year | Declaration Date | Record Date | Payment Date | Distribution per Series 2021 Term Preferred Share | ||||||
2017 | October 11, 2016 | October 21, 2016 | October 31, 2016 | $ | 0.1406250 | |||||
October 11, 2016 | November 17, 2016 | November 30, 2016 | 0.1406250 | |||||||
October 11, 2016 | December 20, 2016 | December 30, 2016 | 0.1406250 | |||||||
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Three Months Ended December 31, 2016: | $ | 0.4218750 | ||||||||
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The federal income tax characteristics of dividends paid to our preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and profits and is reported after the end of the calendar year based on tax information for the full fiscal year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. The tax characterization of dividends paid to our preferred stockholders during the calendar years ended December 31, 2017 and 2016 was 100% from ordinary income.
In accordance with ASC 480, “Distinguishing Liabilities from Equity,” mandatorily redeemable financial instruments should be classified as liabilities in the balance sheet and we have recorded our mandatorily redeemable preferred stock as a liability at cost, as of December 31, 2017 and September 30, 2017. The related dividend payments to our mandatorily redeemable preferred stockholders are treated as dividend expense on our statement of operations as of theex-dividend date. Aggregate preferred stockholder dividends declared and paid on our Series 2024 Term Preferred Stock for the three months ended December 31, 2017 was $0.8 million. Aggregate preferred stockholder dividends declared and paid on our Series 2021 Term Preferred Stock for the three months ended December 31, 2016 was $1.0 million.
For disclosure purposes, the fair value, based on the last quoted closing price, for our Series 2024 Term Preferred Stock as of December 31, 2017 was approximately $53.5 million. The fair value, based on the last quoted closing price, for our Series 2024 Term Preferred Stock as of September 30, 2017 was approximately $52.7 million. We consider our mandatorily redeemable preferred stock to be a Level 1 liability within the ASC 820 hierarchy.
NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS AND SHARE REPURCHASES
We filed Post-Effective Amendment No. 2 to our current universalOur shelf registration statement on FormN-2 (our “Registration Statement”) on FormN-2 (FileNo. 333-208637) with the SEC on December 19, 2017, which was declared effective by the SEC on February 1, 2018. Our Registration Statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock or preferred stock or debt securities.stock. As of December 31, 2017,2020, we havehad the ability to issue up to $220.0an additional $124.8 million in
securities under the Registration Statement.registration statement.
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Common Stock Offerings
Pursuant to our prior registration statement, in October 2016, we completed a public offering of 2.0 million shares of our common stock at a public offering price of $7.98 per share, which was below our then current NAV per share. In November 2016, the underwriters partially exercised their overallotment option to purchase an additional 173,444 shares of our common stock. Gross proceeds totaled $17.3 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were approximately $16.4 million.
In February 2015,2019, we entered into an equity distribution agreements (commonly referred to as“at-the-market agreements” or the “Sales Agreements”)agreement with KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co., each a “Sales Agent,”Jefferies LLC (the “Jefferies Sales Agreement”) under which we hadhave the ability to issue and sell, from time to time, through the Sales Agents, up to an aggregate offering price of $50.0 million shares of our common stock. In May 2017, we terminated the Sales Agreement with KeyBanc Capital Markets Inc. and amended the Sales Agreement with Cantor Fitzgerald & Co. to reference our current registration statement. All other material terms of the Sales Agreement with Cantor Fitzgerald & Co. remained unchanged. During the three months ended December 31, 2017,2020, we sold 471,498923,542 shares of our common stock under the Jefferies Sales Agreement, with Cantor Fitzgerald & Co., at a weighted-average price of $9.69$8.11 per share and raised $4.6$7.5 million of gross proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $4.5$7.4 million. As of December 31, 2017,2020, we had a remaining capacity to sell up to $37.9an additional $13.6 million of our common stock under the Jefferies Sales Agreement with Cantor Fitzgerald & Co. We did not sell any shares under the Sales Agreements during the three months ended December 31, 2016.Agreement.
NOTE 8. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER WEIGHTED AVERAGE COMMON SHARE
The following table sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations per weighted average common share for the three months ended December 31, 20172020 and 2016:2019:
Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Numerator for basic and diluted net increase in net assets | $ | 7,160 | $ | 916 | ||||
Denominator for basic and diluted weighted average | 26,522,788 | 24,778,970 | ||||||
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Basic and diluted net increase in net assets resulting from | $ | 0.27 | $ | 0.04 | ||||
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Three Months Ended December 31, | ||||||||
2020 | 2019 | |||||||
Numerator, basic and diluted net increase (decrease) in net assets resulting from operations | $ | 12,303 | $ | 698 | ||||
Denominator, basic and diluted weighted average common shares | 32,097,542 | 30,513,530 | ||||||
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Basic and diluted net increase (decrease) in net assets resulting from operations per weighted average common share | $ | 0.38 | $ | 0.02 | ||||
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NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS
To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (“Investment Company Taxable Income”). The amount to be paid out as distributions to our stockholders is determined by our Board of Directors quarterly and is based on management’s estimate of the fiscal year earnings.Investment Company Taxable Income. Based on that estimate, our Board of Directors declares three monthly distributions to common stockholders each quarter.
The federal income tax characteristics of all distributions will be reported to stockholders on the IRS Form 1099 atafter the end of each calendar year. For the calendar yearsyear ended December 31, 2017 and 2016, 100%2020, 97.3% of distributions to common stockholders during these periods were deemed to be paid from ordinary income and 2.7% of distributions to common stockholders were deemed to be a return of capital for 1099 stockholder reporting purposes. For the calendar year ended December 31, 2019, 97.4% of distributions to common stockholders were deemed to be paid from ordinary income and 2.6% of distributions to common stockholders were deemed to be a return of capital for 1099 stockholder reporting purposes.
We paid the following monthly distributions to common stockholders for the three months ended December 31, 20172020 and 2016:2019:
Fiscal Year | Declaration | Record Date | Payment Date | Distribution per Common Share | ||||||
2018 | October 10, 2017 | October 20, 2017 | October 31, 2017 | $ | 0.07 | |||||
October 10, 2017 | November 20, 2017 | November 30, 2017 | 0.07 | |||||||
October 10, 2017 | December 19, 2017 | December 29, 2017 | 0.07 | |||||||
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Three Months Ended December 31, 2017: | $ | 0.21 | ||||||||
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2017 | October 11, 2016 | October 21, 2016 | October 31, 2016 | $ | 0.07 | |||||
October 11, 2016 | November 17, 2016 | November 30, 2016 | 0.07 | |||||||
October 11, 2016 | December 20, 2016 | December 30, 2016 | 0.07 | |||||||
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Three Months Ended December 31, 2016: | $ | 0.21 | ||||||||
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Fiscal Year | Declaration Date | Record Date | Payment Date | Distribution per Common Share | ||||||
2021 | October 13, 2020 | October 23, 2020 | October 30, 2020 | $ | 0.065 | |||||
October 13, 2020 | November 20, 2020 | November 30, 2020 | 0.065 | |||||||
October 13, 2020 | December 23, 2020 | December 31, 2020 | 0.065 | |||||||
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Three Months Ended December 31, 2020: | $0.195 | |||||||||
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2020 | October 8, 2019 | October 22, 2019 | October 31, 2019 | $ | 0.07 | |||||
October 8, 2019 | November 19, 2019 | November 29, 2019 | 0.07 | |||||||
October 8, 2019 | December 19, 2019 | December 31, 2019 | 0.07 | |||||||
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Three Months Ended December 31, 2019: | $0.21 | |||||||||
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Aggregate distributions declared and paid to our common stockholders were approximately $5.6$6.3 million and $5.2$6.4 million for the three months ended December 31, 20172020 and 2016,2019, respectively, and were declared based on estimates of investment company taxable
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incomeInvestment Company Taxable Income for the respective fiscal years. For the fiscal year ended September 30, 2017, our current and accumulated earnings and profits (after taking into account our mandatorily redeemable preferred stock dividends), exceeded common stock2020, distributions declared and paid and, in accordance with Section 855(a) of the Code, we elected to treat $0.3 million of the firstexceeded taxable income available for common distributions paidresulting in fiscal year 2018 as having been paid in the respective prior year.a partial return of capital of approximately $0.4 million.
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For the three months ended December 31, 20172020 and the fiscal year ended September 30, 2017,2020, we recorded the following adjustments forbook-tax differences to reflect tax character. Results of operations, total net assets, and cash flows were not affected by these adjustments.
Three Months Ended December 31, 2017 | Year Ended September 30, 2017 | Three Months Ended December 31, 2020 | Year Ended September 30, 2020 | |||||||||||||
Over distributed net investment income | $ | (68 | ) | $ | (4,416 | ) | ||||||||||
Undistributed net investment income | $ | (20 | ) | $ | (175 | ) | ||||||||||
Accumulated net realized losses | 260 | 6,541 | 200 | 2,610 | ||||||||||||
Capital in excess of par value | (192 | ) | (2,125 | ) | (180 | ) | (2,435 | ) |
NOTE 10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are party to certain legal proceedings incidental to the normal course of our business. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our financial condition, results of operations or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of December 31, 20172020 and September 30, 2017,2020, we have nothad no established reserves for such loss contingencies.
Escrow Holdbacks
From time to time, we will enter into arrangements as it relatesrelating to exits of certain investments whereby specific amounts of the proceeds are held in escrow in order to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in restrictedRestricted cash and cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanyingConsolidated Statements of Assets and Liabilities. We establish a reservereserves and holdbacks against the escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be ultimatelyreleased or received at the end of the escrow period. There were no aggregate reserves recorded against the escrow amounts as of December 31, 20172020 and September 30, 2017.2020.
Financial Commitments and Obligations
We have lines of credit, delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans and the uncalled capital commitment as of December 31, 20172020 and September 30, 20172020 to be immaterial.
