UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020March 31, 2021
or
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| ¨ | 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 814-01185
Hancock Park Corporate Income, Inc.
(Exact name of registrant as specified in its charter)
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| Maryland | | 81-0850535 |
| State or Other Jurisdiction of | | I.R.S. Employer Identification No. |
| Incorporation or Organization | | |
| | |
| 10 S. Wacker Drive, Suite 2500, Chicago, Illinois | | 60606 |
| Address of Principal Executive Offices | | Zip Code |
| | |
| (847) 734-2000 | |
| Registrant’s Telephone Number, Including Area Code |
| | |
| 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 | Name of Each Exchange on Which Registered |
| None | None | 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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ¨ | Accelerated filer | ¨ |
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| Non-accelerated filer | x | Smaller reporting company | ¨ |
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| Emerging growth company | x | | |
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. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares of the issuer’s common stock, $0.001 par value, outstanding as of August 5, 2020May 13, 2021 was 2,214,200.2,162,968.
HANCOCK PARK CORPORATE INCOME, INC.
TABLE OF CONTENTS
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| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Item 1. | | |
| Item 1A. | | |
| Item 2 | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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Defined Terms
We have used "we," "us," "our," "our company," and "the Company" to refer to Hancock Park Corporate Income, Inc. in this report. We also have used several other terms in this report, which are explained or defined below:
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| | | | |
| Term | Explanation or Definition |
| 1940 Act | Investment Company Act of 1940, as amended |
| Administration Agreement | Administration agreement between the Company and OFS Services, dated July 15, 2016 |
| Advisers Act | The Investment Advisers Act of 1940, as amended |
| Advisors | OFS Advisor and CIM Capital |
| Advisory Agreements | The Investment Advisory Agreement and Sub-Advisory Agreement |
| Affiliated Account | AnotherAn account, other than the Company, managed by OFS Advisor or an affiliate of OFS Advisor |
| Affiliated Fund | Certain other funds, including other BDCs and registered investment companies managed by OFS Advisor |
| ASC | Accounting Standards Codification, as issued by the FASB |
| ASU | Accounting Standards Updates, as issued by the FASB |
| BDC | Business Development Company under the 1940 Act |
| BLA | Business Loan Agreement, with Pacific Western Bank, as lender, which provides the Company with a senior secured revolving credit facility |
| Board | The Company's board of directors |
| CCO | CCO Capital, LLC, a Delaware limited liability company and the Company's dealer manager |
| CIM Capital | CIM Capital IC Management, LLC, an affiliate of OFS Advisor a registered investment adviser under the Advisers Act, and sub-adviser to the Company |
CIM Sub-Advisory Agreement | Sub-Advisory Agreement dated as of August 3, 2020, by and between OFS Advisor and CIM Capital |
| CLO | Collateralized Loan Obligation |
| Code | Internal Revenue Code of 1986, as amended |
| Company | Hancock Park Corporate Income, Inc. and its consolidated subsidiaries |
| Contractual Issuer Expenses | Salaries and direct expenses of OFS Advisor’s employees, employees of their affiliates and others while engaged in offering and other contractually-defined activities |
| Dealer Manager | CCO Capital, LLC |
Dealer Manager Agreement | Broker dealer management agreement dated August 3, 2020 by and among the Company, OFS Advisor, International Assets Advisory, LLC and the Dealer Manager,CCO, as amended, supplemented or modified.modified |
| EBITDA | Earnings before interest, taxes, depreciation, and amortization |
| ESAs | The Prior Expense Support Agreement and Expense Support Agreement |
| Exchange Act | Securities Exchange Act of 1934, as amended |
| Expense Support Agreement | Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated as of August 3, 2020, by and among the Company, OFS Advisor and CIM Capital |
| FASB | Financial Accounting Standards Board |
| |
| Funding I | OFS Funding I, LLC, a wholly-owned subsidiary of OFSAM and an affiliate of OFS Advisor |
| GAAP | Accounting principles generally accepted in the United States |
| HPCI-MB | HPCI-MB, Inc., a wholly owned subsidiary taxed under subchapter C of the Code and generally holds the equity investments of the Company that are taxed as pass-through entities.entities |
| ICTI | Investment company taxable income, which is generally net ordinary income plus net short-term capital gains in excess of net long-term capital losses |
| Indicative Prices | Market quotations, prices from pricing services or bids from brokers or dealers |
| Investment Advisory Agreement | Investment advisory and management agreement between the Company and OFS Advisor, dated July 15, 2016 |
| IRS | Internal Revenue Service |
| LIBOR | London Interbank Offered Rate |
Minimum Offering Requirement | The minimum capitalization requirement to commence the Offering. This was satisfied on August 30, 2016, when Funding I, a subsidiary of OFSAM, purchased 74,074 shares of our common stock in the Offering for gross proceeds of $1,000,000, or $13.50 per share |
NBIP | Non-binding indicative price |
| Net Loan Fees | The cumulative amount of fees, such as discounts, premiums and amendment fees that are deferred and recognized as income over the life of the loan.loan |
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| | | | |
| Term | Explanation or Definition |
| OCCI | OFS Credit Company, Inc., a Delaware corporation and a non-diversified, closed-end management investment company for whom OFS Advisor serves as investment adviser |
| Offering | Continuous offering of up to $200,000,000 of shares of the Company's common stock |
| OFS Advisor | OFS Capital Management, LLC, a wholly-owned subsidiary of OFSAM and registered investment advisor under the Advisers Act |
| |
| OFS Capital | OFS Capital Corporation, a Delaware corporation and publicly-traded BDC for whom OFS Advisor serves as investment advisor |
| OFS Services | OFS Capital Services, LLC, a wholly-owned subsidiary of OFSAM and affiliate of OFS Advisor |
| OFSAM | Orchard First Source Asset Management, LLC, a full-service provider of capital and leveraged finance solutions to U.S. corporations |
| Order | An exemptive relief order from the SEC to permit us to co-invest in portfolio companies with Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions |
| PIK | Payment-in-kind. PIK interest and dividends are paid in the form of additional loan principal or preferred securities.securities |
| Portfolio Company Investment | A debt or equity investment in a portfolio company. Portfolio Company Investments exclude Structured Finance Notes
|
| Prime Rate | United States Prime interest rate |
| Prior Expense Support Agreement | Expense support and conditional reimbursement agreement dated July 15, 2016, between the Company and OFS Advisor |
| PWB Credit Facility | Senior secured revolving credit facility between the Company and Pacific Western Bank, as lender |
| Reunderwriting Analysis | A discount rate method based upon a hypothetical recapitalization of the entity given its current operating performance and current market condition |
| RIC | Regulated investment company under the Code |
SBCAA | Small Business Credit Availability Act |
| SEC | U.S. Securities and Exchange Commission |
| Securities Act | Securities Act of 1933, as amended |
| Structured Finance Notes | CLO mezzanine debt and CLO subordinated debt positions.positions |
| Sub-Advisory Agreement | Sub-Advisory Agreement dated as of August 3, 2020, by and between OFS Advisor and CIM Capital |
| Synthetic Rating Analysis | A discount rate method that assigns a surrogate debt rating to the entity based on known industry standards for assigning such ratings and then estimates the discount rate based on observed market yields for actual rated debt. |
The Order | An exemptive relief order from the SEC to permit us to co-invest in portfolio companies with certain funds managed by OFS Advisor in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditionsdebt |
| Transaction Price | The cost of an arm's length transaction occurring in the same security |
| Unsecured Note | An agreement with the HCM Master Fund Limited, an exempted company incorporated with limited liability under the laws of the Cayman Island in which the Company sold in a private placement an unsecured note in an aggregate principal amount of $15,000,000 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
•our ability and experience operating a BDC or maintaining our qualification as a RIC under the Code;
•our dependence on key personnel;
•our ability to maintain or develop referral relationships;
•the ability of OFS Advisor, to identify, invest in and monitor companies that meet our investment criteria;
•the belief that the carrying amounts of our financial instruments, such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk;
•actual and potential conflicts of interest with OFS Advisor and other affiliates of OFSAM;
•constraint on investments due to access to material nonpublic information;
•restrictions on our ability to enter into transactions with our affiliates;
•the use of borrowed money to finance a portion of our investments, including the belief that our long-dated financing facilities affords us operational flexibility;
•our ability to incur additional leverage pursuant to Section 61(a)(2) of the SBCAA,1940 Act and the impact of such leverage on our net investment income and results of operations;
•competition for investment opportunities;
•the percentage of investments that bear interest on a floating rate or fixed rate basis;
•our ability to raise debt or equity capital as a BDC;
•the timing, form and amount of any distributions from our portfolio companies;
•the impact of a protracted decline in the liquidity of credit markets on our business;
•interest rate volatility, including the decommissioning of LIBOR;
•the general economy and its impact on the industries in which we invest;
•changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including with respect to changes from the impact of the Coronaviruscoronavirus (“COVID-19”) pandemic; the length and duration of the COVID-19 pandemic in the United States as well as worldwide and the magnitude of the economic impact of the outbreak; the effect of the COVID-19 pandemic on our business, financial condition, results of operations and cash flows and those of our portfolio companies (including the expectation that a shift from cash interest to PIK interest will result from concessions granted to borrowers due to the COVID-19 pandemic), including our and their ability to achieve our respective objectives; the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business (including our belief that new loan activity in the market in which we operate has slowed) and on the availability of equity and debt capital and our use of borrowed money to finance a portion of our investments;
•the belief that we have sufficient levels of liquidity to support our existing portfolio companies and deploy capital in new investment opportunities;
•uncertain valuations of our portfolio investments, including our belief that overweightingreverting back to an equal weighting of the Reunderwriting Analysis method and Synthetic Rating Analysis method more accurately captures certain data related to illiquid private credit during the COVID-19 pandemic;observed return of market liquidity and the historic correlative relationship between these markets; and
•the effect of new or modified laws or regulations governing our operations.
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, those assumptions also could be inaccurate. In light of these and
and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include, among others, those described or identified in "Item"Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20192020 and in "Item"Part II, Item 1A. Risk Factors" in ourthis Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.
We have based the forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we may file with the SEC in the future, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The forward-looking statements and projections contained in this Quarterly Report on Form 10-Q are excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
The following should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Hancock Park Corporate Income, Inc.