The following table summarizes the amounts of our unused lines of credit, delayed draw term loans and uncalled capital commitment, at cost, as of December 31, 20172020 and September 30, 2017,2020, which are not reflected as liabilities in the accompanyingConsolidated Statements of Assets and Liabilities:
December 31, | September 30, | December 31, | September 30, | |||||||||||||
2017 | 2017 | 2020 | 2020 | |||||||||||||
Unused line of credit commitments | $ | 10,426 | $ | 7,517 | $ | 21,746 | $ | 18,896 | ||||||||
Delayed draw term loans | 12,900 | 10,900 | 11,230 | 8,030 | ||||||||||||
Uncalled capital commitment | 986 | 1,367 | 843 | 843 | ||||||||||||
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|
|
| |||||||||||||
Total | $ | 24,312 | $ | 19,784 | $ | 33,819 | $ | 27,769 | ||||||||
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|
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36
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Per Common Share Data(A): | ||||||||||||||||
Net asset value at beginning of period(A) | $ | 8.40 | $ | 8.62 | $ | 7.40 | $ | 8.22 | ||||||||
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| |||||||||||||
Income from operations(B) | ||||||||||||||||
Net investment income(B) | 0.21 | 0.21 | 0.20 | 0.21 | ||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | (0.18 | ) | 0.19 | (0.14 | ) | ||||||||||
Net realized and unrealized (loss) gain on other | (0.01 | ) | 0.01 | |||||||||||||
Net realized and unrealized loss on other | (0.01 | ) | (0.05 | ) | ||||||||||||
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| |||||||||||||
Total from operations | 0.27 | 0.04 | 0.38 | 0.02 | ||||||||||||
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| |||||||||||||
Distributions to common stockholders from(B)(C) | ||||||||||||||||
Net Investment Income | (0.21 | ) | (0.21 | ) | ||||||||||||
Net investment income | (0.19 | ) | (0.21 | ) | ||||||||||||
Return of capital | (0.01 | ) | — | |||||||||||||
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| |||||||||||||
Total distributions | (0.21 | ) | (0.21 | ) | (0.20 | ) | (0.21 | ) | ||||||||
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| |||||||||||||
Capital share transactions(B) | ||||||||||||||||
Offering costs for issuance of common stock | — | (0.04 | ) | |||||||||||||
Anti-dilutive (dilutive) effect of common stock issuance(D) | 0.02 | (0.06 | ) | |||||||||||||
Net anti-dilutive effect of equity offering(D) | 0.03 | 0.05 | ||||||||||||||
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| |||||||||||||
Total capital share transactions | 0.02 | (0.10 | ) | 0.03 | 0.05 | |||||||||||
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| |||||||||||||
Other, net(B)(E) | — | 0.01 | ||||||||||||||
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Net asset value at end of year(A) | $ | 8.48 | $ | 8.36 | ||||||||||||
Net asset value at end of period(A) | $ | 7.61 | $ | 8.08 | ||||||||||||
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| |||||||||||||
Per common share market value at beginning of period | $ | 9.50 | $ | 8.13 | $ | 7.41 | $ | 9.75 | ||||||||
Per common share market value at end of period | 9.21 | 9.39 | 8.86 | 9.93 | ||||||||||||
Total return(F) | (0.91 | )% | 18.40 | % | ||||||||||||
Common stock outstanding at end of year(A) | 26,632,182 | 25,517,866 | ||||||||||||||
Total return(E) | 22.46 | % | 3.96 | % | ||||||||||||
Common stock outstanding at end of period(A) | 32,490,392 | 31,050,954 | ||||||||||||||
Statement of Assets and Liabilities Data: | ||||||||||||||||
Net assets at end of year | $ | 225,717 | $ | 213,385 | ||||||||||||
Average net assets(G) | 225,202 | 214,052 | ||||||||||||||
Net assets at end of period | $ | 247,117 | $ | 250,789 | ||||||||||||
Average net assets(F) | 241,444 | 249,312 | ||||||||||||||
Senior securities Data: | ||||||||||||||||
Borrowings under Credit Facility, at cost | $ | 130,500 | $ | 28,200 | $ | 16,300 | $ | 90,800 | ||||||||
Mandatorily redeemable preferred stock | 51,750 | 61,000 | ||||||||||||||
Notes Payable | 196,313 | 96,313 | ||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Ratio of net expenses to average net assets(H)(I) | 9.38 | 8.91 | ||||||||||||||
Ratio of net investment income to average net assets(J) | 9.90 | 9.73 | ||||||||||||||
Ratio of net expenses to average net assets(G)(H) | 10.94 | % | 9.21 | % | ||||||||||||
Ratio of net investment income to average net assets(I) | 10.40 | % | 10.30 | % |
(A) | Based on actual shares outstanding at the end of the corresponding period. |
(B) | Based on weighted average basic per share data. |
(C) | The tax character of distributions |
(D) | During the three months ended December 31, |
(E) |
Total return equals the change in the ending market value of our common stock from the beginning of the fiscal year, taking into account distributions reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common stockholders, refer to Note 9—Distributions to Common Stockholders. |
Computed using the average of the balance of net assets at the end of each month of the reporting period. |
Ratio of net expenses to average net assets is computed using total expenses, net of credits from the Adviser, to the base management, loan servicing and incentive fees. |
Had we not received any |
Had we not received any |
37
NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
In accordance with the SEC’s RegulationS-X, we do not consolidate portfolio company investments. Further, in accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.
We did not have any unconsolidated subsidiaries that met any of the significance conditions under Rule 1-02(w)(2) of the SEC’s Regulation S-X as of or during the three month period ended December 31, 2020. We had threetwo unconsolidated subsidiaries, Defiance Integrated Technologies, Inc.,and PIC 360, LLC, and Sunshine Media Holdings, thatwhich met at least one of the significance conditions under Rule1-02(w) of the SEC’s RegulationS-X as of or during at least one of the three month periodsperiod ended December 31, 2017 and 2016.2019. Accordingly, summarized, comparative financial information in aggregate, is presented below for our unconsolidated significant subsidiaries for the three months ended December 31, 20172020 and 2016 for our unconsolidated significant subsidiaries.2019.
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
Income Statement | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Net sales | $ | 8,822 | $ | 8,648 | $ | 9,100 | $ | 7,191 | ||||||||
Gross profit | 1,877 | 2,172 | 1,809 | 950 | ||||||||||||
Net loss | 40 | (702 | ) | |||||||||||||
Net gain (loss) | 462 | (127 | ) |
NOTE 13. SUBSEQUENT EVENTS
Portfolio ActivityDebt Redemption
InOn January 2018,7, 2021, we invested $8.1voluntarily redeemed the 2023 Notes with an aggregate principal amount outstanding of $57.5 million. The net redemption amount was $58.1 million in XMedius Solutions Inc.inclusive of accrued interest through secured first lien debt.the date of redemption.
Distributions and Dividends
In January 2018,2021, our Board of Directors declared the following monthly distributions to common stockholders and monthly dividends to preferred stockholders:
Record Date | Payment Date | Distribution per Common Share | Distribution per Series 2024 Term Preferred Share | |||||||
January 22, 2018 | January 31, 2018 | $ | 0.07 | $ | 0.125 | |||||
February 16, 2018 | February 28, 2018 | 0.07 | 0.125 | |||||||
March 20, 2018 | March 30, 2018 | 0.07 | 0.125 | |||||||
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| |||||||
Total for the Quarter: | $ | 0.21 | $ | 0.375 | ||||||
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|
Record Date | Payment Date | Distribution per Common Share | ||||
January 22, 2021 | January 29, 2021 | $ | 0.065 | |||
February 17, 2021 | February 26, 2021 | 0.065 | ||||
March 18, 2021 | March 31, 2021 | 0.065 | ||||
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| |||||
Total for the Quarter: | $ | 0.195 | ||||
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38
ITEM 2. |
|
All statements contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation (the “Adviser”), our adviser, and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability toco-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “project,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to:include: (1) the recurrence or impact of adverse eventschanges in the economy and the capital markets, including stock price volatility; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or Robert L. Marcotte; (4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (8)(9) changes in governmental regulation, tax rates and similar matters; (10) our ability to exit investments in a timely manner; (11) our ability to maintain our qualification as a RICregulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and as a business development company; and (9)company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”); (12) those factors described herein, including Item 1A. “Risk Factors”Factors,” and in the “Risk Factors” sectionssection of our Annual Report on Form10-K (our “Annual Report”) for the fiscal year ended September 30, 2020, filed with the U.S. Securities and Exchange Commission (“SEC”) on November 20, 2017.10, 2020 and (13) the impact of COVID-19 on the economy, our portfolio companies and the capital markets, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties. Additionally, many of the risks and uncertainties listed above, among others, are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this report. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise or any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form10-Q. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC from time to time, including annual reports on Form10-K, quarterly reports on Form10-Q and current reports on Form8-K. The forward-looking statements contained in this Quarterly Report on Form 10-Q are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.
The following analysis of our financial condition and results of operations should be read in conjunction with our accompanyingConsolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report on Form10-Q and in our Annual Report. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods. Except per share amounts, dollar amounts in the tables included herein are in thousands unless otherwise indicated.
General
We were incorporated under the Maryland General Corporation Law on May 30, 2001. We operate as an externally managed,closed-end,non-diversified management investment company, and have elected to be treated as a business development company (“BDC”)BDC under the Investment Company Act of 1940 as amended (the “1940 Act”).Act. In addition, for federal income tax purposes we have elected to be treated as a regulated investment company (“RIC”)RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).Code. To continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements.
We were established for the purpose of investing in debt and equity securities of established private businesses operating in the U.S. Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established lower middle market businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our investment objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $8$7 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We expect that our investment portfolio over time will consist of approximately 90.0% debt investments and 10.0% equity investments, at cost. As of December 31, 2017,2020, our investment portfolio was made up of approximately 90.6%92.0% debt investments and 9.4%8.0% equity investments, at cost.
We focus on investing in lower middle market companies (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization of $3 million to $15$25 million) in the U.S. that meet certain criteria, including but not limited to, the following: the sustainability of the business’ free cash flow and its ability to grow it over time, adequate assets for loan
39
collateral, experienced management teams with a significant ownership interest in the borrower, reasonable capitalization of the borrower, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and, to a lesser extent, the potential to realize appreciation and gain liquidity in our equity position, if any. We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. Our targeted portfolio companies are generally considered too small for the larger capital marketplace.
We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity and have opportunistically made severalopportunity. In July 2012, the SEC granted us an exemptive order (the co-investments“Co-Investment Order”) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliateaffiliates, including Gladstone Investment Corporation, a BDC also managed by our Advisor,the Adviser, and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Investment Corporation pursuant to an exemptive order granted by the SEC.Co-Investment Order. We believe this ability tothe co-investCo-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies. If we are participating in an investment with one or moreco-investors, our investment is likely to be smaller than if we were investing alone.
We are externally managed by Gladstone Management Corporation (the “Adviser”),the Adviser, an investment adviser registered with the SEC and an affiliate of ours, pursuant to an investment advisory and management agreement (the “Advisory Agreement”).agreement. The Adviser manages our investment activities. We have also entered into an administration agreement (the “Administration Agreement”) with Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, whereby we pay separately for administrative services.
Additionally, Gladstone Securities, LLC (“Gladstone Securities”), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee.
Business
Portfolio and Investment Activity
In general, our investments in debt securities have a term of no more than seven years, accrue interest at variable rates (generally based on theone-month30-day LIBOR)London Interbank Offered Rate (“LIBOR”)) and, to a lesser extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, may have a success fee or deferred interest provision and are primarily interest only, with all principal and any accrued but unpaid interest due at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company, typically from an exit or sale. Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called PIKpaid-in-kind (“PIK”) interest.
Typically, our equity investments consist of common stock, preferred stock, limited liability company interests, or warrants to purchase the foregoing. Often, these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.
During the three months ended December 31, 2017,2020, we invested $56.3$29.0 million in seventwo new portfolio companies and extended $1.6$0.1 million ofin investments to existing portfolio companies. In addition, during the three months ended December 31, 2017,2020, we exited three portfolio companies through sales and early payoffs. We received a total of $19.8$34.1 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits, as well as principal repayments by existing portfolio companies, during the three months ended December 31, 2017.2020. This activity resulted in a net increasedecrease in our overall portfolio by fourone portfolio companies to 51company (to 47) and a net increasedecrease of $38.7$6.5 million in our portfolio at cost since September 30, 2017.2020. From our initial public offering in August 2001 through December 31, 2017,2020, we have made 481557 different loans to, or investments in, 224248 companies for a total of approximately $1.7$2.1 billion, before giving effect to principal repayments on investments and divestitures.
During the three months ended December 31, 2017,2020, the following significant transactions occurred:
Proprietary Investments
In October 2017,December 2020, we soldinvested $19.0 million in Effective School Solutions LLC through secured first lien debt.
In December 2020, we invested $10.0 million in Encore Dredging Holdings, LLC through a combination of secured first lien debt and equity.
In December 2020, our investment in Flight Fit N FunAerospace Engineering, LLC paid off at par for net proceeds of $20.2 million. In conjunction with the payoff, we received a prepayment fee of $0.2 million.
Syndicated Investments
In December 2020, our investment in Edmentum Ultimate Holdings, LLC was sold, which resulted in a realized gainloss of $0.6 million.approximately $2.4 million on our equity investment. In connection with the sale, we received net cash proceeds of approximately $9.4$4.9 million, including the repayment of our debt investment of $7.8$4.6 million at par.
In October 2017, we invested $11.0 millionDecember 2020, our investment in Applied Voice & Speech Technologies, Inc. through secured first lien debt.
40
Refer to Note 13—Subsequent Events in the accompanyingConsolidated Financial Statements included elsewhere in this Quarterly Report on Form10-Q for portfolio activity occurring subsequent to December 31, 2017.
Capital Raising
We have been able to meet our capital needs through extensions of and increases to our line of credit under the Fifth Amended and Restated Credit FacilityAgreement with KeyBank National Association (“KeyBank”), as administrative agent, lead arranger and lender (as amended, our “Credit Facility”) and by accessing the capital markets in the form of public equity offerings of common and preferred stock.stock and public debt offerings. We have successfully extended the Credit Facility’s revolving period multiple times, most recently to January 2019,July 2021, and currently have a total commitment amount of $170.0$205.0 million. Additionally, we issued 2.1 millionWe sold 923,542 and 705,031 common shares ofunder our 6.00% Series 2024 Term Preferred Stock, par value $0.001 per share (“Series 2024 Term Preferred Stock”) at a public offering price of $25 per share, for gross proceeds of $51.8 million in September 2017, inclusive of the overallotment and approximately 2.2 million shares of our common stock for gross proceeds of $17.3 million in October 2016, inclusive of the November 2016 overallotment. Additionally,at-the-market program during the three months ended December 31, 2017,2020 and 2019, respectively. In December 2020, we sold 471,498 sharescompleted a debt offering of $100.0 million aggregate principal amount of our common stock under5.125% Notes due 2026 (the “2026 Notes”). In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of ourat-the-market program at 5.375% Notes due 2024 (the “2024 Notes”), inclusive of the overallotment and in November 2018, we completed a weighted-average pricepublic debt offering of $9.69 per share and raised $4.6$57.5 million aggregate principal amount of gross proceeds.our 6.125% Notes due 2023 (the “2023 Notes”), inclusive of the overallotment. Refer to “Liquidity and Capital Resources — Revolving Credit Facility,”“Liquidity and Capital Resources — Equity — Common Stock,”” and “Liquidity and Capital Resources — Equity — Term Preferred StockNotes Payable”” for further discussion of our common stock and mandatorily redeemable preferred stock and “Liquidity and Capital Resources — Revolving Credit Facility” for further discussion of the Credit Facility.discussion.
Although we were able to access the capital markets historically and in recent years, we believe uncertain market conditions, couldincluding the impact of COVID-19, may continue to affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity. When our common stock trades below NAVnet asset value (“NAV”) per common share, as it has often done in previous years, our ability to issue equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock below NAV per common share without first obtaining approval from our stockholders and our independent directors, other than through sales to our then-existing stockholders pursuant to a rights offering. We did not request that our stockholders approve the Company’s ability to issue shares of common stock at a price below NAV at our annual meeting of stockholders held on February 9, 2017. We are not requesting that our stockholders approve the Company’s ability to issue shares of common stock at a price below NAV at the Company’s 2018 Annual Meeting of Stockholders to be held on February 8, 2018. Should we decide to issue shares of common stock at a price below NAV in the future, we will seek the requisite approval of our stockholders at such time.
On February 2, 2018,December 31, 2020, the closing market price of our common stock was $9.09$8.86 per share, a 7.2%16.4% premium to our December 31, 20172020 NAV per share of $8.48.$7.61.
Regulatory Compliance
Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have an asset coverage (as defined in Sections 18 and 61 of the 1940 Act) of at least 200%150% on our “senior securities representing indebtedness” and our “senior securities that are stock.”
On April 10, 2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the Company’s asset coverage requirements for senior securities changed from 200% to 150%, effective April 10, 2019.
As of December 31, 2017,2020, our asset coverage on our “senior securities representing indebtedness” was 310.4% and our asset coverage on our “senior securities that are stock” was 222.4%213.2%.
Recent Developments
Portfolio and Investment ActivityDebt Redemption
InOn January 2018,7, 2021, we invested $8.1voluntarily redeemed the 2023 Notes with an aggregate principal amount outstanding of $57.5 million. The net redemption amount was $58.1 million in XMedius Solutions Inc.inclusive of accrued interest through secured first lien debt.
the date of redemption.
Distributions
OnIn January 9, 2018,2021, our Board of Directors declared the following monthly cash distributions to common and preferred stockholders:
Record Date | Payment Date | Distribution per Common Share | Distribution per Series 2024 Term Preferred Share | |||||||
January 22, 2018 | January 31, 2018 | $ | 0.07 | $ | 0.125 | |||||
February 16, 2018 | February 28, 2018 | 0.07 | 0.125 | |||||||
March 20, 2018 | March 30, 2018 | 0.07 | 0.125 | |||||||
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Total for the Quarter | $ | 0.21 | $ | 0.375 | ||||||
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Record Date | Payment Date | Distribution per Common Share | ||||||
January 22, 2021 | January 29, 2021 | $ | 0.065 | |||||
February 17, 2021 | February 26, 2021 | 0.065 | ||||||
March 18, 2021 | March 31, 2021 | 0.065 | ||||||
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Total for the Quarter: | $ | 0.195 | ||||||
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LIBOR Transition
In general, our investments in debt securities have a term of five years, accrue interest at variable rates (based on the one-month LIBOR) and, to a lesser extent, at fixed rates. LIBOR is currently anticipated to be phased out in June 2023. LIBOR is currently expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets. To attain an equivalent one-month rate, we currently intend to adjust the SOFR to minimize the difference between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are currently monitoring the transition and cannot assure you whether SOFR will become a standard rate for variable rate debt. However, we expect we will need to renegotiate certain loan documents with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.
41COVID-19
Comparison of the Three Months Ended December 31, 2017,2020 to the Three Months Ended December 31, 20162019
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||||||||||||||
Interest income | $ | 10,670 | $ | 8,633 | $ | 2,037 | 23.6 | % | $ | 12,082 | $ | 11,456 | $ | 626 | 5.5 | % | ||||||||||||||||
Other income | 189 | 1,341 | (1,152 | ) | (85.9 | ) | 800 | 703 | 97 | 13.8 | ||||||||||||||||||||||
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Total investment income | 10,859 | 9,974 | 885 | 8.9 | 12,882 | 12,159 | 723 | 5.9 | ||||||||||||||||||||||||
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EXPENSES | ||||||||||||||||||||||||||||||||
Base management fee | 1,676 | 1,378 | 298 | 21.6 | 2,002 | 1,852 | 150 | 8.1 | ||||||||||||||||||||||||
Loan servicing fee | 1,186 | 983 | 203 | 20.7 | 1,348 | 1,403 | (55 | ) | (3.9 | ) | ||||||||||||||||||||||
Incentive fee | 1,373 | 1,293 | 80 | 6.2 | 1,367 | 1,394 | (27 | ) | (1.9 | ) | ||||||||||||||||||||||
Administration fee | 272 | 300 | (28 | ) | (9.3 | ) | 355 | 371 | (16 | ) | (4.3 | ) | ||||||||||||||||||||
Interest expense on borrowings | 1,231 | 556 | 675 | 121.4 | ||||||||||||||||||||||||||||
Interest expense on borrowings and notes payable | 2,568 | 2,537 | 31 | 1.2 | ||||||||||||||||||||||||||||
Dividend expense on mandatorily redeemable preferred stock | 776 | 1,029 | (253 | ) | (24.6 | ) | — | 9 | (9 | ) | (100.0 | ) | ||||||||||||||||||||
Amortization of deferred financing fees | 248 | 273 | (25 | ) | (9.2 | ) | 418 | 361 | 57 | 15.8 | ||||||||||||||||||||||
Other expenses | 547 | 637 | (90 | ) | (14.1 | ) | 542 | 531 | 11 | 2.1 | ||||||||||||||||||||||
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Expenses, before credits from Adviser | 7,309 | 6,449 | 860 | 13.3 | 8,600 | 8,458 | 142 | 1.7 | ||||||||||||||||||||||||
Credit to base management fee – loan servicing fee | (1,186 | ) | (983 | ) | (203 | ) | (20.7 | ) | (1,348 | ) | (1,403 | ) | 55 | (3.9 | ) | |||||||||||||||||
Credits to fees from Adviser - other | (841 | ) | (699 | ) | (142 | ) | (20.3 | ) | (650 | ) | (1,313 | ) | 663 | (50.5 | ) | |||||||||||||||||
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Total expenses, net of credits | 5,282 | 4,767 | 515 | 10.8 | 6,602 | 5,742 | 860 | 15.0 | ||||||||||||||||||||||||
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NET INVESTMENT INCOME | 5,577 | 5,207 | 370 | 7.1 | 6,280 | 6,417 | (137 | ) | (2.1 | ) | ||||||||||||||||||||||
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NET REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||||||||||||||||||
Net realized gain (loss) on investments and other | 441 | (3,448 | ) | 3,889 | 112.8 | |||||||||||||||||||||||||||
NET REALIZED AND UNREALIZED (LOSS) GAIN | ||||||||||||||||||||||||||||||||
Net realized gain (loss) on investments | (2,144 | ) | (4,434 | ) | 2,290 | (51.6 | ) | |||||||||||||||||||||||||
Net realized gain (loss) on other | (8 | ) | (1,407 | ) | 1,399 | (99.4 | ) | |||||||||||||||||||||||||
Net unrealized appreciation (depreciation) of investments | 1,360 | (1,055 | ) | 2,415 | 228.9 | 8,495 | 139 | 8,356 | NM | |||||||||||||||||||||||
Net unrealized (appreciation) depreciation of other | (218 | ) | 212 | (430 | ) | (202.8 | ) | |||||||||||||||||||||||||
Net unrealized appreciation of other | (320 | ) | (17 | ) | (303 | ) | NM | |||||||||||||||||||||||||
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Net gain (loss) from investments and other | 1,583 | (4,291 | ) | 5,874 | 136.9 | % | 6,023 | (5,719 | ) | 11,742 | (205.3 | ) | ||||||||||||||||||||
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 7,160 | $ | 916 | $ | 6,244 | 681.7 | % | ||||||||||||||||||||||||
NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 12,303 | $ | 698 | $ | 11,605 | NM | |||||||||||||||||||||||||
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NM = Not Meaningful
Investment Income
Interest income increased by 23.6%5.5% for the three months ended December 31, 2017,2020, as compared to the prior year. Thisyear period. The increase was due primarily to an increase in the weighted average yield on and an increase in the weighted average principal balance of our interest bearing portfolio, partially offset by a decrease in the weighted average yield on our interest bearing portfolio. The weighted average principal balance of our interest-bearing investment portfolio for the three months ended December 31, 2020, was $443.4 million, compared to $401.4 million for the three months ended December 31, 2019, an increase of $42.0 million, or 10.5%. The weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments, which increaseddecreased to 12.0%10.8% for the three months ended December 31, 2017,2020, compared to 11.3% for the three months ended December 31, 2016,2019, inclusive of any allowances on interest receivables made during those periods. The weighted average principal balance of our interest-bearing investment portfolio duringdecrease was driven mainly by a decrease in LIBOR over the three months ended December 31, 2017, was $353.4 million, compared to $298.8 million for the prior year, an increase of $54.6 million, or 18.3%.two respective periods and competitive marketplace conditions.