Consolidated Statements of Assets and Liabilities
| | | | | June 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| | | (unaudited) | | | | | (unaudited) | | |
| Assets: | | |
| | |
| Assets: | | | | |
| Non-control/non-affiliate investments at fair value (amortized cost of $44,006,887 and $40,770,129 respectively) | | $ | 41,685,717 |
| | $ | 40,124,923 |
| |
| Non-control/non-affiliate investments (amortized cost of $45,125,214 and $46,226,581, respectively) | | Non-control/non-affiliate investments (amortized cost of $45,125,214 and $46,226,581, respectively) | | $ | 44,461,743 | | | $ | 45,314,688 | |
| Cash | | 2,273,081 |
| | 8,814,578 |
| Cash | | 3,774,119 | | | 3,012,833 | |
| Interest receivable | | 205,547 |
| | 116,040 |
| Interest receivable | | 151,094 | | | 164,222 | |
| Receivable for investment sold | | 130,179 |
| | — |
| |
| Due from sub-adviser (see Note 3) | | Due from sub-adviser (see Note 3) | | 609,923 | | | 659,003 | |
| Prepaid expenses and other assets | | 27,217 |
| | 41,544 |
| Prepaid expenses and other assets | | 20,997 | | | 6,676 | |
| Total assets | | $ | 44,321,741 |
| | $ | 49,097,085 |
| Total assets | | $ | 49,017,876 | | | $ | 49,157,422 | |
| | | | | | | | | |
| Liabilities: | | |
| | |
| Liabilities: | | | | |
| Revolving line of credit | | $ | 1,800,000 |
| | $ | — |
| Revolving line of credit | | $ | 625,000 | | | $ | 4,775,000 | |
| Unsecured note (net of discount and deferred debt issuance costs of $322,634 and $303,450, respectively) | | 14,677,366 |
|
| 14,696,550 |
| |
| Unsecured note (net of discount and deferred debt issuance costs of $267,731 and $285,765, respectively) | | Unsecured note (net of discount and deferred debt issuance costs of $267,731 and $285,765, respectively) | | 14,732,269 | | | 14,714,235 | |
| Payable for investments purchased | | — |
| | 4,316,624 |
| Payable for investments purchased | | 4,088,383 | | | — | |
| Due to advisor and affiliates (see Note 3) | | 71,302 |
| | 107,024 |
| Due to advisor and affiliates (see Note 3) | | 636,995 | | | 589,318 | |
| Accrued professional fees | | 174,130 |
| | 129,135 |
| Accrued professional fees | | 188,018 | | | 161,842 | |
| Payable for repurchase of common stock | | 654,712 |
| | — |
| Payable for repurchase of common stock | | — | | | 700,935 | |
| Distribution payable | | 539,800 |
| | 583,912 |
| Distribution payable | | 554,847 | | | 549,197 | |
| Other liabilities | | 154,739 |
| | 143,334 |
| Other liabilities | | 229,038 | | | 225,020 | |
| Total liabilities | | 18,072,049 |
| | 19,976,579 |
| Total liabilities | | 21,054,550 | | | 21,715,547 | |
| | | | | | | | | |
| Commitments and contingencies (see Notes 3 and 6) | | | | | Commitments and contingencies (see Notes 3 and 6) | |
| | | | | | |
| Net assets: | | | | | Net assets: | |
| Common stock, par value of $0.001 per share; 20,000,000 shares authorized as of June 30, 2020, and December 31, 2019; 2,188,275 and 2,239,774 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | | 2,188 |
| | 2,240 |
| |
| Common stock, par value of $0.001 per share; 20,000,000 shares authorized as of March 31, 2021, and December 31, 2020; 2,200,627 and 2,178,920 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | | Common stock, par value of $0.001 per share; 20,000,000 shares authorized as of March 31, 2021, and December 31, 2020; 2,200,627 and 2,178,920 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | | 2,200 | | | 2,179 | |
| Paid-in capital in excess of par | | 29,200,524 |
| | 29,786,761 |
| Paid-in capital in excess of par | | 29,319,933 | | | 29,042,554 | |
| Total distributable earnings (losses) | | (2,953,020 | ) | | (668,495 | ) | Total distributable earnings (losses) | | (1,358,807) | | | (1,602,858) | |
| Total net assets | | 26,249,692 |
| | 29,120,506 |
| Total net assets | | 27,963,326 | | | 27,441,875 | |
| | |
|
| | | | | | |
| Total liabilities and net assets | | $ | 44,321,741 |
| | $ | 49,097,085 |
| Total liabilities and net assets | | $ | 49,017,876 | | | $ | 49,157,422 | |
| | | | | | | | | |
| Number of shares outstanding | | 2,188,275 |
| | 2,239,774 |
| Number of shares outstanding | | 2,200,627 | | | 2,178,920 | |
| Net asset value per share | | $ | 12.00 |
| | $ | 13.00 |
| Net asset value per share | | $ | 12.71 | | | $ | 12.59 | |
See Notes to Consolidated Financial Statements.
Hancock Park Corporate Income, Inc.
Consolidated Statements of Operations (unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| Investment income | | | | | | | |
| Interest income | | | | | $ | 1,230,931 | | | $ | 1,113,294 | |
| Fee income | | | | | 34,319 | | | 58,425 | |
| Total investment income | | | | | 1,265,250 | | | 1,171,719 | |
| | | | | | | |
| Operating expenses | | | | | | | |
| Amortization of deferred offering costs | | | | | 42,428 | | | 84,337 | |
| Contractual issuer expenses | | | | | — | | | 536 | |
| Interest expense | | | | | 307,950 | | | 300,592 | |
| Management fees | | | | | 141,168 | | | 130,765 | |
| Incentive fees | | | | | 68,764 | | | 76,050 | |
| Administrative fees | | | | | 186,389 | | | 186,617 | |
| Professional fees | | | | | 201,145 | | | 164,296 | |
| Insurance expense | | | | | 26,944 | | | 24,911 | |
| Transfer agent fees | | | | | 24,917 | | | 24,522 | |
| Other expenses | | | | | 7,157 | | | 8,866 | |
| Total operating expenses | | | | | 1,006,862 | | | 1,001,492 | |
| Less: Expense limitations under agreements with advisers (see Note 3) | | | | | (291,728) | | | (416,633) | |
| Net operating expenses | | | | | 715,134 | | | 584,859 | |
| | | | | | | |
| Net investment income | | | | | 550,116 | | | 586,860 | |
| | | | | | | |
| Net realized and unrealized gain (loss) on investments | | | | | | | |
| Net realized gain (loss) on investments | | | | | 1,619 | | | (573,849) | |
| Net unrealized appreciation (depreciation) on investments, net of taxes | | | | | 242,663 | | | (1,930,889) | |
| Net gain (loss) on investments | | | | | 244,282 | | | (2,504,738) | |
| | | | | | | |
| Net increase (decrease) in net assets resulting from operations | | | | | $ | 794,398 | | | $ | (1,917,878) | |
| | | | | | | |
| Net investment income per common share – basic and diluted | | | | | $ | 0.25 | | | $ | 0.26 | |
| Net increase (decrease) in net assets resulting from operations per common share – basic and diluted | | | | | $ | 0.36 | | | $ | (0.85) | |
| Distributions declared per common share | | | | | $ | 0.25 | | | $ | 0.26 | |
| Basic and diluted weighted average shares outstanding | | | | | 2,187,362 | | | 2,245,143 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 |
| 2019 | | 2020 |
| 2019 |
| Investment income |
|
|
|
|
|
|
|
|
|
|
| Interest income | $ | 1,025,471 |
|
| $ | 878,315 |
| | $ | 2,138,765 |
|
| $ | 1,659,366 |
|
| Fee income | 20,577 |
|
| 8,430 |
| | 79,002 |
|
| 48,305 |
|
| Total investment income | 1,046,048 |
|
| 886,745 |
| | 2,217,767 |
|
| 1,707,671 |
|
| | | | | | | | |
| Operating expenses | | | | | | | |
| Amortization of deferred offering costs | 84,229 |
|
| 33,948 |
| | 168,566 |
| | 63,799 |
|
| Contractual issuer expenses | — |
|
| 3,084 |
| | 536 |
| | 6,196 |
|
| Interest expense | 332,434 |
|
| 103,670 |
|
| 633,026 |
|
| 199,019 |
|
| Management fees | 134,632 |
|
| 98,319 |
| | 265,397 |
| | 191,041 |
|
| Incentive fees | 65,427 |
| | 29,296 |
| | 141,477 |
| | 78,066 |
|
| Administrative fees | 215,124 |
|
| 185,164 |
| | 401,741 |
| | 327,038 |
|
| Professional fees | 124,772 |
|
| 119,193 |
| | 289,068 |
| | 273,532 |
|
| Insurance expense | 23,798 |
|
| 18,529 |
| | 48,709 |
| | 34,896 |
|
| Transfer agent fees | 22,286 |
|
| 24,302 |
| | 46,808 |
| | 54,121 |
|
| Other expenses | 13,493 |
|
| 30,511 |
| | 22,359 |
| | 57,045 |
|
| Total operating expenses | 1,016,195 |
|
| 646,016 |
| | 2,017,687 |
| | 1,284,753 |
|
| Less: Expense limitations under agreements with adviser (see Note 3) | (505,163 | ) |
| (240,129 | ) | | (921,796 | ) | | (520,371 | ) |
| Net operating expenses | 511,032 |
|
| 405,887 |
| | 1,095,891 |
| | 764,382 |
|
| | | | | | | | |
| Net investment income | 535,016 |
|
| 480,858 |
| | 1,121,876 |
| | 943,289 |
|
| | | | | | | | |
| Net realized and unrealized gain (loss) on investments | | | | | | | |
| Net realized gain (loss) on investments | (16,148 | ) |
| (1,964 | ) |
| (589,997 | ) |
| 52 |
|
| Net unrealized appreciation (depreciation) on investments, net of taxes | 236,362 |
|
| (80,864 | ) | | (1,694,527 | ) |
| 427,994 |
|
| Net gain (loss) on investments | 220,214 |
| | (82,828 | ) | | (2,284,524 | ) | | 428,046 |
|
| | | | | | | | |
| Net increase (decrease) in net assets resulting from operations | $ | 755,230 |
|
| $ | 398,030 |
|
| $ | (1,162,648 | ) | | $ | 1,371,335 |
|
| | | | | | | | |
| Net investment income per common share – basic and diluted | $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.50 |
| | $ | 0.49 |
|
| Net increase (decrease) in net assets resulting from operations per common share – basic and diluted | $ | 0.34 |
|
| $ | 0.20 |
| | $ | (0.52 | ) | | $ | 0.72 |
|
| Distributions declared per common share | $ | 0.24 |
|
| $ | 0.26 |
|
| $ | 0.51 |
|
| $ | 0.52 |
|
| Basic and diluted weighted average shares outstanding | 2,229,750 |
|
| 1,964,548 |
| | 2,237,446 |
| | 1,916,979 |
|
See Notes to Consolidated Financial Statements.
Hancock Park Corporate Income, Inc.