As of December 31, 2017, two2020 and September 30, 2020, loans to one portfolio companies, Sunshine Media Holdings (“Sunshine”) and Alloy Die Casting Co.company, B+T Group Acquisition Inc. were either fully or partially onnon-accrual status with an aggregate debt cost basis of approximately $27.9$7.2 million, or 6.8% of the cost basis of all debt investments in our portfolio. As of December 31, 2016, one portfolio company, Sunshine, was partially onnon-accrual status, with an aggregate debt cost basis of approximately $19.1 million, or 6.1%1.6% of the cost basis of all debt investments in our portfolio.
Other income decreasedincreased by 85.9%13.8% during the three months ended December 31, 2017,2020, as compared to the prior year. This decrease wasyear period, primarily due to a $1.5 million decreasean increase in success fees recognizeddividend income period over period. For the three months ended
As of December 31, 2017, other income consisted primarily2020 and September 30, 2020, no single investment represented greater than 10% of prepayment fees received. For the three months ended December 31, 2016, other income consisted primarily of success fees recognized.
42
The following tables list thetotal investment income for our five largest portfolio company investments at fair value during the respective periods:value.
As of December 31, 2017 | Three Months Ended December 31, 2017 | |||||||||||||||
Company | Fair Value | % of Portfolio | Investment Income | % of Total Income | ||||||||||||
NetFortris Corp. | $ | 24,795 | 6.3 | % | $ | 663 | 6.1 | % | ||||||||
IA Tech, LLC | 23,690 | 6.0 | 722 | 6.7 | ||||||||||||
TapRoot Partners, Inc. | 22,220 | 5.7 | 649 | 6.0 | ||||||||||||
Impact! Chemical Technologies, Inc. (A) | 20,336 | 5.2 | 45 | 0.4 | ||||||||||||
WadeCo Specialties, Inc. | 20,005 | 5.1 | 500 | 4.6 | ||||||||||||
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Subtotal—five largest investments | 111,046 | 28.3 | 2,579 | 23.8 | ||||||||||||
Other portfolio companies | 281,384 | 71.7 | 8,268 | 76.2 | ||||||||||||
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Total Investment Portfolio | $ | 392,430 | 100.0 | % | $ | 10,847 | 100.0 | % | ||||||||
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As of December 31, 2016 | Three Months Ended December 31, 2016 | |||||||||||||||
Company | Fair Value | % of Portfolio | Investment Income | % of Total Income | ||||||||||||
IA Tech, LLC | $ | 23,345 | 8.1 | % | $ | 705 | 7.1 | % | ||||||||
WadeCo Specialties, Inc. | 18,443 | 6.4 | 477 | 4.8 | ||||||||||||
United Flexible, Inc. | 18,196 | 6.3 | 568 | 5.7 | ||||||||||||
Lignetics, Inc. | 13,809 | 4.8 | 429 | 4.3 | ||||||||||||
AG Transportation Holdings, LLC | 13,130 | 4.6 | 440 | 4.4 | ||||||||||||
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Subtotal—five largest investments | 86,923 | 30.2 | 2,619 | 26.3 | ||||||||||||
Other portfolio companies | 201,323 | 69.8 | 7,351 | 73.7 | ||||||||||||
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Total Investment Portfolio | $ | 288,246 | 100.0 | % | $ | 9,970 | 100.0 | % | ||||||||
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Expenses
Expenses, net of any non-contractual, unconditional and irrevocable credits to fees from the Adviser, increased by 10.8%$0.9 million, or 15.0%, for the three months ended December 31, 20172020 as compared to the prior year.year period. This increase was primarily due to a $0.7 million increasedecrease in fee credits granted by the Adviser.
Total interest expense on borrowings and a $0.2 million increase in our net base management and incentive fees to the Advisor, partially offset by a $0.3 million decrease in dividend expense on mandatorily redeemable preferred stock.
Interest expense increased by 121.4%notes payable was relatively flat during the three months ended December 31, 2017,2020, as compared to the prior year due toperiod; however, the components of our interest expense shifted, period over period. Interest expense on our notes payable increased by $0.3 million year over year with the issuance of the 2024 Notes in October 2019 and the 2026 Notes in December 2020. Interest expense on our Credit Facility decreased by $0.2 million driven primarily by a decrease in the effective interest rate, partially offset by an increase in the weighted average balance outstanding on our Credit Facility. The weighted average balance outstanding during the three months ended December 31, 2017, was $98.2 million, as compared to $39.3 million in the prior year period, an increase of 149.9%. The effective interest rate on our Credit Facility, including unused commitment fees incurred, but excluding the impact of deferred financing costs, was 5.0%3.6% during the three months ended December 31, 2017,2020, compared to 5.7%5.4% during the prior year period. The decrease in the effective interest rate was driven primarily by thea decrease in unused commitment fees paid in the current year period dueLIBOR as compared to the greaterprior year period. The weighted average balance outstanding on our Credit Facility.Facility was $105.1 million during the three months ended December 31, 2020, as compared to $88.2 million in the prior year period, an increase of 19.2%.
NetThe net base management fee earned by the Adviser increased by $0.2 million, or 12.0%13.3%, during the three months ended December 31, 2017,2020, as compared to the prior year period, resulting from an increase in average total assets subject to the base management fee and a decrease in credits from the Adviser period over period.
The income-based incentive fee decreased slightly for the three months ended December 31, 2020, as compared to the prior year over year.
Ourperiod, due to the increased hurdle rate as compared to the prior year period. The hurdle rate was 2.0% for the three months ended December 31, 2020, as compared to 1.75% for the three months ended December 31, 2019. During the three months ended December 31, 2020 and 2019, our Board of Directors acceptednon-contractual, unconditional and irrevocable credits from the Adviser of $0.2 million and $0.8 million, respectively, to reduce the income-based incentive fee to the extent net investment income did not cover 100.0% of our distributions to common stockholders during the three months ended December 31, 2017 and 2016, which credits totaled $0.1 million and $37, respectively.stockholders.
43
The base management, loan servicing and incentive fees, and associatednon-contractual, unconditional and irrevocable credits, are computed quarterly, as described under“Transactions with the Adviser” in Note 4—Related Party Transactions of the accompanyingNotes toConsolidated Financial Statements and are summarized in the following table:
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Average total assets subject to base management fee(A) | $ | 383,086 | $ | 315,000 | $ | 457,600 | $ | 423,314 | ||||||||
Multiplied by prorated annual base management fee of 1.75% | 0.4375 | % | 0.4375 | % | 0.4375 | % | 0.4375 | % | ||||||||
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Base management fee(B) | $ | 1,676 | $ | 1,378 | $ | 2,002 | $ | 1,852 | ||||||||
Portfolio company fee credit | (664 | ) | (649 | ) | (352 | ) | (352 | ) | ||||||||
Senior syndicated loan fee credit | (92 | ) | (13 | ) | ||||||||||||
Syndicated loan fee credit | (87 | ) | (121 | ) | ||||||||||||
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Net Base Management Fee | $ | 920 | $ | 716 | $ | 1,563 | $ | 1,379 | ||||||||
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Loan servicing fee(B) | 1,186 | 983 | 1,348 | 1,403 | ||||||||||||
Credit to base management fee - loan servicing fee(B) | (1,186 | ) | (983 | ) | (1,348 | ) | (1,403 | ) | ||||||||
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Net Loan Servicing Fee | $ | — | $ | — | $ | — | $ | — | ||||||||
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Incentive fee(B) | 1,373 | 1,293 | 1,367 | 1,394 | ||||||||||||
Incentive fee credit | (85 | ) | (37 | ) | (211 | ) | (840 | ) | ||||||||
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Net Incentive Fee | $ | 1,288 | $ | 1,256 | $ | 1,156 | $ | 554 | ||||||||
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Portfolio company fee credit | (664 | ) | (649 | ) | (352 | ) | (352 | ) | ||||||||
Senior syndicated loan fee credit | (92 | ) | (13 | ) | ||||||||||||
Syndicated loan fee credit | (87 | ) | (121 | ) | ||||||||||||
Incentive fee credit | (85 | ) | (37 | ) | (211 | ) | (840 | ) | ||||||||
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Credits to Fees From Adviser - other(B) | $ | (841 | ) | $ | (699 | ) | $ | (650 | ) | $ | (1,313 | ) | ||||
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(A) | Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods. |
(B) | Reflected, on a gross basis, as a line item on our |
Dividend expense on mandatorily redeemable preferred stock decreased by $0.3 million, or 24.6%, due to the redemption of all of our $61.0 million 6.75% Series 2021 Term Preferred Stock and the issuance of $51.8 million 6.00% Series 2024 Term Preferred Stock in September 2017.
Net Realized and Unrealized Gain (Loss)
Net Realized Gain (Loss) on Investments
For the three months ended December 31, 2017, we recorded a net realized gain on investments of $0.6 million, which resulted primarily from the sale of our investment in Flight Fit N Fun LLC in October 2017 for a $0.6 million realized gain.
For the three months ended December 31, 2016,2020, we recorded a net realized loss on investments of $3.4$2.1 million, which resulted primarily from the sale of substantially all the assets of RBC Acquisition Corp (“RBC”) for a $2.3 million realized loss and thewrite-off of $5.0 million ofrecognized on our investment in Sunshine, partially offset byEdmentum Ultimate Holdings, LLC.
For the salethree months ended December 31, 2019, we recorded a net realized loss on investments of Behrens Manufacturing, LLC (“Behrens”) for a $2.5$4.4 million, realized gain and a $1.3 million realized gain related to an additionalearn-outwhich resulted primarily from Funko, LLC, which was exitedthe loss recognized on our investment in the prior year.New Trident Holdcorp, Inc.
44
Net Unrealized Appreciation (Depreciation) of Investments
During the three months ended December 31, 2017,2020, we recorded net unrealized appreciation of investments in the aggregate amount of $1.4$8.5 million. The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2017,2020, were as follows:
Three Months Ended December 31, 2017 | ||||||||||||||||
Portfolio Company | Realized Gain (Loss) | Unrealized Appreciation (Depreciation) | Reversal of Unrealized (Appreciation) Depreciation | Net Gain (Loss) | ||||||||||||
Francis Drilling Fluids, Ltd. | $ | — | $ | 2,429 | $ | — | $ | 2,429 | ||||||||
LWO Acquisitions Company LLC | — | 1,012 | — | 1,012 | ||||||||||||
Edge Adhesives Holdings, Inc. | — | 482 | — | 482 | ||||||||||||
NetFortris Corp. | — | 430 | — | 430 | ||||||||||||
WadeCo Specialties, Inc. | — | 227 | — | 227 | ||||||||||||
United Flexible, Inc. | — | 186 | — | 186 | ||||||||||||
Vision Government Solutions, Inc. | — | 178 | — | 178 | ||||||||||||
Canopy Safety Brands, LLC | — | 147 | — | 147 | ||||||||||||
TapRoot Partners, Inc. | — | 110 | — | 110 | ||||||||||||
Alloy Die Casting, Co. | — | 86 | — | 86 | ||||||||||||
Flight Fit N Fun LLC | 582 | — | (725 | ) | (143 | ) | ||||||||||
Lignetics, Inc. | — | (206 | ) | — | (206 | ) | ||||||||||
Defiance Integrated Technologies, Inc. | — | (212 | ) | — | (212 | ) | ||||||||||
Targus Cayman HoldCo, Ltd. | — | (249 | ) | — | (249 | ) | ||||||||||
Vacation Rental Pros | — | (252 | ) | — | (252 | ) | ||||||||||
Meridian Rack & Pinion, Inc. | — | (303 | ) | — | (303 | ) | ||||||||||
Sunshine Media Holdings | — | (318 | ) | — | (318 | ) | ||||||||||
L Discovery | — | (555 | ) | — | (555 | ) | ||||||||||
New Trident Holdcorp, Inc. | — | (1,221 | ) | — | (1,221 | ) | ||||||||||
Other, net (<$250) | (8 | ) | 201 | (87 | ) | 106 | ||||||||||
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Total: | $ | 574 | $ | 2,172 | $ | (812 | ) | $ | 1,934 | |||||||
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Three Months Ended December 31, 2020 | ||||||||||||||||
Portfolio Company | Realized Gain (Loss) | Unrealized Appreciation (Depreciation) | Reversal of Unrealized (Appreciation) Depreciation | Net Gain (Loss) | ||||||||||||
AG Transportation Holdings, LLC | $ | — | $ | 1,276 | $ | — | $ | 1,276 | ||||||||
Triple H Food Processors, LLC | — | 602 | — | 602 | ||||||||||||
PIC 360, LLC | — | 518 | — | 518 | ||||||||||||
Antenna Research Associates, Inc. | — | 494 | — | 494 | ||||||||||||
R2i Holdings, LLC | — | 459 | — | 459 | ||||||||||||
Edmentum Ultimate Holdings, LLC | (2,351 | ) | — | 2,770 | 419 | |||||||||||
Targus Cayman HoldCo, Ltd. | — | 407 | — | 407 | ||||||||||||
Café Zupas | — | 324 | — | 324 | ||||||||||||
Vertellus Holdings LLC | (41 | ) | — | 313 | 272 | |||||||||||
EL Academies, Inc. | — | 259 | — | 259 | ||||||||||||
Keystone Acquisition Corp. | — | 258 | — | 258 | ||||||||||||
Tailwind Smith Cooper Intermediate Corporation | — | 256 | — | 256 | ||||||||||||
DKI Ventures, LLC | — | 249 | — | 249 | ||||||||||||
Medical Solutions Holdings, Inc. | — | 237 | — | 237 | ||||||||||||
Magpul Industries Corp. | — | 210 | — | 210 | ||||||||||||
American Trailer Rental Group LLC | — | 198 | — | 198 | ||||||||||||
TNCP Intermediate HoldCo, LLC | — | 192 | — | 192 | ||||||||||||
Gray Matter Systems, LLC | — | 173 | — | 173 | ||||||||||||
Drive Chassis Holdco, LLC | — | 168 | — | 168 | ||||||||||||
LWO Acquisitions Company LLC | — | 150 | — | 150 | ||||||||||||
ENET Holdings, LLC | — | (374 | ) | — | (374 | ) | ||||||||||
Imperative Holdings Corporation | — | (793 | ) | — | (793 | ) | ||||||||||
Other, net (<$500) | 248 | 149 | — | 397 | ||||||||||||
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Total: | $ | (2,144 | ) | $ | 5,412 | $ | 3,083 | $ | 6,351 | |||||||
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The primary driver of net unrealized appreciation of $8.5 million for the three months ended December 31, 20172020 was the reversal of previously recorded unrealized depreciation of Edmentum Ultimate Holdings, LLC and the improvement in the financial and operational performance of certain portfolio companies, most notably Francis Drilling Fluids, Ltd. (“FDF”) of $2.4 million and LWO Acquisitions CompanyAG Transportation Holdings, LLC, of $1.0 million. This appreciation was partially offset by the decline in the financial and operational performance of New Trident Holdcorp, Inc.certain of $1.2 million.our other portfolio companies, including most notably, Imperative Holdings Corporation.
During the three months ended December 31, 2016,2019, we recorded net unrealized depreciationappreciation of investments in the aggregate amount of $1.1$0.1 million. The net realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2016,2019, were as follows:
Three Months Ended December 31, 2016 | ||||||||||||||||
Portfolio Company | Realized Gain (Loss) | Unrealized Appreciation (Depreciation) | Reversal of Unrealized (Appreciation) Depreciation | Net Gain (Loss) | ||||||||||||
Funko, LLC | $ | 1,251 | $ | 53 | $ | — | $ | 1,304 | ||||||||
Edge Adhesives Holdings, Inc. | — | 666 | — | 666 | ||||||||||||
Meridian Rack & Pinion, Inc. | — | 605 | — | 605 | ||||||||||||
Mikawaya | — | 276 | — | 276 | ||||||||||||
New Trident Holdcorp, Inc. | — | (281 | ) | — | (281 | ) | ||||||||||
Sunshine Media Holdings | (5,000 | ) | 983 | 3,613 | (404 | ) | ||||||||||
Vertellus Specialties Inc. | 109 | (574 | ) | — | (465 | ) | ||||||||||
Behrens Manufacturing, LLC | 2,505 | — | (3,211 | ) | (706 | ) | ||||||||||
Defiance Integrated Technologies, Inc. | — | (710 | ) | — | (710 | ) | ||||||||||
Lignetics, Inc. | — | (1,011 | ) | — | (1,011 | ) | ||||||||||
RBC Acquisition Corp. | (2,330 | ) | — | 1,119 | (1,211 | ) | ||||||||||
Francis Drilling Fluids, Ltd. | — | (3,797 | ) | — | (3,797 | ) | ||||||||||
Other, net (<$250) | 17 | 1,148 | 66 | 1,231 | ||||||||||||
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Total: | $ | (3,448 | ) | $ | (2,642 | ) | $ | 1,587 | $ | (4,503 | ) | |||||
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Three Months Ended December 31, 2019 | ||||||||||||||||
Portfolio Company | Realized Gain (Loss) | Unrealized Appreciation (Depreciation) | Reversal of Unrealized (Appreciation) Depreciation | Net Gain (Loss) | ||||||||||||
The Mochi Ice Cream Company | $ | — | $ | 1,541 | $ | — | $ | 1,541 | ||||||||
NetFortris Corp. | — | 704 | — | 704 | ||||||||||||
Vacation Rental Pros Property Management, LLC | — | 319 | — | 319 | ||||||||||||
New Trident Holdcorp, Inc. | (4,409 | ) | — | 4,409 | — | |||||||||||
Drive Chassis Holdco, LLC | — | (156 | ) | — | (156 | ) | ||||||||||
Precision International, LLC | — | (248 | ) | — | (248 | ) | ||||||||||
B+T Group Acquisition Inc. | — | (264 | ) | — | (264 | ) | ||||||||||
Sea Link International IRB, Inc. | — | (317 | ) | — | (317 | ) | ||||||||||
ENET Holdings, LLC | — | (362 | ) | — | (362 | ) | ||||||||||
DKI Ventures, LLC | — | (430 | ) | — | (430 | ) | ||||||||||
R2i Holdings, LLC | — | (442 | ) | — | (442 | ) | ||||||||||
Triple H Food Processors, LLC | — | (464 | ) | — | (464 | ) | ||||||||||
FES Resources Holdings LLC | — | (635 | ) | — | (635 | ) | ||||||||||
Targus Cayman HoldCo, Ltd. | — | (671 | ) | — | (671 | ) | ||||||||||
Defiance Integrated Technologies, Inc. | — | (2,724 | ) | — | (2,724 | ) | ||||||||||
Other, net (<$500) | (25 | ) | (19 | ) | (102 | ) | (146 | ) | ||||||||
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Total: | $ | (4,434 | ) | $ | (4,168 | ) | $ | 4,307 | $ | (4,295 | ) | |||||
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The primary driver of net unrealized depreciationappreciation of $0.1 million for the three months ended December 31, 20162019 was athe reversal of previously recorded unrealized depreciation of New Trident Holdcorp, Inc. and the improvement in the financial and operational performance of The Mochi Ice Cream Company, partially offset by the decline in the financial and operational performance of certain of our other portfolio companies, including most notably, FDFDefiance Integrated Technologies, Inc.