Consolidated Statements of Changes in Net Assets (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | |
| Number of shares | | Par value | | Paid-in capital in excess of par | | Total distributable earnings (losses) | | Total net assets |
| Balances at January 1, 2020 | 2,239,774 | | | $ | 2,240 | | | $ | 29,786,761 | | | $ | (668,495) | | | $ | 29,120,506 | |
| Net investment income | — | | | — | | | — | | | 586,860 | | | 586,860 | |
| Net realized loss on investment | — | | | — | | | — | | | (573,849) | | | (573,849) | |
| Net unrealized depreciation on investments, net of taxes | — | | | — | | | — | | | (1,930,889) | | | (1,930,889) | |
| Tax reclassifications of permanent differences | — | | | — | | | (2,400) | | | 2,400 | | | — | |
| Common stock issued | 10,973 | | | 11 | | | 144,189 | | | — | | | 144,200 | |
| Distributions to stockholders | — | | | — | | | — | | | (589,261) | | | (589,261) | |
| Net increase (decrease) for the period ended March 31, 2020 | 10,973 | | | 11 | | | 141,789 | | | (2,504,739) | | | (2,362,939) | |
| Balances at March 31, 2020 | 2,250,747 | | | $ | 2,251 | | | $ | 29,928,550 | | | $ | (3,173,234) | | | $ | 26,757,567 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | |
| | Number of shares | | Par value | | Paid-in capital in excess of par | | Total distributable earnings (losses) | | Total net assets |
| Balances at January 1, 2019 | 1,818,799 |
|
| $ | 1,819 |
|
| $ | 24,200,918 |
|
| $ | (564,851 | ) |
| $ | 23,637,886 |
|
| Net investment income | — |
|
| — |
|
| — |
|
| 943,289 |
|
| 943,289 |
|
| Net realized gain on investment | — |
|
| — |
|
| — |
|
| 52 |
|
| 52 |
|
| Net unrealized appreciation on investments, net of taxes | — |
|
| — |
|
| — |
|
| 427,994 |
|
| 427,994 |
|
| Tax reclassifications of permanent differences | — |
|
| — |
|
| (61,018 | ) |
| 61,018 |
|
| — |
|
| Common stock issued | 290,014 |
|
| 289 |
|
| 3,919,503 |
|
| — |
|
| 3,919,792 |
|
| Repurchase of common stock | (16,435 | ) |
| (16 | ) |
| (218,101 | ) |
| — |
|
| (218,117 | ) |
| Distributions to stockholders | — |
|
| — |
|
| — |
|
| (1,004,361 | ) |
| (1,004,361 | ) |
| Net increase for the period ended June 30, 2019 | 273,579 |
| | 273 |
| | 3,640,384 |
| | 427,992 |
| | 4,068,649 |
|
| Balances at June 30, 2019 | 2,092,378 |
| | $ | 2,092 |
| | $ | 27,841,302 |
| | $ | (136,859 | ) | | $ | 27,706,535 |
|
| | | | | | | | | | |
| Balances at March 31, 2019 | 1,939,743 |
|
| $ | 1,940 |
|
| $ | 25,808,089 |
|
| $ | (55,994 | ) |
| $ | 25,754,035 |
|
| Net investment income | — |
|
| — |
|
| — |
|
| 480,858 |
|
| 480,858 |
|
| Net realized loss on investment | — |
|
| — |
|
| — |
|
| (1,964 | ) |
| (1,964 | ) |
| Net unrealized depreciation on investments, net of taxes | — |
|
| — |
|
| — |
|
| (80,864 | ) |
| (80,864 | ) |
| Tax reclassifications of permanent differences | — |
|
| — |
|
| (35,750 | ) |
| 35,750 |
|
| — |
|
| Common stock issued or subscribed | 169,070 |
|
| 168 |
|
| 2,287,064 |
|
| — |
|
| 2,287,232 |
|
| Repurchase of common stock | (16,435 | ) |
| (16 | ) |
| (218,101 | ) |
| — |
|
| (218,117 | ) |
| Distributions to stockholders | — |
|
| — |
|
| — |
|
| (514,645 | ) |
| (514,645 | ) |
| Net increase (decrease) for the period ended June 30, 2019 | 152,635 |
| | 152 |
| | 2,033,213 |
| | (80,865 | ) | | 1,952,500 |
|
| Balances at June 30, 2019 | 2,092,378 |
|
| $ | 2,092 |
|
| $ | 27,841,302 |
|
| $ | (136,859 | ) |
| $ | 27,706,535 |
|
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | |
| Number of shares | | Par value | | Paid-in capital in excess of par | | Total distributable earnings (losses) | | Total net assets |
| Balances at January 1, 2021 | 2,178,920 | | | $ | 2,179 | | | $ | 29,042,554 | | | $ | (1,602,858) | | | $ | 27,441,875 | |
| Net investment income | — | | | — | | | — | | | 550,116 | | | 550,116 | |
| Net realized gain on investment | — | | | — | | | — | | | 1,619 | | | 1,619 | |
| Net unrealized appreciation on investments, net of taxes | — | | | — | | | — | | | 242,663 | | | 242,663 | |
| Tax reclassifications of permanent differences | — | | | — | | | (4,500) | | | 4,500 | | | — | |
| Common stock issued | 21,707 | | | 21 | | | 281,879 | | | — | | | 281,900 | |
| | | | | | | | | |
| Distributions to stockholders | — | | | — | | | — | | | (554,847) | | | (554,847) | |
| Net increase for the period ended March 31, 2021 | 21,707 | | | 21 | | | 277,379 | | | 244,051 | | | 521,451 | |
| Balances at March 31, 2021 | 2,200,627 | | | $ | 2,200 | | | $ | 29,319,933 | | | $ | (1,358,807) | | | $ | 27,963,326 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | |
| | Number of shares | | Par value | | Paid-in capital in excess of par | | Total distributable earnings (losses) | | Total net assets |
| Balances at January 1, 2020 | 2,239,774 |
|
| $ | 2,240 |
|
| $ | 29,786,761 |
|
| $ | (668,495 | ) |
| $ | 29,120,506 |
|
| Net investment income | — |
|
| — |
|
| — |
|
| 1,121,876 |
|
| 1,121,876 |
|
| Net realized loss on investment | — |
|
| — |
|
| — |
|
| (589,997 | ) |
| (589,997 | ) |
| Net unrealized depreciation on investments, net of taxes | — |
|
| — |
|
| — |
|
| (1,694,527 | ) |
| (1,694,527 | ) |
| Tax reclassifications of permanent differences | — |
|
| — |
|
| (7,185 | ) |
| 7,185 |
|
| — |
|
| Common stock issued | 34,788 |
|
| 34 |
|
| 439,958 |
|
| — |
|
| 439,992 |
|
| Repurchase of common stock | (86,287 | ) |
| (86 | ) |
| (1,019,010 | ) |
| — |
|
| (1,019,096 | ) |
| Distributions to stockholders | — |
|
| — |
|
| — |
|
| (1,129,062 | ) |
| (1,129,062 | ) |
| Net decrease for the period ended June 30, 2020 | (51,499 | ) | | (52 | ) | | (586,237 | ) | | (2,284,525 | ) | | (2,870,814 | ) |
| Balances at June 30, 2020 | 2,188,275 |
|
| $ | 2,188 |
|
| $ | 29,200,524 |
|
| $ | (2,953,020 | ) |
| $ | 26,249,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balances at March 31, 2020 | 2,250,747 |
|
| $ | 2,251 |
|
| $ | 29,928,550 |
|
| $ | (3,173,234 | ) |
| $ | 26,757,567 |
|
| Net investment income | — |
|
| — |
|
| — |
|
| 535,016 |
|
| 535,016 |
|
| Net realized loss on investment | — |
|
| — |
|
| — |
|
| (16,148 | ) |
| (16,148 | ) |
| Net unrealized appreciation on investments, net of taxes | — |
|
| — |
|
| — |
|
| 236,362 |
|
| 236,362 |
|
| Tax reclassifications of permanent differences | — |
|
| — |
|
| (4,785 | ) |
| 4,785 |
|
| — |
|
| Common stock issued | 23,815 |
|
| 23 |
|
| 295,769 |
|
| — |
|
| 295,792 |
|
| Repurchase of common stock | (86,287 | ) |
| (86 | ) |
| (1,019,010 | ) |
| — |
|
| (1,019,096 | ) |
| Distributions to stockholders | — |
|
| — |
|
| — |
|
| (539,801 | ) |
| (539,801 | ) |
| Net increase (decrease) for the period ended June 30, 2020 | (62,472 | ) | | (63 | ) | | (728,026 | ) | | 220,214 |
| | (507,875 | ) |
| Balances at June 30, 2020 | 2,188,275 |
|
| $ | 2,188 |
|
| $ | 29,200,524 |
|
| $ | (2,953,020 | ) |
| $ | 26,249,692 |
|
See Notes to Consolidated Financial Statements.
Hancock Park Corporate Income, Inc.
Consolidated Statements of Cash Flows (unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| Cash flows from operating activities | | | | |
| Net increase (decrease) in net assets resulting from operations | | $ | 794,398 | | | $ | (1,917,878) | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: | | | | |
| Net unrealized (appreciation) depreciation on investments, net of taxes | | (242,663) | | | 1,930,889 | |
| Net realized (gains) losses on investments | | (1,619) | | | 573,849 | |
| Amortization of Net Loan Fees and discounts on investments | | (161,871) | | | (14,374) | |
| | | | |
| | | | |
| Amortization of deferred debt issuance costs | | 18,034 | | | 24,013 | |
| Accretion of interest income on Structured Finance Notes | | (107,037) | | | — | |
| Paid-in-kind interest and dividend income | | (40,509) | | | (2,832) | |
| | | | |
| Purchase of portfolio investments | | (9,183,948) | | | (9,094,877) | |
| Proceeds from principal payments on portfolio investments | | 10,490,330 | | | 2,602,433 | |
| Sale or redemption of portfolio investments | | 105,757 | | | 899,022 | |
| Changes in operating assets and liabilities: | | | | |
| Interest receivable | | 13,128 | | | (65,346) | |
| Due from sub-adviser | | 49,080 | | | — | |
| Due to advisor and affiliates | | 47,677 | | | 118,073 | |
| | | | |
| Payable for investments purchased | | 4,088,383 | | | (4,316,624) | |
| Other assets and liabilities | | 20,378 | | | 63,263 | |
| Net cash provided by (used in) operating activities | | 5,889,518 | | | (9,200,389) | |
| | | | |
| Cash flows from financing activities | | | | |
| Net proceeds from issuance of common stock | | 281,900 | | | 144,200 | |
| Distributions paid to stockholders | | (549,197) | | | (583,912) | |
| Borrowings under revolving line of credit | | — | | | 3,000,000 | |
| Repayments under revolving line of credit | | (4,150,000) | | | (1,700,000) | |
| Repurchase of common stock | | (700,935) | | | — | |
| Payment of debt issuance costs | | (10,000) | | | — | |
| Net cash provided by (used in) financing activities | | (5,128,232) | | | 860,288 | |
| | | | |
| Net increase (decrease) in cash | | 761,286 | | | (8,340,101) | |
| Cash at beginning of period | | 3,012,833 | | | 8,814,578 | |
| Cash at end of period | | $ | 3,774,119 | | | $ | 474,477 | |
| | | | |
| Supplemental disclosure of cash flow information: | | | | |
| Amortization of deferred offering costs limited by investment advisor (see Note 3) | | $ | 42,428 | | | $ | 84,337 | |
| Cash paid for interest | | 290,206 | | | 275,890 | |
| | | | |
|
| | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2020 | | 2019 |
| Cash flows from operating activities | | | | |
| Net increase (decrease) in net assets resulting from operations | | $ | (1,162,648 | ) | | $ | 1,371,335 |
|
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: | | | | |
| Net unrealized (appreciation) depreciation on investments | | 1,694,527 |
| | (427,994 | ) |
| Net realized (gains) losses on investments | | 589,997 |
| | (52 | ) |
| Amortization of Net Loan Fees and discounts on investments | | (32,982 | ) | | (30,425 | ) |
| Amendment fees collected | | 667 |
| | 1,437 |
|
| Amortization of deferred debt issuance costs | | 48,026 |
| | 31,289 |
|
| Paid-in-kind interest and dividend income | | (5,674 | ) | | (9,199 | ) |
| Purchase of portfolio investments | | (10,156,520 | ) | | (5,825,587 | ) |
| Proceeds from principal payments on portfolio investments | | 3,852,820 |
| | 1,488,187 |
|
| Sale or redemption of portfolio investments | | 2,517,950 |
| | 1,539,696 |
|
| Changes in operating assets and liabilities: | | | | |
| Interest receivable | | (89,507 | ) | | 12,777 |
|
| Due to advisor and affiliates | | (35,722 | ) | | 28,893 |
|
| Receivable for investment sold | | (130,179 | ) | | — |
|
| Payable for investments purchased | | (4,316,624 | ) | | (721,286 | ) |
| Other assets and liabilities | | 31,938 |
| | (12,950 | ) |
| Net cash used in operating activities | | (7,193,931 | ) | | (2,553,879 | ) |
| | | | | |
| Cash flows from financing activities | | | | |
| Net proceeds from issuance of common stock | | 439,992 |
| | 3,919,792 |
|
| Distributions paid to stockholders | | (1,173,174 | ) | | (935,137 | ) |
| Borrowings under revolving line of credit | | 6,000,000 |
| | 4,700,000 |
|
| Repayments under revolving line of credit | | (4,200,000 | ) | | (4,325,000 | ) |
| Repurchase of common stock | | (364,384 | ) | | (218,118 | ) |
| Payment of debt issuance costs | | (50,000 | ) | | — |
|
| Net cash provided by financing activities | | 652,434 |
| | 3,141,537 |
|
| | | | | |
| Net increase (decrease) in cash | | (6,541,497 | ) | | 587,658 |
|
| Cash at beginning of period | | 8,814,578 |
| | 1,250,296 |
|
| Cash at end of period | | $ | 2,273,081 |
| | $ | 1,837,954 |
|
| | | | |
|
|
| Supplemental disclosure of cash flow information: | | | | |
| Amortization of deferred offering costs limited by investment advisor (see Note 3) | | $ | 168,566 |
| | $ | 63,799 |
|
| Cash paid for interest | | 584,739 |
| | 168,945 |
|
See Notes to Consolidated Financial Statements.