Net Realized Loss on Other
We incurred a loss on extinguishment of $3.8debt of $1.4 million Lignetics, Inc. of $1.0 million,during the reversal of previously recorded depreciation on our investment in Sunshine upon partialthree months ended December 31, 2019, which resulted from the write-off andof unamortized deferred issuance costs at the reversaltime of previouslyredemption of our Series 2024 Term Preferred Stock in October 2019. No such amounts were recorded unrealized appreciation on our investment in Behrens upon exit. This depreciation was partially offset byduring the reversal of previously recorded unrealized depreciation on RBC upon exit and an additionalearn-out receivable earned and included in the realized gain on the sale of Funko, LLC.three months ended December 31, 2020.
45
Net Unrealized (Appreciation) Depreciation of Other
During the three months ended December 31, 2017,2020, we recorded $0.2$0.3 million of unrealized appreciation onrelated to a change in the fair value of our Credit Facility at fair value.Facility. During the three months ended December 31, 2016,2019, we recorded $0.2 million$17 thousand of unrealized depreciation onappreciation related to a change in the fair value of our Credit Facility at fair value.Facility.
46
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Our cash flows from operating activities are primarily generated from the interest payments on debt securities that we receive from our portfolio companies, as well as net proceeds received through repayments or sales of our investments. We utilize this cash primarily to fund new investments, make interest payments on our Credit Facility, make distributions to our stockholders, pay management and administrative fees to the Adviser and Administrator, and for other operating expenses.
Net cash used inprovided by operating activities for the three months ended December 31, 20172020 was $36.9$12.2 million, as compared to net cash provided byused in operating activities of $31.5$24.3 million for the three months ended December 31, 2016.2019. The change was primarily due to an increasea decrease in purchases of investments and a decreasean increase in principal repayments, on investments andpartially offset by an increase in net proceeds from salerealized appreciation of investments period over period. Purchases of investments were $56.9$29.1 million during the three months ended December 31, 20172020, compared to $19.8$42.5 million during the three months ended December 31, 2016.2019. Repayments and net proceeds from sales were $19.8$34.1 million during the three months ended December 31, 20172020, compared to $50.5$12.6 million during the three months ended December 31, 2016.2019.
As of December 31, 2017,2020, we had loans to, syndicated participations in or equity investments in 51 private47 companies, with an aggregate cost basis of approximately $450.1$488.1 million. As of December 31, 2016,September 30, 2020, we had loans to, syndicated participations in or equity investments in 44 private48 companies, with an aggregate cost basis of approximately $349.0$494.6 million.
The following table summarizes our total portfolio investment activity during the three months ended December 31, 20172020 and 2016:2019:
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Beginning investment portfolio, at fair value | $ | 352,373 | $ | 322,114 | $ | 450,400 | $ | 402,875 | ||||||||
New investments | 56,336 | 17,240 | 29,000 | 38,000 | ||||||||||||
Disbursements to existing portfolio companies | 602 | 2,807 | 98 | 4,535 | ||||||||||||
Scheduled principal repayments on investments | (2,529 | ) | (1,683 | ) | (619 | ) | (1,963 | ) | ||||||||
Unscheduled principal repayments on investments | (16,040 | ) | (40,551 | ) | (30,012 | ) | (10,693 | ) | ||||||||
Net proceeds from sale of investments | (1,274 | ) | (8,219 | ) | (3,511 | ) | 25 | |||||||||
Net unrealized appreciation (depreciation) of investments | 2,172 | (2,642 | ) | 5,412 | (4,168 | ) | ||||||||||
Reversal of prior period (appreciation) depreciation of investments on realization | (812 | ) | 1,587 | |||||||||||||
Net realized gain (loss) on investments or other | 574 | (3,448 | ) | |||||||||||||
Reversal of prior period depreciation (appreciation) of investments on realization | 3,083 | 4,307 | ||||||||||||||
Net realized gain (loss) on investments | (2,144 | ) | (4,434 | ) | ||||||||||||
Increase in investments due to PIK(A) | 983 | 1,095 | 654 | 328 | ||||||||||||
Net change in premiums, discounts and amortization | 45 | (54 | ) | (2 | ) | 196 | ||||||||||
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Investment Portfolio, at Fair Value | $ | 392,430 | $ | 288,246 | $ | 452,359 | $ | 429,008 | ||||||||
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(A) | PIK interest is anon-cash source of income and is calculated at the contractual rate stated in a loan agreement and added to the principal balance of a loan. |
The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2017:2020:
Amount(A) | Amount | |||||||||||
For the remaining nine months ending September 30: | 2018 | $ | 33,643 | 2021 | $ | 48,332 | ||||||
For the fiscal years ending March 31: | 2019 | 53,920 | ||||||||||
For the fiscal years ending September 30: | 2022 | 88,085 | ||||||||||
2020 | 82,103 | 2023 | 48,440 | |||||||||
2021 | 81,813 | 2024 | 44,834 | |||||||||
2022 | 45,022 | 2025 | 132,500 | |||||||||
Thereafter | 117,154 | Thereafter | 87,407 | |||||||||
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Total contractual repayments | $ | 413,655 | Total contractual repayments | $ | 449,598 | |||||||
Adjustments to cost basis of debt investments | (5,750 | ) | Adjustments to cost basis of debt investments | (711 | ) | |||||||
Investments in equity securities | 42,227 | Investments in equity securities | 39,224 | |||||||||
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Investments held as of December 31, 2017 at Cost: | $ | 450,132 | Investments held as of December 31, 2020 at cost: | $ | 488,111 | |||||||
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Financing Activities
Net cash used in financing activities for the three months ended December 31, 2020 was $13.1 million, which consisted primarily of $111.7 million in net repayments on our Credit Facility, partially offset by $100.0 million in gross proceeds from the issuance of long term debt.
Net cash provided by financing activities for the three months ended December 31, 20172019 was $36.4$10.4 million, which consisted primarily of $37.5$38.8 million in gross proceeds from the issuance of long term debt and $23.9 million in net borrowings on our Credit Facility, partially offset by $51.8 million used in the redemption of our Series 2024 Term Preferred Stock and $5.6$6.4 million in distributions to common stockholders, partially offset by $4.5 million in proceeds from the issuance of common stock, net of underwriting costs.stockholders.
Net cash used in financing activities for the three months ended December 31, 2016 was $31.8 million, which consisted primarily of $43.1 million in net repayments on our Credit Facility and $5.2 million in distributions to common stockholders, partially offset by $16.4 million in proceeds from the issuance of common stock, net of underwriting costs.
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Distributions and Dividends to Stockholders
Common Stock Distributions
To qualify to be taxed as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders, we are required to distribute to our stockholders on an annual basis at least 90.0% of our investment company taxable income.Investment Company Taxable Income. Additionally, our Credit Facility has a covenant that generally restricts the amount of distributions to stockholders that we can pay out to be no greater than our aggregate net investment income, net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. In accordance with these requirements, we paid monthly cash distributions of $0.065 and $0.07 per common share for each month duringfor the three months ended December 31, 20172020 and 2016, which2019, respectively. These distributions totaled an aggregate of $5.6$6.3 million and $5.2$6.4 million for the three months ended December 31, 2020 and 2019, respectively. In January 2018,2021, our Board of Directors declared a monthly distribution of $0.07$0.065 per common share for each of January, February, and March 2018.2021. Our Board of Directors declared these distributions to our stockholders based on our estimates of our investment company taxable incomeInvestment Company Taxable Income for the fiscal year ending September 30, 2018.2021. From inception through December 31, 2020, we have paid 215 monthly or quarterly consecutive distributions to common stockholders totaling approximately $376.6 million or $20.45 per share.
For the fiscal year ended September 30, 2017, our current and accumulated earnings and profits (after taking into account mandatorily redeemable preferred stock dividends) exceeded2020, distributions declared and paid and, in accordance with Section 855(a) of the Code, we elected to treat $0.3 million of the firstexceeded taxable income available for common distributions paidresulting in fiscal year 2017 as having been paid in the respective prior year.a partial return of capital of approximately $0.4 million.
The characterization of the common stockholder distributions declared and paid for the fiscal year ending September 30, 20182021 will be determined at fiscalyear-end year end, based upon our investment company taxable income for the full fiscal year and distributions paid during the full fiscal year. Such a characterization made on a quarterly basis may not be representative of the actual full fiscal year characterization.
Preferred Stock DividendsDividend Reinvestment Plan
In October 2017,Our common stockholders who hold their shares through our Boardtransfer agent, Computershare, Inc. (“Computershare”), have the option to participate in a dividend reinvestment plan offered by Computershare, as the plan agent. This is an “opt in” dividend reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of Directors declared a combined dividend forour common stock. Common stockholders who do make such election will receive their distributions in cash. Common stockholders who receive distributions in thepro-rated period from and including the issuance date, September 27, 2017, to and including September 30, 2017 and the full month form of October 2017, which totaled $0.141667 per share,stock will be subject to the holders of our Series 2024 Term Preferred Stocksame federal, state and monthly cash dividends of $0.125 per sharelocal tax consequences as stockholders who elect to holders of our Series 2024 Term Preferred Stock for each of November and December 2017. Thesereceive their distributions totaledin cash. The common stockholder will have an aggregate of $0.8 million. Our Board of Directors declared and we paid monthly cash dividends of $0.140625 per share to holders of our Series 2021 Term Preferred Stock for each month duringadjusted basis in the three months ended December 31, 2016, which totaled an aggregate of $1.0 million. In January 2018, our Board of Directors declared monthly cash dividends of $0.125 per share to holders of our Series 2024 Term Preferred Stock for each of January, February, and March 2018.
In accordance with GAAP, we treat these monthly dividends as an operating expense. For federal income tax purposes,additional common shares purchased through the dividends paid by us to preferred stockholders generally constitute ordinary incomeplan equal to the extentamount of our current and accumulated earnings and profits.the reinvested distribution. The additional shares will have a new holding period commencing on the day following the date on which the shares are credited to the common stockholder’s account. Computershare purchases shares in the open market in connection with the obligations under the plan.
Equity
Registration Statement
We filed Post-Effective Amendment No. 2 to our current universalOur shelf registration statement on FormN-2 (our “Registration Statement”) (FileNo. 333-208637) with the SEC on December 19, 2017, which was declared effective by the SEC on February 1, 2018. Our Registration Statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock, preferred stock or debt securities. As of December 31, 2017,2020, we havehad the ability to issue up to $220.0an additional $124.8 million in securities under the Registration Statement.registration statement.