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Non-control/Non-affiliate Investments | | | | | | | | | | | | | | |
| Debt and Equity Investments | | | | | | | | | | | | | | | | | | |
| All Star Auto Lights, Inc. | | Motor Vehicle Parts (Used) Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.00% | | (L +8.00%) | | 12/19/2019 | | 8/20/2024 | | $ | 3,504,000 | | | $ | 3,460,632 | | | $ | 3,446,237 | | | 12.3 | % |
| | | | | | | | | | | | | | | | | | |
| A&A Transfer, LLC | | Construction and Mining (except Oil Well) Machinery and Equipment Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 7.75% | | (L +6.50%) | | 2/7/2020 | | 2/7/2025 | | 1,824,000 | | | 1,802,835 | | | 1,783,782 | | | 6.4 | |
| Senior Secured Loan (Revolver) (12) | | | | n/m (5) | | (L +6.50%) | | 2/7/2020 | | 2/7/2025 | | — | | | (3,658) | | | (5,232) | | | — | |
| | | | | | | | | | | | 1,824,000 | | | 1,799,177 | | | 1,778,550 | | | 6.4 | |
| BayMark Health Services, Inc. | | Outpatient Mental Health and Substance Abuse Centers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.25% | | (L +8.25%) | | 3/22/2018 | | 3/1/2025 | | 3,500,000 | | | 3,483,897 | | | 3,500,000 | | | 12.5 | |
| | | | | | | | | | | | | | | | | | |
| Chemical Resources Holdings, Inc. | | Custom Compounding of Purchased Resins | | | | | | | | | | | | | | | | |
| Senior Secured Loan (6) | | | | 9.09% | | (L +7.72%) | | 1/25/2019 | | 1/25/2024 | | 1,256,850 | | | 1,247,304 | | | 1,265,919 | | | 4.5 | |
| Common Equity (168 units) (7) (13) | | | | | | | | 1/25/2019 | | | | | | 166,469 | | | 299,930 | | | 1.1 | |
| | | | | | | | | | | | 1,256,850 | | | 1,413,773 | | | 1,565,849 | | | 5.6 | |
| Confie Seguros Holdings II Co. | | Insurance Agencies and Brokerages | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.62% | | (L +8.50%) | | 6/6/2017 | | 11/1/2025 | | 3,177,640 | | | 3,112,384 | | | 3,130,829 | | | 11.2 | |
| | | | | | | | | | | | | | | | | | |
| Constellis Holdings, LLC | | Other Justice, Public Order, and Safety Activities | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 12.00% | | (L +11.00%) | | 3/27/2020 | | 3/27/2025 | | 3,522 | | | 3,106 | | | 3,591 | | | — | |
| Senior Secured Loan | | | | 8.50% | | (L +7.50%) | | 3/27/2020 | | 3/27/2024 | | 2,650 | | | 2,650 | | | 2,650 | | | — | |
| Common Equity (1,362 units) (7) | | | | | | | | 3/27/2020 | | | | | | 46,403 | | | 30,494 | | | 0.1 | |
| | | | | | | | | | | | 6,172 | | | 52,159 | | | 36,735 | | | 0.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Non-control/Non-affiliate Investments | | | | | | | | | | | | | | |
| Debt and Equity Investments | | | | | | | | | | | | | | | | | | |
| All Star Auto Lights, Inc. |
| Motor Vehicle Parts (Used) Merchant Wholesalers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 8.50% |
| (L +7.50%) |
| 12/19/2019 |
| 8/20/2024 |
| $ | 3,252,346 |
|
| $ | 3,219,713 |
|
| $ | 3,094,466 |
|
| 11.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| A&A Transfer, LLC |
| Construction and Mining (except Oil Well) Machinery and Equipment Merchant Wholesalers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 8.25% |
| (L +6.50%) |
| 2/7/2020 |
| 2/7/2025 |
| 1,896,000 |
|
| 1,869,718 |
|
| 1,874,611 |
|
| 7.1 |
|
| Senior Secured Loan (Revolver) (12) |
|
|
| 8.25% |
| (L +6.50%) |
| 2/7/2020 |
| 2/7/2025 |
| 237,303 |
|
| 232,934 |
|
| 234,667 |
|
| 0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2,133,303 |
|
| 2,102,652 |
|
| 2,109,278 |
|
| 8.0 |
|
| BayMark Health Services, Inc. |
| Outpatient Mental Health and Substance Abuse Centers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 10.21% |
| (L +8.25%) |
| 3/22/2018 |
| 3/1/2025 |
| 1,000,000 |
|
| 993,281 |
|
| 950,826 |
|
| 3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carolina Lubes, Inc. |
| Automotive Oil Change and Lubrication Shops |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (6) |
|
|
| 9.10% |
| (L +7.67%) |
| 8/23/2017 |
| 8/23/2022 |
| 549,958 |
|
| 547,883 |
|
| 535,369 |
|
| 2.0 |
|
| Senior Secured Loan (Revolver) (12) |
|
|
| 0.25% (5) |
| (L +7.67%) |
| 8/23/2017 |
| 8/23/2022 |
| — |
|
| (172 | ) |
| (2,132 | ) |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| 549,958 |
|
| 547,711 |
|
| 533,237 |
|
| 2.0 |
|
| Chemical Resources Holdings, Inc. |
| Custom Compounding of Purchased Resins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (6) |
|
|
| 9.33% |
| (L +7.83%) |
| 1/25/2019 |
| 1/25/2024 |
| 1,256,850 |
|
| 1,244,762 |
|
| 1,230,828 |
|
| 4.7 |
|
| Common Equity (168 units) (7) (13) |
|
|
|
|
|
|
| 1/25/2019 |
|
|
|
|
|
| 166,469 |
|
| 193,730 |
|
| 0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,256,850 |
|
| 1,411,231 |
|
| 1,424,558 |
|
| 5.4 |
|
| Confie Seguros Holdings II Co. |
| Insurance Agencies and Brokerages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 8.67% |
| (L +8.50%) |
| 6/6/2017 |
| 11/1/2025 |
| 1,447,640 |
|
| 1,401,302 |
|
| 1,236,657 |
|
| 4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Convergint Technologies Holdings, LLC | | Security Systems Services (except Locksmiths) | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 4.50% | | (L +3.75%) | | 3/18/2021 | | 3/18/2028 | | $ | 340,467 | | | $ | 338,765 | | | $ | 338,765 | | | 1.2 | % |
| Senior Secured Loan | | | | 7.50% | | (L +6.75%) | | 9/28/2018 | | 3/18/2029 | | $ | 2,806,368 | | | 2,797,175 | | | 2,797,175 | | | 10.0 | |
| | | | | | | | | | | | 3,146,835 | | | 3,135,940 | | | 3,135,940 | | | 11.2 | |
| DRS Imaging Services, LLC | | Data Processing, Hosting, and Related Services | | | | | | | | | | | | | | | | |
| Common Equity (115 units) (7) (13) | | | | | | | | 3/8/2018 | | | | | | 115,154 | | | 190,391 | | | 0.7 | |
| | | | | | | | | | | | | | | | | | |
| Eblens Holdings, Inc. | | Shoe Store | | | | | | | | | | | | | | | | |
| Subordinated Loan (2) | | | | 12.00% cash / 1.00% PIK | | N/A | | 7/13/2017 | | 1/13/2023 | | 480,882 | | | 475,650 | | | 260,336 | | | 0.9 | |
| Common Equity (3,750 units) (7) | | | | | | | | 7/13/2017 | | | | | | 37,500 | | | — | | | — | |
| | | | | | | | | | | | 480,882 | | | 513,150 | | | 260,336 | | | 0.9 | |
| Excelin Home Health, LLC | | Home Health Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 11.50% | | (L +9.50%) | | 10/25/2018 | | 4/25/2024 | | 1,000,000 | | | 988,850 | | | 1,000,000 | | | 3.7 | |
| | | | | | | | | | | | | | | | | | |
| Hyland Software, Inc. | | Software Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 7.75% | | (L +7.00%) | | 10/24/2018 | | 7/7/2025 | | 293,452 | | | 294,732 | | | 293,453 | | | 1.0 | |
| | | | | | | | | | | | | | | | | | |
| Inergex Holdings, LLC | | Other Computer Related Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.00% | | (L +7.00%) | | 10/1/2018 | | 10/1/2024 | | 1,093,888 | | | 1,081,080 | | | 1,093,888 | | | 3.9 | |
| Senior Secured Loan (Revolver) (12) | | | | n/m (5) | | (L +7.00%) | | 10/1/2018 | | 10/1/2024 | | — | | | (1,094) | | | — | | | — | |
| | | | | | | | | | | | 1,093,888 | | | 1,079,986 | | | 1,093,888 | | | 3.9 | |
| I&I Sales Group, LLC | | Marketing Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.50% | | (L +8.50%) | | 12/30/2020 | | 7/10/2025 | | 1,000,000 | | | 983,474 | | | 990,564 | | | 3.5 | |
| Senior Secured Loan (Revolver) (12) | | | | n/m (5) | | (L +8.50%) | | 12/30/2020 | | 7/10/2025 | | — | | | (484) | | | (277) | | | — | |
| | | | | | | | | | | | 1,000,000 | | | 982,990 | | | 990,287 | | | 3.5 | |
| Milrose Consultants, LLC | | Administrative Management and General Management Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan (6) | | | | 7.61% | | (L +6.61%) | | 7/16/2019 | | 7/16/2025 | | 3,925,926 | | | 3,894,597 | | | 4,004,447 | | | 14.3 | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Constellis Holdings, LLC |
| Other Justice, Public Order, and Safety Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 11.00% |
| (L +10.00%) |
| 3/27/2020 |
| 6/30/2021 |
| $ | 1,325 |
|
| $ | 1,325 |
|
| $ | 1,325 |
|
| — | % |
| Senior Secured Loan |
|
|
| 8.50% |
| (L +7.50%) |
| 3/27/2020 |
| 3/27/2024 |
| 2,650 |
|
| 2,650 |
|
| 2,650 |
|
| — |
|
| Senior Secured Loan |
|
|
| 12.00% |
| (L +11.00%) |
| 3/27/2020 |
| 3/27/2025 |
| 3,522 |
|
| 3,027 |
|
| 3,522 |
|
| — |
|
| Common Equity (1,362 units) (7) |
|
|
|
|
|
|
| 3/27/2020 |
|
|
|
|
|
| 46,403 |
|
| 47,000 |
|
| 0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
| 7,497 |
|
| 53,405 |
|
| 54,497 |
|
| 0.2 |
|
| Convergint Technologies Holdings, LLC |
| Security Systems Services (except Locksmiths) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 7.50% |
| (L +6.75%) |
| 9/28/2018 |
| 2/2/2026 |
| 2,393,750 |
|
| 2,350,520 |
|
| 2,249,263 |
|
| 8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Davis Vision, Inc. |
| Direct Health and Medical Insurance Carriers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 7.75% |
| (L +6.75%) |
| 7/16/2018 |
| 12/1/2025 |
| 1,371,000 |
|
| 1,349,353 |
|
| 1,338,518 |
|
| 5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| DRS Imaging Services, LLC |
| Data Processing, Hosting, and Related Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (6) |
|
|
| 10.17% |
| (L +9.17%) |
| 3/8/2018 |
| 11/20/2023 |
| 1,084,471 |
|
| 1,078,345 |
|
| 1,051,104 |
|
| 4.0 |
|
| Common Equity (115 units) (7) (13) |
|
|
|
|
|
|
| 3/8/2018 |
|
|
|
|
|
| 115,154 |
|
| 125,164 |
|
| 0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,084,471 |
|
| 1,193,499 |
|
| 1,176,268 |
|
| 4.5 |
|
| DuPage Medical Group |
| Offices of Physicians, Mental Health Specialists |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (9) |
|
|
| 3.50% |
| (L +2.75%) |
| 8/22/2017 |
| 8/15/2024 |
| 96,596 |
|
| 96,310 |
|
| 91,379 |
|
| 0.3 |
|
| Senior Secured Loan |
|
|
| 7.75% |
| (L +7.00%) |
| 8/22/2017 |
| 8/15/2025 |
| 1,939,435 |
|
| 1,935,324 |
|
| 1,821,501 |
|
| 6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2,036,031 |
|
| 2,031,634 |
|
| 1,912,880 |
|
| 7.2 |
|
| Eblens Holdings, Inc. |
| Shoe Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subordinated Loan (2) |
|
|
| 12.00% cash / 1.00% PIK |
| N/A |
| 7/13/2017 |
| 1/13/2023 |
| 476,620 |
|
| 474,489 |
|
| 459,111 |
|
| 1.7 |
|
| Common Equity (3,750 units) (7) |
|
|
|
|
|
|
| 7/13/2017 |
|
|
|
|
|
| 37,500 |
|
| 28,105 |
|
| 0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
| 476,620 |
|
| 511,989 |
|
| 487,216 |
|
| 1.8 |
|
| Excelin Home Health, LLC |
| Home Health Care Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 11.50% |
| (L +9.50%) |
| 10/25/2018 |
| 4/25/2024 |
| 1,000,000 |
|
| 986,122 |
|
| 992,774 |
|
| 3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Online Tech Stores, LLC (10) | | Stationery and Office Supplies Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Subordinated Loan | | | | 13.50% PIK | | N/A | | 2/1/2018 | | 8/1/2023 | | $ | 1,219,015 | | | $ | 1,007,963 | | | $ | 5,882 | | | — | % |
| | | | | | | | | | | | | | | | | | |
| Pelican Products, Inc. | | Unlaminated Plastics Profile Shape Manufacturing | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.75% | | (L +7.75%) | | 9/24/2018 | | 5/1/2026 | | 2,100,000 | | | 2,105,271 | | | 2,100,000 | | | 7.5 | |
| | | | | | | | | | | | | | | | | | |
| Professional Pipe Holdings, LLC | | Plumbing, Heating, and Air-Conditioning Contractors | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.75% cash / 1.50% PIK | | (L +8.75%) | | 3/23/2018 | | 3/23/2023 | | 346,692 | | | 343,209 | | | 333,245 | | | 1.2 | |
| Common Equity (86 units) (7) | | | | | | | | 3/23/2018 | | | | | | 85,714 | | | 58,955 | | | 0.2 | |
| | | | | | | | | | | | 346,692 | | | 428,923 | | | 392,200 | | | 1.4 | |
| Resource Label Group, LLC | | Commercial Printing (except Screen and Books) | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 5.50% | | (L +4.50%) | | 6/7/2017 | | 5/26/2023 | | 67,927 | | | 67,682 | | | 67,585 | | | 0.2 | |
| Senior Secured Loan | | | | 9.50% | | (L +8.50%) | | 6/7/2017 | | 11/26/2023 | | 178,571 | | | 177,473 | | | 178,571 | | | 0.6 | |
| | | | | | | | | | | | 246,498 | | | 245,155 | | | 246,156 | | | 0.8 | |
| RPLF Holdings, LLC | | Software Publishers | | | | | | | | | | | | | | | | |
| Common Equity (45,890 units) (7) (13) | | | | | | | | 1/17/2018 | | | | | | 88,917 | | | 109,149 | | | 0.4 | |
| | | | | | | | | | | | | | | | | | |
| SourceHOV Tax, Inc. (6) | | Other Accounting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 7.61% | | (L +6.11%) | | 3/16/2020 | | 3/17/2025 | | 3,552,124 | | | 3,527,828 | | | 3,600,893 | | | 12.9 | |
| | | | | | | | | | | | | | | | | | |
| Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.,) | | Child Day Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.45% | | (L +8.25%) | | 7/26/2018 | | 7/30/2026 | | 704,000 | | | 699,305 | | | 629,830 | | | 2.3 | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Hyland Software, Inc. |
| Software Publishers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (9) |
|
|
| 4.00% |
| (L +3.25%) |
| 10/24/2018 |
| 7/1/2024 |
| $ | 21,844 |
|
| $ | 21,820 |
|
| $ | 21,296 |
|
| 0.1 | % |
| Senior Secured Loan |
|
|
| 7.75% |
| (L +7.00%) |
| 10/24/2018 |
| 7/7/2025 |
| 333,469 |
|
| 334,958 |
|
| 323,778 |
|
| 1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
| 355,313 |
|
| 356,778 |
|
| 345,074 |
|
| 1.3 |
|
| Inergex Holdings, LLC |
| Other Computer Related Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 8.00% |
| (L +7.00%) |
| 10/1/2018 |
| 10/1/2024 |
| 1,100,391 |
|
| 1,088,461 |
|
| 1,023,282 |
|
| 3.9 |
|
| Senior Secured Loan (Revolver) (12) |
|
|
| 8.07% |
| (Prime +7.00%) |
| 10/1/2018 |
| 10/1/2024 |
| 93,750 |
|
| 92,422 |
|
| 87,181 |
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,194,141 |
|
| 1,180,883 |
|
| 1,110,463 |
|
| 4.2 |
|
| Institutional Shareholder Services Inc. |
| Administrative Management and General Management Consulting Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 9.57% |
| (L +8.50%) |
| 3/4/2019 |
| 3/5/2027 |
| 1,068,750 |
|
| 1,041,943 |
|
| 1,014,542 |
|
| 3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| McAfee, LLC (9) |
| Software Publishers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 9.50% |
| (L +8.50%) |
| 11/15/2019 |
| 9/29/2025 |
| 1,500,000 |
|
| 1,501,717 |
|
| 1,501,500 |
|
| 5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Milrose Consultants, LLC |
| All Other Business Support Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (6) |
|
|
| 7.18% |
| (L +6.18%) |
| 7/16/2019 |
| 7/16/2025 |
| 2,000,000 |
|
| 1,987,402 |
|
| 1,972,107 |
|
| 7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Online Tech Stores, LLC (10) |
| Stationery and Office Supplies Merchant Wholesalers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subordinated Loan |
|
|
| 13.50% PIK |
| N/A |
| 2/1/2018 |
| 8/1/2023 |
| 1,090,990 |
|
| 1,007,141 |
|
| 445,260 |
|
| 1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OnSite Care, PLLC |
| Home Health Care Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan (6) |
|
|
| 8.73% |
| (L +7.73%) |
| 8/10/2018 |
| 8/10/2023 |
| 1,207,828 |
|
| 1,197,504 |
|
| 1,192,012 |
|
| 4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Parfums Holding Company, Inc. |
| Cosmetics, Beauty Supplies, and Perfume Stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 9.75% |
| (L +8.75%) |
| 11/16/2017 |
| 6/30/2025 |
| 2,000,000 |
|
| 1,984,251 |
|
| 1,912,814 |
|
| 7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| STS Operating, Inc. | | Industrial Machinery and Equipment Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 5.25% | | (L +4.25%) | | 5/15/2018 | | 12/11/2024 | | $ | 103,569 | | | $ | 103,423 | | | $ | 101,389 | | | 0.4 | % |
| Senior Secured Loan | | | | 9.00% | | (L +8.00%) | | 5/15/2018 | | 4/30/2026 | | 1,593,220 | | | 1,593,194 | | | 1,533,283 | | | 5.5 | |
| | | | | | | | | | | | 1,696,789 | | | 1,696,617 | | | 1,634,672 | | | 5.9 | |
| The Escape Game, LLC | | All other amusement and recreation industries | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.75% | | (L +8.75%) | | 12/22/2017 | | 12/22/2022 | | 500,000 | | | 498,282 | | | 495,469 | | | 1.8 | |
| Senior Secured Loan | | | | 8.00% | | (L +7.00%) | | 2/14/2020 | | 12/31/2021 | | 333,333 | | | 333,333 | | | 327,702 | | | 1.2 | |
| Senior Secured Loan | | | | 9.75% | | (L +8.75%) | | 7/18/2019 | | 12/22/2022 | | 500,000 | | | 500,000 | | | 495,469 | | | 1.8 | |
| Senior Secured Loan (Delayed Draw) | | | | 9.75% | | (L +8.75%) | | 7/20/2018 | | 12/31/2021 | | 166,667 | | | 166,667 | | | 165,156 | | | 0.6 | |
| | | | | | | | | | | | 1,500,000 | | | 1,498,282 | | | 1,483,796 | | | 5.4 | |
| Thryv, Inc. (9) | | Directory and Mailing List Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.50% | | (L +8.50%) | | 2/18/2021 | | 3/1/2026 | | 1,323,529 | | | 1,289,009 | | | 1,328,493 | | | 4.8 | |
| | | | | | | | | | | | | | | | | | |
| TTG Healthcare, LLC | | Diagnostic Imaging Centers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.50% | | (L +9.00%) | | 3/1/2019 | | 11/28/2025 | | 1,621,291 | | | 1,605,445 | | | 1,626,937 | | | 5.8 | |
| Preferred Equity (191 units) (7) (13) | | | | | | | | 3/1/2019 | | | | | | 191,409 | | | 349,436 | | | 1.2 | |
| | | | | | | | | | | | 1,621,291 | | | 1,796,854 | | | 1,976,373 | | | 7.0 | |
| Wastebuilt Environmental Solutions, LLC | | Industrial Supplies Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 7.00% / 7.25% PIK | | (L +12.75%) | | 10/11/2018 | | 10/11/2024 | | 1,585,769 | | | 1,544,071 | | | 1,558,195 | | | 5.6 | |
| | | | | | | | | | | | | | | | | | |
| Total Debt and Equity Investments | | | | | | | | | | | | $ | 40,105,352 | | | $ | 40,255,616 | | | $ | 39,492,581 | | | 141.3 | % |
| | | | | | | | | | | | | | | | | | |
| Structured Finance Note Investments | | | | | | | | | | | | | | | | | | |
| Apex Credit CLO 2020 Ltd. | | | | | | | | | | | | | | | | | | |
| Subordinated Notes (16) | | | | 14.16% (14) | | | | 11/16/2020 | | 11/19/2031 (11) | | 3,650,000 | | | 3,223,812 (15) | | 3,172,438 | | | 11.3 | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Pelican Products, Inc. |
| Unlaminated Plastics Profile Shape Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 8.75% |
| (L +7.75%) |
| 9/24/2018 |
| 5/1/2026 |
| $ | 2,000,000 |
|
| $ | 2,007,771 |
|
| $ | 1,780,000 |
|
| 6.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Professional Pipe Holdings, LLC |
| Plumbing, Heating, and Air-Conditioning Contractors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 9.75% cash / 1.50% PIK |
| (L +8.75%) |
| 3/23/2018 |
| 3/23/2023 |
| 433,509 |
|
| 428,873 |
|
| 403,298 |
|
| 1.5 |
|
| Common Equity (86 units) (7) |
|
|
|
|
|
|
| 3/23/2018 |
|
|
|
|
|
| 85,714 |
|
| 69,694 |
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
| 433,509 |
|
| 514,587 |
|
| 472,992 |
|
| 1.8 |
|
| Resource Label Group, LLC |
| Commercial Printing (except Screen and Books) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 5.95% |
| (L +4.50%) |
| 6/7/2017 |
| 5/26/2023 |
| 68,461 |
|
| 68,128 |
|
| 65,816 |
|
| 0.3 |
|
| Senior Secured Loan |
|
|
| 9.95% |
| (L +8.50%) |
| 6/7/2017 |
| 11/26/2023 |
| 178,571 |
|
| 177,162 |
|
| 160,972 |
|
| 0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
| 247,032 |
|
| 245,290 |
|
| 226,788 |
|
| 0.9 |
|
| Rocket Software, Inc. |
| Software Publishers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 9.01% |
| (L +8.25%) |
| 11/20/2018 |
| 11/28/2026 |
| 1,285,406 |
|
| 1,266,572 |
|
| 1,215,379 |
|
| 4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
| RPLF Holdings, LLC |
| Software Publishers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Equity (45,890 units) (7) (13) |
|
|
|
|
|
|
| 1/17/2018 |
|
|
|
|
|
| 45,890 |
|
| 59,752 |
|
| 0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SourceHOV Tax, Inc. (6) |
| Other Accounting Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 7.87% |
| (L +6.37%) |
| 3/16/2020 |
| 3/17/2025 |
| 2,306,306 |
|
| 2,290,022 |
|
| 2,274,760 |
|
| 8.7 |
|
|
|
|
|
|
|
|
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|
| Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.,) |
| Child Day Care Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 8.56% |
| (L +8.25%) |
| 7/26/2018 |
| 7/30/2026 |
| 704,000 |
|
| 698,642 |
|
| 660,787 |
|
| 2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
| STS Operating, Inc. |
| Industrial Machinery and Equipment Merchant Wholesalers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 5.25% |
| (L +4.25%) |
| 5/15/2018 |
| 12/11/2024 |
| 104,371 |
|
| 104,195 |
|
| 96,728 |
|
| 0.4 |
|
| Senior Secured Loan |
|
|
| 9.00% |
| (L +8.00%) |
| 5/15/2018 |
| 4/30/2026 |
| 1,593,220 |
|
| 1,593,190 |
|
| 1,452,979 |