Common Stock
In February 2015,2019, we entered into an equity distribution agreements (commonly referred to as“at-the-market agreements” or the “Sales Agreements”)agreement with KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co., each a “Sales Agent,”Jefferies LLC (the “Jefferies Sales Agreement”) under which we hadhave the ability to issue and sell, from time to time, through the Sales Agents, up to an aggregate offering price of $50.0 million shares of our common stock. In May 2017, we terminated the Sales Agreement with KeyBanc Capital Markets Inc. and amended the Sales Agreement with Cantor Fitzgerald & Co. to reference our current registration statement. All other material terms of the Sales Agreement remained unchanged. During the three months ended December 31, 2017,2020, we sold 471,498923,542 shares of our common stock under the Jefferies Sales Agreement, with Cantor Fitzgerald & Co., at a weighted-average price of $9.69$8.11 per share and raised $4.6$7.5 million of gross proceeds. Net proceeds, after deducting commissions and offering costs borne by us, were approximately $4.5$7.4 million. As of December 31, 2017,2020, we had a remaining capacity to sell up to $37.9an additional $13.6 million of our common stock under the Jefferies Sales Agreement with Cantor Fitzgerald & Co. We did not sell any shares under the Sales Agreements during the three months ended December 31, 2016.Agreement.
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Pursuant to our prior registration statement, in October 2016, we completed a public offering of 2.0 million shares of our common stock at a public offering price of $7.98 per share, which was below our then current NAV per share. In November 2016, the underwriters partially exercised their overallotment option to purchase an additional 173,444 shares of our common stock. Gross proceeds totaled $17.3 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were approximately $16.4 million. The net proceeds of this offering were used to repay borrowings under our Credit Facility.
We anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the timing or terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. To the extent that our common stock trades at a market price below our NAV per share, we will generally be precluded from raising equity capital through public offerings of our common stock, other than pursuant to stockholder and independent director approval or a rights offering to existing common stockholders. We did not request that our stockholders approve the Company’s ability to issue shares of common stock at a price below NAV at our annual meeting of stockholders held on February 9, 2017. We are not requesting that our stockholders approve the Company’s ability to issue shares of common stock at a price below NAV at the Company’s 2018 Annual Meeting of Stockholders to be held on February 8, 2018.
On February 2, 2018,December 31, 2020, the closing market price of our common stock was $9.09$8.86 per share, a 7.2%16.4% premium to our December 31, 20172020 NAV per share of $8.48.
Term Preferred Stock
Pursuant to our Registration Statement, in September 2017, we completed a public offering of approximately 2.1 million shares of our Series 2024 Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $51.8 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were approximately $49.8 million. We incurred approximately $1.9 million in total underwriting discounts and offering costs related to the issuance of the Series 2024 Term Preferred Stock, which have been recorded as discounts to the liquidation value on our accompanyingConsolidated Statements of Assets and Liabilities and are being amortized over the period from issuance through September 30, 2024, the mandatory redemption date. The proceeds plus borrowings under our Credit Facility were used to voluntarily redeem all 2.4 million outstanding shares of our then existing 6.75% Series 2021 Term Preferred Stock, par value $0.001 per share. In connection with the voluntary redemption of our Series 2021 Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.3 million, which has been reflected in Realized loss on other in our accompanying Consolidated Statement of Operations and which is primarily comprised of the unamortized deferred issuance costs at the time of redemption.
The shares of our Series 2024 Term Preferred Stock are traded under the ticker symbol “GLADN” on the Nasdaq. Our Series 2024 Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed dividend equal to 6.00% per year, payable monthly (which equates in total to approximately $3.1 million per year). We are required to redeem all of the outstanding Series 2024 Term Preferred Stock on September 30, 2024 for cash at a redemption price equal to $25.00 per share plus an amount equal to all unpaid dividends and distributions on such share accumulated to (but excluding) the date of redemption (the “Redemption Price”). We may additionally be required to mandatorily redeem some or all of the shares of our Series 2024 Term Preferred Stock early, at the Redemption Price, in the event of the following: (1) upon the occurrence of certain events that would constitute a change in control, and (2) if we fail to maintain an asset coverage of at least 200% on our “senior securities that are stock” (which is currently only our Series 2024 Term Preferred Stock) and the failure remains for a period of 30 days following the filing date of our next SEC quarterly or annual report. The asset coverage on our “senior securities that are stock” as of September 30, 2017 was 249.6%, calculated in accordance with Sections 18 and 61 of the 1940 Act.
We may also voluntarily redeem all or a portion of the Series 2024 Term Preferred Stock at our option at the Redemption Price at any time after September 30, 2019. If we fail to redeem our Series 2024 Term Preferred Stock pursuant to the mandatory redemption required on September 30, 2024, or in any other circumstance in which we are required to mandatorily redeem our Series 2024 Term Preferred Stock, then the fixed dividend rate will increase by 4.0% for so long as such failure continues. As of December 31, 2017, we have not redeemed, nor have we been required to redeem, any shares of our outstanding Series 2024 Term Preferred Stock.$7.61.
Revolving Credit Facility
On May 1, 2015,December 9, 2020, we, through Business Loan, entered into a Fifth Amended and RestatedAmendment No. 8 to our Credit AgreementFacility with KeyBank, as administrative agent, lead arranger and a lender, which increased the commitment amount offrom $180 million to $205 million. All principal and interest will continue to be due and payable on April 15, 2022.
On November 2, 2020, we, through Business Loan, entered into Amendment No. 7 to our Credit Facility with KeyBank, which provided consent for relevant amendments to our credit agreements with certain of our portfolio companies.
On April 29, 2020, we, through Business Loan, entered into Amendment No. 6 to our Credit Facility with KeyBank, which extended the revolving period end date by approximately six months to July 15, 2021, included certain LIBOR transition considerations and decreased the commitment amount from $137.0$190 million to $140.0$180 million.
On July 10, 2019, we, through Business Loan, entered into Amendment No. 5 to our Credit Facility with KeyBank, which (i) modified the covenants to reduce our minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), (ii) amended the excess concentration limits definition to decrease the limit for non-first lien loans from 60% to 50% under certain circumstances and (iii) amended the distributions covenant to allow a distribution to be applied towards the redemption of our Series 2024 Term Preferred Stock.
On March 9, 2018, we, through Business Loan, entered into Amendment No. 4 to our Credit Facility with KeyBank, which increased the commitment amount from $170.0 million to $190.0 million, extended the revolving period end date by threeapproximately two years to January 19, 2019,15, 2021, decreased the marginal interest rate added to30-day LIBOR from 3.75%3.25% to 3.25%2.85% per annum, setand changed the unused commitment fee atfrom 0.50% on all undrawn amounts, expandedof the scope of eligible collateral,total unused commitment amount to 0.50% when the average unused commitment amount for the reporting period is less than or equal to 50%, 0.75% when the average unused commitment amount for the reporting period is greater than 50% but less than or equal to 65%, and amended other terms and conditions to among other items. If our Credit Facility1.00% when the average unused commitment amount for the reporting period is not renewed or extended by January 19, 2019, all principal and interest will be due and payable on or before April 19, 2020.greater than 65%. Subject to certain terms and conditions, our Credit Facility may be expanded up to a total of $250.0$265.0 million through additional commitments of new or existing lenders. We incurred fees of approximately $1.1$1.2 million in connection with this amendment, which are being amortized through our Credit Facility’s revolving period end date of January 19, 2019. On June 19, 2015, we, through Business Loan, entered into certain joinder and assignment agreements with three new lenders to increase borrowing capacity on our Credit Facility by $30.0 million to $170.0 million. We incurred fees of approximately $0.6 million in connection with this expansion, which are being amortized through our Credit Facility’s revolving period end date of January 19, 2019.
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On October 9, 2015, August 18, 2016, and August 24, 2017, we entered into Amendments No. 1, 2 and 3 to our Credit Facility, respectively, each of which clarified or modified various constraints on available borrowings.July 15, 2021.
Interest is payable monthly during the term of our Credit Facility. Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required. Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank and with The Bank of New York Mellon Trust Company, N.A. as custodian. KeyBank, which also serves as the trustee of the account, generally remits the collected funds to us once a month.
Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies without the lenders’ consents. Our Credit Facility generally limits distributions to our stockholders on a fiscal year basis to the sum of our net investment income, net capital gains and amounts elected to have been paid during the prior year in accordance with Section 855(a) of the Code. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base to receive additional borrowing availability under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life, portfolio company leverage and lien property. Our Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 25 obligors required in the borrowing base.
Additionally, we are subject to a performance guaranty that requires usrequired to maintain (i) a minimum net worth (defined in our Credit Facility to include ourany outstanding mandatorily redeemable preferred stock) of $205.0 million plus 50% of all equity and subordinated debt raised after May 1, 2015 less 50% of any equity and subordinated debt retired or redeemed after May 1, 2015, which equates to $224.1$323.2 million as of December 31, 2017,2020, (ii) asset coverage with respect to “senior securities representing indebtedness” of at least 200%,150% (or such percentage as may be set forth in accordance with SectionsSection 18 andof the 1940 Act, as modified by Section 61 of the 1940 ActAct), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.
As of December 31, 2017,2020, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $274.9$438.5 million, asset coverage on our “senior securities representing indebtedness” of 310.4%213.2% and an active status as a BDC and RIC. In addition, we had 3532 obligors in our Credit Facility’s borrowing base as of December 31, 2017.2020. As of December 31, 2017,2020, we were in compliance with all of our Credit Facility covenants. Refer to Note 5—Borrowings of the notes to our accompanyingConsolidated Financial Statementsincluded elsewhere in this quarterly reportQuarterly Report for additional information regarding our Credit Facility.
Notes Payable
In December 2020, we completed a debt offering of $100.0 million aggregate principal amount of the 2026 Notes for net proceeds of approximately $97.7 million, after deducting underwriting discounts, commissions and offering expenses borne by us. The 2026 Notes will mature on January 31, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option prior to maturity at par plus a “make-whole” premium, if applicable. The 2026 Notes bear interest at a rate of 5.125% per year. Interest is payable semi-annually on January 31 and July 31 of each year (which equates to approximately $5.1 million per year) beginning July 31, 2021.
In October 2019, we completed a public debt offering of $38.8 million aggregate principal amount of 5.375% Notes due 2024 (the “2024 Notes”), inclusive of the overallotment option exercised by the underwriters, for net proceeds of approximately $37.5 million after deducting underwriting discounts, commissions and offering expenses borne by us. The 2024 Notes are traded under the ticker symbol “GLADL” on the Nasdaq Global Select Market (“Nasdaq”). The 2024 Notes will mature on November 1, 2024 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 1, 2021. The 2024 Notes bear interest at a rate of 5.375% per year, payable quarterly on February 1, May 1, August 1, and November 1 of each year (which equates to approximately $2.1 million per year).
In November 2018, we completed a public debt offering of $57.5 million aggregate principal amount of 6.125% Notes due 2023 (the “2023 Notes”), inclusive of the overallotment option exercised by the underwriters, for net proceeds of $55.4 million after deducting underwriting discounts, commissions and offering expenses borne by us. As of December 31, 2020, the 2023 Notes were traded under the ticker symbol GLADD on Nasdaq. On January 7, 2021, we voluntarily redeemed the 2023 Notes with an aggregate principal amount outstanding of $57.5 million. The net redemption amount was $58.1 million, inclusive of accrued interest through the date of redemption. The notes would have otherwise matured on November 1, 2023.