|
| 5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,697,591 |
|
| 1,697,385 |
|
| 1,549,707 |
|
| 5.9 |
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Monroe Capital MML CLO X, LTD. | | | | | | | | | | | | | | | | | | |
| Mezzanine bond - Class E | | | | 7.52% | | (L +7.30%) | | 8/7/2020 | | 1/20/2034 (11) | | $ | 1,000,000 | | | $ | 940,287 | | | $ | 1,019,087 | | | 3.6 | % |
| | | | | | | | | | | | | | | | | | |
| Regatta II Funding | | | | | | | | | | | | | | | | | | |
| Mezzanine bond - Class DR2 | | | | 7.19% | | (L +6.95%) | | 6/5/2020 | | 1/15/2029 (11) | | 800,000 | | | 705,500 | | | 777,637 | | | 2.8 | |
| | | | | | | | | | | | | | | | | | |
| Total Structured Finance Note Investments | | | | | | | | | | | | $ | 5,450,000 | | | $ | 4,869,598 | | | $ | 4,969,162 | | | 17.7 | % |
| | | | | | | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | $ | 45,555,352 | | | $ | 45,125,214 | | | $ | 44,461,743 | | | 159.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| The Escape Game, LLC |
| All other amusement and recreation industries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 9.75% |
| (L +8.75%) |
| 12/22/2017 |
| 12/22/2022 |
| $ | 500,000 |
|
| $ | 497,534 |
|
| $ | 464,552 |
|
| 1.8 | % |
| Senior Secured Loan |
|
|
| 9.75% |
| (L +8.75%) |
| 2/14/2020 |
| 12/31/2020 |
| 166,667 |
|
| 165,241 |
|
| 154,851 |
|
| 0.6 |
|
| Senior Secured Loan |
|
|
| 8.00% |
| (L +7.00%) |
| 7/18/2019 |
| 12/31/2020 |
| 333,333 |
|
| 332,582 |
|
| 324,938 |
|
| 1.2 |
|
| Senior Secured Loan (Delayed Draw) |
|
|
| 9.75% |
| (L +8.75%) |
| 7/20/2018 |
| 12/22/2022 |
| 500,000 |
|
| 500,000 |
|
| 464,552 |
|
| 1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,500,000 |
|
| 1,495,357 |
|
| 1,408,893 |
|
| 5.4 |
|
| Truck Hero, Inc. |
| Truck Trailer Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 3.93% |
| (L +3.75%) |
| 5/30/2017 |
| 4/22/2024 |
| 15,908 |
|
| 15,820 |
|
| 14,726 |
|
| 0.1 |
|
| Senior Secured Loan |
|
|
| 9.25% |
| (L +8.25%) |
| 5/30/2017 |
| 4/21/2025 |
| 1,878,456 |
|
| 1,814,659 |
|
| 1,751,431 |
|
| 6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,894,364 |
|
| 1,830,479 |
|
| 1,766,157 |
|
| 6.8 |
|
| TTG Healthcare, LLC |
| Diagnostic Imaging Centers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 10.00% |
| (L +9.00%) |
| 3/1/2019 |
| 3/1/2024 |
| 1,003,518 |
|
| 991,548 |
|
| 986,378 |
|
| 3.8 |
|
| Preferred Equity (191 units) (7) (13) |
|
|
|
|
|
|
| 3/1/2019 |
|
|
|
|
|
| 191,409 |
|
| 289,158 |
|
| 1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,003,518 |
|
| 1,182,957 |
|
| 1,275,536 |
|
| 4.9 |
|
| Wastebuilt Environmental Solutions, LLC |
| Industrial Supplies Merchant Wholesalers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 10.25% |
| (L +8.75%) |
| 10/11/2018 |
| 10/11/2024 |
| 1,500,000 |
|
| 1,477,539 |
|
| 1,059,689 |
|
| 4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Xperi (9) |
| Semiconductor and Related Device Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Senior Secured Loan |
|
|
| 4.17% |
| (L +4.00%) |
| 6/1/2020 |
| 6/1/2025 |
| 100,000 |
|
| 91,341 |
|
| 91,341 |
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Debt and Equity Investments |
|
|
|
|
|
|
|
|
|
|
| $ | 43,098,214 |
|
| $ | 43,253,863 |
|
| $ | 40,895,992 |
|
| 155.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Structured Finance Note Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Park Avenue Institutional Advisers CLO 2017-1 – Class D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mezzanine bond - Class D |
|
|
| 12.98% (14) |
| (L +6.22%) |
| 6/5/2020 |
| 11/14/2029 (11) |
| 100,000 |
|
| 80,128 |
|
| 86,030 |
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Regatta II Funding – Class DR2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mezzanine bond - Class DR2 |
|
|
| 13.56% (14) |
| (L +6.95%) |
| 6/5/2020 |
| 1/15/2029 (11) |
| 800,000 |
|
| 672,896 |
|
| 703,695 |
|
| 2.7 |
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1)(8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Structured Finance Note Investments |
|
|
|
|
|
|
|
|
|
|
| $ | 900,000 |
|
| $ | 753,024 |
|
| $ | 789,725 |
|
| 3.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Investments |
|
|
|
|
|
|
|
|
|
|
| $ | 43,998,214 |
|
| $ | 44,006,887 |
|
| $ | 41,685,717 |
|
| 158.8 | % |
| |
| (1) | Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as "restricted securities" as such term is defined under Rule 6-03(f) of Regulation S-X or Rule 144 of the Securities Act. |
| |
(2) | The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities as payment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed as of June 30, 2020: |
|
| | | | | | | | |
Portfolio Company | | Investment Type | | Range of PIK
Option
| | Range of Cash
Option
| | Maximum PIK
Rate Allowed
|
Eblens Holdings, Inc. | | Subordinated Loan | | 0% or 1.00% | | 13.00% or 12.00% | | 1.00% |
| |
(3) | Substantially all of the debt investments bear interest at rates determined by reference to LIBOR (L), and which are reset monthly or quarterly. For all variable-rate investments the schedule presents the spread over LIBOR and the interest rate as of June 30, 2020. All investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision. |
| |
(4) | Unless otherwise noted with footnote 9, fair value was determined using significant unobservable inputs for all of the Company's investments and are considered Level 3 under GAAP. See Note 5 for further details.
|
| |
(5) | Commitment fee on undrawn funds. |
| |
(6) | The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of June 30, 2020: |
|
| | | | | | |
| Portfolio Company | | Reported Interest Rate | | Interest Rate per Credit Agreement | | Additional Interest per Annum |
| Carolina Lubes, Inc. | | 9.10% | | 8.68% | | 0.42% |
| Chemical Resources Holdings, Inc. | | 9.33% | | 7.50% | | 1.83% |
| DRS Imaging Services, LLC | | 10.17% | | 9.00% | | 1.17% |
| Milrose Consultants, LLC | | 7.18% | | 6.50% | | 0.68% |
| OnSite Care, PLLC | | 8.73% | | 7.25% | | 1.48% |
| SourceHOV Tax, Inc. | | 7.87% | | 7.00% | | 0.87% |
| |
(8) | Investments pledged as collateral under the PWB Credit Facility. |
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
June 30, 2020
| |
(9) | Fair value was determined by reference to observable inputs other than quoted prices in active markets and are considered Level 2 under GAAP. See Note 5 for further details.
|
| |
(10) | Investment was on non-accrual status as of June 30, 2020, meaning the Company has ceased recognition of all or a portion of income on the investment. See Note 4 for further details. |
| |
(11) | Maturity represents the contractual maturity date of the structured finance notes. Expected maturity and cash flows, not contractual maturity and cash flows, were utilized in deriving the effective yield of the investments. |
(12) Subject to unfunded commitments. See Note 6 for further details.
(13) All or portion of investment held by HPCI-MB, a wholly owned subsidiary subject to corporate income tax.
(14) The rate disclosed is an estimated effective yield, historically established at the time of the most recent distribution, and based upon the projection of the amount and timing of distributions in addition to the estimated amount and timing of terminal principal payments at that time. Effective yields for the Company's Structured Finance Note investments are monitored and evaluated at each reporting date. The estimated yield and investment cost may ultimately not be realized.
See Notes to Financial Statements.
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) Investment Type (2) | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Non-control/Non-affiliate Investments | | | | | | | | | | | | | | |
| All Star Auto Lights, Inc. | | Motor Vehicle Parts (Used) Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.40% | | (L +7.50%) | | 12/19/2019 | | 8/20/2024 | | $ | 3,000,000 |
| | $ | 2,970,229 |
| | $ | 2,970,229 |
| | 10.2 | % |
| | | | | | | | | | | | | | | | | | | |
| Asurion, LLC (9) | | Communication Equipment Repair and Maintenance | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.30% | | (L +6.50%) | | 11/19/2019 | | 8/4/2025 | | 1,500,000 |
| | 1,511,250 |
| | 1,511,250 |
| | 5.2 |
|
| | | | | | | | | | | | | | | | | | | |
| BayMark Health Services | | Outpatient Mental Health and Substance Abuse Centers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.21% | | (L +8.25%) | | 3/22/2018 | | 3/1/2025 | | 1,000,000 |
| | 992,561 |
| | 1,000,000 |
| | 3.4 |
|
| | | | | | | | | | | | | | | | | | | |
| Carolina Lubes, Inc. | | Automotive Oil Change and Lubrication Shops | | | | | | | | | | | | | | | | |
| Senior Secured Loan (5) | | | | 9.83% | | (L +7.70%) | | 8/23/2017 | | 8/23/2022 | | 557,824 |
| | 555,230 |
| | 563,314 |
| | 1.9 |
|
| Senior Secured Loan (Revolver) (7) | | | | 0.25% (11) | | (L +7.25%) | | 8/23/2017 | | 8/23/2022 | | — |
| | (212 | ) | | (212 | ) | | — |
|
| | | | | | | | | | | | | 557,824 |
| | 555,018 |
| | 563,102 |
| | 1.9 |
|
| Chemical Resources Holdings, Inc. | | Custom Compounding of Purchased Resins | | | | | | | | | | | | | | | | |
| Senior Secured Loan (5) | | | | 9.82% | | (L +7.89%) | | 1/25/2019 | | 1/25/2024 | | 1,256,850 |
| | 1,243,072 |
| | 1,257,160 |
| | 4.3 |
|
| Common Equity (168 units) (6) (14) | | | | | | | | 1/25/2019 | | | | | | 166,469 |
| | 223,784 |
| | 0.8 |
|
| | | | | | | | | | | | | 1,256,850 |
| | 1,409,541 |
| | 1,480,944 |
| | 5.1 |
|
| Cirrus Medical Staffing, Inc. | | Temporary Help Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan (5) | | | | 10.19% | | (L +8.25%) | | 3/5/2018 | | 10/19/2022 | | 820,283 |
| | 813,402 |
| | 806,839 |
| | 2.8 |
|
| Senior Secured Loan (Revolver) (7) | | | | 10.19% | | (L +8.25%) | | 3/5/2018 | | 10/19/2022 | | 91,928 |
| | 91,928 |
| | 90,371 |
| | 0.3 |
|
| | | | | | | | | | | | | 912,211 |
| | 905,330 |
| | 897,210 |
| | 3.1 |
|
| Confie Seguros Holdings II Co. | | Insurance Agencies and Brokerages | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.41% | | (L +8.50%) | | 6/6/2017 | | 11/1/2025 | | 447,640 |
| | 440,143 |
| | 433,920 |
| | 1.5 |
|
| | | | | | | | | | | | | | | | | | | |
| Constellis Holdings, LLC (12) | | Other Justice, Public Order, and Safety Activities | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 6.93% | | (L +5.00%) | | 4/27/2017 | | 4/21/2024 | | 24,438 |
| | 24,281 |
| | 10,079 |
| | — |
|
| Senior Secured Loan | | | | 10.93% | | (L +9.00%) | | 4/26/2017 | | 4/21/2025 | | 550,000 |
| | 553,529 |
| | 22,500 |
| | 0.1 |
|
| | | | | | | | | | | | | 574,438 |
| | 577,810 |
| | 32,579 |
| | 0.1 |
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) Investment Type (2) | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Convergint Technologies | | Security Systems Services (except Locksmiths) | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.55% | | (L +6.75%) | | 9/28/2018 | | 2/2/2026 | | $ | 1,893,750 |
| | $ | 1,856,191 |
| | $ | 1,862,669 |
| | 6.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Davis Vision, Inc. | | Direct Health and Medical Insurance Carriers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.55% | | (L +6.75%) | | 7/16/2018 | | 12/1/2025 | | 1,371,000 |
| | 1,347,363 |
| | 1,370,999 |
| | 4.7 |
|
| | | | | | | | | | | | | | | | | | | |
| DRS Imaging Services, LLC | | Data Processing, Hosting, and Related Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan (5) | | | | 11.21% | | (L +9.27%) | | 3/8/2018 | | 11/20/2023 | | 1,092,259 |
| | 1,085,181 |
| | 1,074,896 |
| | 3.7 |
|
| Common Equity (115 units) (6) (14) | | | | | | | | 3/8/2018 | | | | | | 115,385 |
| | 135,361 |
| | 0.5 |
|
| | | | | | | | | | | | | 1,092,259 |
| | 1,200,566 |
| | 1,210,257 |
| | 4.2 |
|
| DuPage Medical Group | | Offices of Physicians, Mental Health Specialists | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 4.55% | | (L +2.75%) | | 8/22/2017 | | 8/15/2024 | | 97,091 |
| | 96,770 |
| | 96,909 |
| | 0.3 |
|
| Senior Secured Loan | | | | 8.80% | | (L +7.00%) | | 8/22/2017 | | 8/15/2025 | | 1,590,882 |
| | 1,594,381 |
| | 1,590,882 |
| | 5.5 |
|
| | | | | | | | | | | | | 1,687,973 |
| | 1,691,151 |
| | 1,687,791 |
| | 5.8 |
|
| Eblens Holdings, Inc. | | Shoe Store | | | | | | | | | | | | | | | | |
| Subordinated Loan (10) | | | | 12.00% | | N/A | | 7/13/2017 | | 1/13/2023 | | 474,220 |
| | 471,670 |
| | 474,994 |
| | 1.6 |
|
| Common Equity (3,750 units) (6) | | | | | | | | 7/13/2017 | | | | | | 37,500 |
| | 46,925 |
| | 0.2 |
|
| | | | | | | | | | | | | 474,220 |
| | 509,170 |
| | 521,919 |
| | 1.8 |
|
| Excelin Home Health, LLC | | Home Health Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 11.50% | | (L +9.50%) | | 10/25/2018 | | 4/25/2024 | | 1,000,000 |
| | 984,311 |
| | 957,589 |
| | 3.3 |
|
| | | | | | | | | | | | | | | | | | | |
| Hyland Software, Inc. | | Software Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 5.30% | | (L +3.50%) | | 10/24/2018 | | 7/1/2024 | | 21,955 |
| | 21,929 |
| | 22,111 |
| | 0.1 |
|
| Senior Secured Loan | | | | 8.80% | | (L +7.00%) | | 10/24/2018 | | 7/7/2025 | | 333,469 |
| | 335,106 |
| | 335,453 |
| | 1.2 |
|
| | | | | | | | | | | | | 355,424 |
| | 357,035 |
| | 357,564 |
| | 1.3 |
|
| Inergex Holdings | | Other Computer Related Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.94% | | (L +7.00%) | | 10/1/2018 | | 10/1/2024 | | 1,105,984 |
| | 1,092,589 |
| | 1,099,360 |
| | 3.8 |
|
| Senior Secured Loan (Revolver) (7) | | | | 9.06% | | (L +7.00%) | | 10/1/2018 | | 10/1/2024 | | 125,000 |
| | 123,516 |
| | 124,251 |
| | 0.4 |
|
| | | | | | | | | | | | | 1,230,984 |
| | 1,216,105 |
| | 1,223,611 |
| | 4.2 |
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) Investment Type (2) | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Institutional Shareholder Services Inc. | | Administrative Management and General Management Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.44% | | (L +8.50%) | | 3/4/2019 | | 3/5/2027 | | $ | 1,068,750 |
| | $ | 1,039,942 |
| | $ | 1,043,849 |
| | 3.6 | % |
| | | | | | | | | | | | | | | | | | | |
| McAfee, LLC (9) | | Software Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.30% | | (L +8.50%) | | 11/15/2019 | | 9/29/2025 | | 1,500,000 |
| | 1,501,875 |
| | 1,501,875 |
| | 5.2 |
|
| | | | | | | | | | | | | | | | | | | |
| Milrose Consultants, LLC (5) | | Administrative Management and General Management Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.14% | | (L +6.20%) | | 7/16/2019 | | 7/16/2025 | | 2,000,000 |
| | 1,986,156 |
| | 1,981,712 |
| | 6.8 |
|
| | | | | | | | | | | | | | | | | | | |
| Online Tech Stores, LLC | | Stationery and Office Supplies Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Subordinated Secured Loan | | | | 10.50% | | N/A | | 2/1/2018 | | 8/1/2023 | | 1,020,175 |
| | 1,007,141 |
| | 909,902 |
| | 3.1 |
|
| | | | | | | | | | | | | | | | | | | |
| OnSite Care, PLLC (5) | | Home Health Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.10% | | (L +7.75%) | | 8/10/2018 | | 8/10/2023 | | 1,209,375 |
| | 1,197,378 |
| | 1,161,457 |
| | 4.0 |
|
| | | | | | | | | | | | | | | | | | | |
| Parfums Holding Company, Inc. | | Cosmetics, Beauty Supplies, and Perfume Stores | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.70% | | (L +8.75%) | | 11/16/2017 | | 6/30/2025 | | 2,000,000 |
| | 1,982,998 |
| | 1,982,998 |
| | 6.8 |
|
| | | | | | | | | | | | | | | | | | | |
| Pelican Products, Inc. | | Unlaminated Plastics Profile Shape Manufacturing | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.49% | | (L +7.75%) | | 9/24/2018 | | 5/1/2026 | | 2,000,000 |
| | 2,008,434 |
| | 1,971,656 |
| | 6.8 |
|
| | | | | | | | | | | | | | | | | | | |
| Performance Team LLC | | General Warehousing and Storage | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 11.80% | | (L +10.00%) | | 5/24/2018 | | 11/24/2023 | | 1,026,316 |
| | 1,019,049 |
| | 1,036,579 |
| | 3.6 |
|
| | | | | | | | | | | | | | | | | | | |
| Professional Pipe Holdings, LLC | | Plumbing, Heating, and Air-Conditioning Contractors | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.55% | | (L +8.75%) | | 3/23/2018 | | 3/23/2023 | | 430,236 |
| | 424,753 |
| | 434,538 |
| | 1.4 |
|
| Common Equity (86 Class A units) (6) | | | | | | | | 3/23/2018 | | | | | | 85,714 |
| | 146,000 |
| | 0.5 |
|
| | | | | | | | | | | | | 430,236 |
| | 510,467 |
| | 580,538 |
| | 1.9 |
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) Investment Type (2) | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Resource Label Group, LLC | | Commercial Printing (except Screen and Books) | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 6.60% | | (L +4.50%) | | 6/7/2017 | | 5/26/2023 | | $ | 69,391 |
| | $ | 68,996 |
| | $ | 67,846 |
| | 0.2 | % |
| Senior Secured Loan | | | | 10.60% | | (L +8.50%) | | 6/7/2017 | | 11/26/2023 | | 178,571 |
| | 176,956 |
| | 170,044 |
| | 0.6 |
|
| | | | | | | | | | | | | 247,962 |
| | 245,952 |
| | 237,890 |
| | 0.8 |
|
| Rocket Software, Inc. | | Software Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 6.05% | | (L +4.25%) | | 11/20/2018 | | 11/28/2025 | | 136,300 |
| | 135,720 |
| | 132,970 |
| | 0.5 |
|
| Senior Secured Loan | | | | 10.05% | | (L +8.25%) | | 11/20/2018 | | 11/28/2026 | | 1,285,406 |
| | 1,265,107 |
| | 1,248,468 |
| | 4.3 |
|
| | | | | | | | | | | | | 1,421,706 |
| | 1,400,827 |
| | 1,381,438 |
| | 4.8 |
|
| RPLF Holdings, LLC (6) (14) | | Software Publishers | | | | | | | | | | | | | | | | |
| Common Equity (45,890 Class A units) | | | | | | | | 1/17/2018 | | | | | | 45,890 |
| | 33,605 |
| | 0.1 |
|
| | | | | | | | | | | | | | | | | | | |
| SSH Group Holdings, Inc. | | Child Day Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 6.19% | | (L +4.25%) | | 7/26/2018 | | 7/30/2025 | | 94,800 |
| | 94,611 |
| | 95,452 |
| | 0.3 |
|
| Senior Secured Loan | | | | 10.19% | | (L +8.25%) | | 7/26/2018 | | 7/30/2026 | | 704,000 |
| | 698,201 |
| | 711,040 |
| | 2.4 |
|
| | | | | | | | | | | | | 798,800 |
| | 792,812 |
| | 806,492 |
| | 2.7 |
|
| STS Operating, Inc. | | Industrial Machinery and Equipment Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 6.05% | | (L +4.25%) | | 5/15/2018 | | 12/11/2024 | | 104,907 |
| | 104,709 |
| | 104,821 |
| | 0.4 |
|
| Senior Secured Loan | | | | 9.80% | | (L +8.00%) | | 5/15/2018 | | 4/30/2026 | | 1,593,220 |
| | 1,593,186 |
| | 1,585,535 |
| | 5.3 |
|
| | | | | | | | | | | | | 1,698,127 |
| | 1,697,895 |
| | 1,690,356 |
| | 5.7 |
|
| The Escape Game, LLC | | All other amusement and recreation industries | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.80% | | (L +7.00%) | | 7/18/2019 | | 3/31/2020 | | 333,333 |
| | 331,582 |
| | 331,810 |
| | 1.1 |
|
| Senior Secured Loan | | | | 10.55% | | (L +8.75%) | | 12/22/2017 | | 12/22/2022 | | 500,000 |
| | 497,770 |
| | 498,106 |
| | 1.7 |
|
| Senior Secured Loan (Delayed Draw) | | | | 10.55% | | (L +8.75%) | | 7/20/2018 | | 12/22/2022 | | 500,000 |
| | 500,000 |
| | 498,106 |
| | 1.7 |
|
| | | | | | | | | | | | | 1,333,333 |
| | 1,329,352 |
| | 1,328,022 |
| | 4.5 |
|
| Truck Hero, Inc. | | Truck Trailer Manufacturing | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 5.55% | | (L +3.75%) | | 5/30/2017 | | 4/22/2024 | | 15,990 |
| | 15,890 |
| | 15,653 |
| | 0.1 |
|
| Senior Secured Loan | | | | 10.05% | | (L +8.25%) | | 5/30/2017 | | 4/21/2025 | | 1,878,456 |
| | 1,808,043 |
| | 1,791,751 |
| | 6.2 |
|
| | | | | | | | | | | | | 1,894,446 |
| | 1,823,933 |
| | 1,807,404 |
| | 6.3 |
|
| TTG Healthcare, LLC | | Diagnostic Imaging Centers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.71% | | (L +9.00%) | | 3/1/2019 | | 3/1/2024 | | 1,003,518 |
| | 989,921 |
| | 975,594 |
| | 3.4 |
|
| Preferred Equity (191 units) (6) (14) | | | | | | | | 3/1/2019 | | | | | | 191,409 |
| | 201,006 |
| | 0.7 |
|
| | | | | | | | | | | | | 1,003,518 |
| | 1,181,330 |
| | 1,176,600 |
| | 4.1 |
|
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) Investment Type (2) | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal Amount | | Amortized Cost | | Fair Value (4) | | Percent of Net Assets |
| Wastebuilt Environmental Solutions, LLC. | | Industrial Supplies Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.69% | | (L +8.75%) | | 10/11/2018 | | 10/11/2024 | | $ | 1,500,000 |
| | $ | 1,474,924 |
| | $ | 1,410,917 |
| | 4.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | $ | 40,507,317 |
| | $ | 40,770,129 |
| | $ | 40,124,923 |
| | 137.8 | % |
(1) Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as "restricted securities" as such term is defined under Rule 6-03(f) of Regulation S-X or Rule 144 of the Securities Act.