The indenture relating to the 2026 Notes, 2024 Notes, and 2023 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2026 Notes, 2024 Notes and 2023 Notes, as applicable, and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.
The 2026 Notes, 2024 Notes, and 2023 Notes are recorded at the principal amount, less discounts and offering costs, on our Consolidated Statements of Assets and Liabilities.
Off-Balance Sheet Arrangements
We generally recognize success fee income when the payment has been received. As of December 31, 20172020 and September 30, 2017,2020, we hadoff-balance sheet success fee receivables on our accruing debt investments of $5.6$11.0 million and $4.6$9.9 million (or approximately $0.21$0.34 per common share and $0.18$0.31 per common share), respectively, that would be owed to us, based on our currentgenerally upon a change of control of the portfolio if fully paid off.companies. Consistent with GAAP, we generally have not recognized our success fee receivables and related income in ourConsolidated Financial Statements until earned. Due to the contingent nature of our success fees, there are no guarantees that we will be able to collect all of these success fees or know the timing of such collections.
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Contractual Obligations
We have lines of credit, delayed draw term loans, and an uncalled capital commitment with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused lines of credit, the unused delayed draw term loans, and the uncalled capital commitment as of December 31, 20172020 and September 30, 20172020 to be immaterial.
The following table shows our contractual obligations as of December 31, 2017,2020, at cost:
Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
Contractual Obligations(A) | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | ||||||||||||||||||||||||||||||
Credit Facility(B) | $ | — | $ | 130,500 | $ | — | $ | — | $ | 130,500 | $ | — | $ | 16,300 | $ | — | $ | — | $ | 16,300 | ||||||||||||||||||||
Mandatorily Redeemable Preferred Stock | — | — | — | 51,750 | 51,750 | |||||||||||||||||||||||||||||||||||
Notes Payable | — | 57,500 | 38,813 | 100,000 | 196,313 | |||||||||||||||||||||||||||||||||||
Interest expense on debt obligations(C) | 7,258 | 11,506 | 6,210 | 3,105 | 28,079 | 13,146 | 24,080 | 12,804 | 427 | 50,457 | ||||||||||||||||||||||||||||||
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Total | $ | 7,258 | $ | 142,006 | $ | 6,210 | $ | 54,855 | $ | 210,329 | $ | 13,146 | $ | 97,880 | $ | 51,617 | $ | 100,427 | $ | 263,070 | ||||||||||||||||||||
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(A) | Excludes our unused line of credit commitments, |
(B) | Principal balance of borrowings outstanding under our Credit Facility, based on the maturity date following the current contractual revolver period end |
(C) | Includes estimated interest payments on our Credit Facility, 2026 Notes, 2024 Notes, and |
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially from those estimates under different assumptions or conditions. We have identified our investment valuation policy (which has been approved by our Board of Directors) as our most critical accounting policy, which is described in Note 2— Summary of Significant Accounting Policies in the accompanyingNotes notes to our Consolidated Financial Statements included elsewhere in this Quarterly Report. Additionally, refer to Note 3—Investments in theour accompanyingNotes toConsolidated Financial Statements included elsewhere in this Quarterly Report for additional information regarding fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures.” We have also identified our revenue recognition policy as a critical accounting policy, which is described in Note 2— Summary of Significant Accounting Policies in theour accompanyingNotes to Consolidated Financial Statements included elsewhere in this Quarterly Report.
Investment Valuation
Credit Monitoring and Risk Rating
The Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and, in some instances, used as inputs in our valuation techniques. Generally, we, through the Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements. Using these statements or comparable information and board discussions, the Adviser calculates and evaluates certain credit statistics.
The Adviser risk rates all of our investments in debt securities. The Adviser does not risk rate our equity securities. For syndicated loans that have been rated by an SEC registered Nationally Recognized Statistical Rating Organization (“NRSRO”), the Adviser generally uses the average of two corporate level NRSRO’s risk ratings for such security. For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the NRSRO systems, we cannot provide any assurance that the Adviser’s risk rating system will provide the same risk rating as an NRSRO would for these securities. The Adviser’s risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default. The Adviser’s risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default. It is the Adviser’s understanding that most debt securities ofmedium-sized companies do not exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the middle market that would meet the definition of AAA, AA or A. Therefore, the Adviser’s scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a >10 on the Adviser’s scale is equal to a BBB or Baa2 on an NRSRO scale. The Adviser’s risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.
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The following table reflects risk ratings for all proprietary loans in our portfolio atas of December 31, 20172020 and September 30, 2017,2020, representing approximately 91.6%93.8% and 91.9%92.7%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:
As of December 31, | As of September 30, | |||||||||||||||
Rating | 2017 | 2017 | As of December 31, 2020 | As of September 30, 2020 | ||||||||||||
Highest | 9.0 | 9.0 | 10.0 | 10.0 | ||||||||||||
Average | 5.8 | 5.7 | 6.4 | 6.3 | ||||||||||||
Weighted Average | 6.0 | 5.8 | 6.7 | 6.5 | ||||||||||||
Lowest | 1.0 | 1.0 | 1.0 | 1.0 |
The following table reflects the risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO atas of December 31, 20172020 and September 30, 2017,2020, representing approximately 7.3%5.5% and 6.9%5.4%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:
As of December 31, | As of September 30, | |||||||||||||||
Rating | 2017 | 2017 | As of December 31, 2020 | As of September 30, 2020 | ||||||||||||
Highest | 6.0 | 6.0 | 5.0 | 5.0 | ||||||||||||
Average | 3.8 | 4.4 | 4.6 | 4.7 | ||||||||||||
Weighted Average | 4.2 | 4.6 | 4.6 | 4.7 | ||||||||||||
Lowest | 1.0 | 3.0 | 3.0 | 3.0 |
The following table reflects the risk ratings for all syndicated loans in our portfolio that were not rated by an NRSRO atas of December 31, 20172020 and September 30, 2017,2020, representing approximately 1.1%0.7% and 1.2%1.9%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:
As of December 31, | As of September 30, | As of December 31, | As of September 30, | |||||||||||||
Rating | 2017 | 2017 | 2020 | 2020 | ||||||||||||
Highest | 3.0 | 3.0 | 5.0 | 6.0 | ||||||||||||
Average | 2.5 | 3.0 | 5.0 | 5.0 | ||||||||||||
Weighted Average | 2.3 | 3.0 | 5.0 | 4.6 | ||||||||||||
Lowest | 2.0 | 3.0 | 5.0 | 4.0 |
Tax Status
We intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for federal income tax purposespurposes. As a RIC, we generally are not subject to federal income tax on the portion of our taxable income and alsogains distributed to limitour stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certainsource-of-income and asset diversification requirements. In addition, in order to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment Company Taxable Income, determined without regard to the dividends paid deduction. Our policy generally is to make distributions to our stockholders in an amount up to 100% of our Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to stockholders in cash.
To avoid a 4% federal excise taxestax on undistributed amounts of income, we must distribute to stockholders, during each calendar year, an amount at least equal to the sum of: (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending on October 31 of the calendar year, and (3) any income realized, but not distributed, in the preceding year (to the extent that income tax was not imposed on RICs. Refersuch amounts) less certain over-distributions in prior years. Under the RIC Modernization Act, we are permitted to Note 9—Distributions to Common Stockholders in the notes to our accompanyingConsolidated Financial Statements included elsewhere in this reportcarryforward any capital losses that we may incur for additional information regarding our tax status.an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses.
Recent Accounting Pronouncements
Refer to Note 2—Summary of Significant Accounting Policies in the notes to our accompanyingConsolidated Financial Statements included elsewhere in this reportQuarterly Report for a description and our application of recent accounting pronouncements.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies whose securities are owned by us; conditions affecting the general economy;economy, including public health emergencies, such as COVID-19; overall market changes; local, regional or global political, social or economic instability; and interest rate fluctuations.
The primary risk we believe we are exposed to is interest rate risk. Because we borrow money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We use a combination of debt and equity capital to finance our investing activities. We may use interest rate risk management techniques from time to time to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.
All of our variable-rate debt investments have rates generally associated with either the current LIBOR or prime rate. As of December 31, 2017,2020, our portfolio of debt investments on a principal basis consisted of the following:
Variable rates | % | |||
Fixed rates | ||||
Total: | 100.0 | % | ||
There have been no material changes in the quantitative and qualitative market risk disclosures for the three months ended December 31, 20172020 from that disclosed in our Annual Report.
ITEM 4. | CONTROLS AND PROCEDURES |
a) Evaluation of Disclosure Controls and Procedures
As of December 31, 20172020 (the end of the period covered by this report), our management, including our chief executive officer and chief financial officer, evaluated the effectiveness and design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in periodic SEC filings. However, in evaluation of 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 possible controls and procedures.
b) Changes in Internal Control over Financial Reporting
There were no changes in internal controls for the three months ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various investigation, claims and legal proceedings that arise in the ordinary course of our business. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters, if they arise, would materially affect our business, financial condition, results of operations or cash flows, resolution of these matters will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources. Neither we, nor any of our subsidiaries are currently subject to any material legal proceeding, nor, to our knowledge, is any material legal proceeding pending or threatened against us or any of our subsidiaries.
ITEM 1A. | RISK FACTORS. |
Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. For a discussion of these risks, please refer to this section and the section captioned “Item 1A. Risk Factors” in Part I of our Annual Report.Report on Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 10, 2020. The risks described below and in our Annual Report are not the only risks we face. 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.
The recently enacted legislation informally titled the Tax Cuts and Jobs Act and other legislative, regulatory and administrative developments may adversely affect the Company or its stockholders.
On December 22, 2017, President Trump signed into law P.L.115-97, informally titled the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes major changes to the Code, including a number of provisions of the Code that affect the taxation of RICs and their stockholders. Certain provisions of the Tax Act that may impact us and our stockholders include:
The individual and collective impact of these provisions and other provisions of the Tax Act on the Company and its stockholders is uncertain, and may not become evident for some period of time. In addition, other legislative, regulatory or administrative changes may be enacted or promulgated, either prospectively or with retroactive effect, and may adversely affect the Company or its stockholders. The Company’s stockholders should consult their individual tax advisors regarding the implications of the Tax Act and other potential legislative, regulatory or administrative changes on their investment in GLAD’s securities.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Sales of Unregistered Securities
Not applicable.
Issuer Purchases of Equity Securities
Not applicable.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
Not applicable.
ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
ITEM 5. | OTHER INFORMATION. |
Not applicable.
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ITEM 6. | EXHIBITS. |
* | Filed herewith |
+ | Furnished herewith |
All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and therefore have been omitted.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLADSTONE CAPITAL CORPORATION | ||||||
By: | /s/ Nicole Schaltenbrand | |||||
Nicole Schaltenbrand | ||||||
Chief Financial Officer and Treasurer | ||||||
|
Date: February 3, 2021
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