(2) All of the Company’s investments were qualifying assets under Section 55(a) of the 1940 Act as of the period end. Qualifying assets must represent at least 70% of the Company's assets, as defined under Section 55 of the 1940 Act, at the time of acquisition of any additional non-qualifying assets.
(3) Substantially all of the debt investments bear interest at rates determined by reference to LIBOR (L), generally between 1.7% and 2.1% at December 31, 2019, and which are reset monthly or quarterly. For all variable-rate investments the schedule presents the spread over LIBOR and the interest rate as of December 31, 2019. Unless otherwise noted, all investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision.
(4) Unless otherwise noted with footnote 9, fair value was determined using significant unobservable inputs for all of the Company's investments and are considered Level 3 under GAAP. See Note 5 for further details.
(5) The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of December 31, 2019:
|
| | | | | | |
| Portfolio Company | | Reported Interest Rate | | Interest Rate per Credit Agreement | | Additional Interest per Annum |
| Carolina Lubes, Inc. | | 9.83% | | 9.35% | | 0.48% |
| Chemical Resources Holdings, Inc. | | 9.82% | | 7.93% | | 1.89% |
| DRS Imaging Services, LLC | | 11.21% | | 9.94% | | 1.27% |
| Milrose Consultants, LLC | | 8.14% | | 7.44% | | 0.70% |
| OnSite Care, PLLC | | 9.49% | | 7.96% | | 1.53% |
(6) Non-income producing.
(7) Subject to unfunded commitments. See Note 6 for further details.
(8) Investments pledged as collateral under the PWB Credit Facility.
(9) Fair value was determined by reference to observable inputs other than quoted prices in active markets and are considered Level 2 under GAAP. See Note 5 for further details.
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2019
(10) The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities as payment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed as of DecemberMarch 31, 2019:2021:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company | | Investment Type | | Range of PIK
Option
| | Range of Cash
Option
| | Maximum PIK
Rate Allowed
|
| Eblens Holdings, Inc. | | Subordinated Loan | | 0% or 1.00% | | 13.00% or 12.00% | | 1.00% |
(11) Commitment fee
(3)Substantially all of the debt investments bear interest at rates determined by reference to LIBOR (L), and which are reset monthly or quarterly. For all variable-rate investments, the schedule presents the spread over LIBOR and the interest rate as of March 31, 2021. All investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision.
(4)Unless otherwise noted with footnote 9, fair value was determined using significant unobservable inputs for all of the Company's investments and are considered Level 3 under GAAP. See Note 5 for further details.
(5)Not meaningful as there is no outstanding balance on the revolver. The Company earns unfunded commitment fees on undrawn funds.revolving lines of credit balances, which are reported in fee income. The Company considers undrawn amounts in the determination of fair value on revolving lines of credit.
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments (unaudited)
March 31, 2021
(6)The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| Portfolio Company | | Reported Interest Rate | | Interest Rate per Credit Agreement | | Additional Interest per Annum |
| Chemical Resources Holdings, Inc. | | 9.09% | | 7.50% | | 1.59% |
| Milrose Consultants, LLC | | 7.61% | | 7.00% | | 0.61% |
| SourceHOV Tax, Inc. | | 7.61% | | 7.00% | | 0.61% |
(7)Non-income producing.
(8)Investments pledged as collateral under the PWB Credit Facility.
(9)Fair value was determined by reference to observable inputs other than quoted prices in active markets and are considered Level 2 under GAAP. See Note 5 for further details.
(10)Investment was on non-accrual status as of DecemberMarch 31, 2019,2021, meaning the Company has ceasedsuspended recognition of all or a portion of income on the investment.
See Note 4 for further details.
(14)(11)Maturity date represents the contractual maturity date of the Structured Finance Notes. Projected cash flows, including the projected amount and timing of terminal principal payments which may be projected to occur prior to contractual maturity date, were utilized in deriving the effective yield of the investments.
(12) Subject to unfunded commitments. See Note 6 for further details.
(13) All or portion of investment held by HPCI-MB, LLC, a wholly owned subsidiary subject to corporate income tax.
(14) The rate disclosed is the estimated effective yield, generally established at purchase and re-evaluated upon receipt of distributions, and based upon projected amounts and timing of future distributions and the projected amount and timing of terminal principal payments at the time of estimation. The estimated yield and investment cost may ultimately not be realized.
(15) Amortized cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO subordinated debt investments.
(16) CLO subordinated debt positions are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying securities less contractual payments to debt holders and fund expenses.
See Notes to Consolidated Financial Statements.
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) (8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Non-control/Non-affiliate Investments | | | | | | | | | | | | | | |
| All Star Auto Lights, Inc. | | Motor Vehicle Parts (Used) Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.50% | | (L +7.50%) | | 12/19/2019 | | 8/20/2024 | | $ | 3,235,962 | | | $ | 3,207,447 | | | $ | 3,074,744 | | | 11.2 | % |
| | | | | | | | | | | | | | | | | | |
| A&A Transfer, LLC | | Construction and Mining (except Oil Well) Machinery and Equipment Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.25% | | (L +6.50%) | | 2/7/2020 | | 2/7/2025 | | 1,848,000 | | | 1,825,185 | | | 1,866,480 | | | 6.8 | |
| Senior Secured Loan (Revolver) (12) | | | | n/m (5) | | (L +6.50%) | | 2/7/2020 | | 2/7/2025 | | — | | | (3,891) | | | (2,373) | | | — | |
| | | | | | | | | | | | 1,848,000 | | | 1,821,294 | | | 1,864,107 | | | 6.8 | |
| BayMark Health Services | | Outpatient Mental Health and Substance Abuse Centers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.25% | | (L +8.25%) | | 3/22/2018 | | 3/1/2025 | | 1,000,000 | | | 994,006 | | | 1,000,000 | | | 3.6 | |
| | | | | | | | | | | | | | | | | | |
| Chemical Resources Holdings, Inc. | | Custom Compounding of Purchased Resins | | | | | | | | | | | | | | | | |
| Senior Secured Loan (6) | | | | 9.17% | | (L +7.67%) | | 1/25/2019 | | 1/25/2024 | | 1,256,850 | | | 1,246,469 | | | 1,256,850 | | | 4.6 | |
| Common Equity (168 units) (7) (13) | | | | | | | | 1/25/2019 | | | | | | 166,469 | | | 314,000 | | | 1.1 | |
| | | | | | | | | | | | 1,256,850 | | | 1,412,938 | | | 1,570,850 | | | 5.7 | |
| Confie Seguros Holdings II Co. | | Insurance Agencies and Brokerages | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.73% | | (L +8.50%) | | 6/6/2017 | | 11/1/2025 | | 1,447,640 | | | 1,405,677 | | | 1,391,331 | | | 5.1 | |
| | | | | | | | | | | | | | | | | | |
| Constellis Holdings, LLC | | Other Justice, Public Order, and Safety Activities | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.50% | | (L +7.50%) | | 3/27/2020 | | 3/27/2024 | | 2,650 | | | 2,650 | | | 2,650 | | | — | |
| Senior Secured Loan | | | | 12.00% | | (L +11.00%) | | 3/27/2020 | | 3/27/2025 | | 3,522 | | | 3,080 | | | 3,593 | | | — | |
| Common Equity (1,362 units) | | | | | | | | 3/27/2020 | | | | | | 46,403 | | | 34,036 | | | 0.1 | |
| | | | | | | | | | | | 6,172 | | | 52,133 | | | 40,279 | | | 0.1 | |
| Convergint Technologies | | Security Systems Services (except Locksmiths) | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 7.50% | | (L +6.75%) | | 9/28/2018 | | 2/2/2026 | | 2,393,750 | | | 2,353,885 | | | 2,330,921 | | | 8.5 | |
| | | | | | | | | | | | | | | | | | |
| DRS Imaging Services, LLC | | Data Processing, Hosting, and Related Services | | | | | | | | | | | | | | | | |
| Common Equity (115 units) (7) (13) | | | | | | | | 3/8/2018 | | | | | | 115,154 | | | 178,000 | | | 0.6 | |
| | | | | | | | | | | | | | | | | | |
| DuPage Medical Group | | Offices of Physicians, Mental Health Specialists | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 3.50% | | (L +2.75%) | | 8/22/2017 | | 8/15/2024 | | 96,100 | | | 95,851 | | | 95,640 | | | 0.3 | |
| Senior Secured Loan | | | | 7.75% | | (L +7.00%) | | 8/22/2017 | | 8/15/2025 | | 1,939,435 | | | 1,935,728 | | | 1,939,435 | | | 7.1 | |
| | | | | | | | | | | | 2,035,536 | | | 2,031,579 | | | 2,035,075 | | | 7.4 | |
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) (8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Eblens Holdings, Inc. | | Shoe Store | | | | | | | | | | | | | | | | |
| Subordinated Loan (2) | | | | 12.00% cash / 1.00% PIK | | N/A | | 7/13/2017 | | 1/13/2023 | | $ | 479,683 | | | $ | 475,323 | | | $ | 229,885 | | | 0.8 | % |
| Common Equity (3,750 units) (7) | | | | | | | | 7/13/2017 | | | | | | 37,500 | | | — | | | — | |
| | | | | | | | | | | | 479,683 | | | 512,823 | | | 229,885 | | | 0.8 | |
| Excelin Home Health, LLC | | Home Health Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 11.50% | | (L +9.50%) | | 10/25/2018 | | 4/25/2024 | | 1,000,000 | | | 987,954 | | | 1,000,000 | | | 3.6 | |
| | | | | | | | | | | | | | | | | | |
| Hyland Software, Inc. | | Software Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 4.25% | | (L +3.50%) | | 10/24/2018 | | 7/1/2024 | | 21,733 | | | 21,712 | | | 21,814 | | | 0.1 | |
| Senior Secured Loan | | | | 7.75% | | (L +7.00%) | | 10/24/2018 | | 7/7/2025 | | 293,452 | | | 294,593 | | | 293,452 | | | 1.1 | |
| | | | | | | | | | | | 315,185 | | | 316,305 | | | 315,267 | | | 1.2 | |
| Inergex Holdings | | Other Computer Related Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.00% | | (L +7.00%) | | 10/1/2018 | | 10/1/2024 | | 1,094,797 | | | 1,084,334 | | | 1,060,897 | | | 3.9 | |
| Senior Secured Loan (Revolver) (12) | | | | n/m (5) | | (L +7.00%) | | 10/1/2018 | | 10/1/2024 | | — | | | (1,171) | | | — | | | — | |
| | | | | | | | | | | | 1,094,797 | | | 1,083,163 | | | 1,060,897 | | | 3.9 | |
| Institutional Shareholder Services Inc. | | Administrative Management and General Management Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.75% | | (L +8.50%) | | 3/4/2019 | | 3/5/2027 | | 1,068,750 | | | 1,043,966 | | | 1,068,750 | | | 3.9 | |
| | | | | | | | | | | | | | | | | | |
| I&I Sales Group, LLC | | Marketing Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.50% | | (L +8.50%) | | 12/30/2020 | | 7/10/2025 | | 1,000,000 | | | 982,521 | | | 982,521 | | | 3.6 | |
| Senior Secured Loan (Revolver) (12) | | | | n/m (5) | | (L +8.50%) | | 12/30/2020 | | 7/10/2025 | | — | | | (512) | | | (512) | | | — | |
| | | | | | | | | | | | 1,000,000 | | | 982,009 | | | 982,009 | | | 3.6 | |
| Milrose Consultants, LLC | | Administrative Management and General Management Consulting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan (6) | | | | 7.62% | | (L +6.62%) | | 7/16/2019 | | 7/16/2025 | | 3,925,926 | | | 3,892,798 | | | 3,910,455 | | | 14.2 | |
| | | | | | | | | | | | | | | | | | |
| Online Tech Stores, LLC | | Stationery and Office Supplies Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Subordinated Secured Loan (10) | | | | 13.50% PIK | | N/A | | 2/1/2018 | | 8/1/2023 | | 1,147,487 | | | 1,007,141 | | | 151,631 | | | 0.6 | |
| | | | | | | | | | | | | | | | | | |
| Parfums Holding Company, Inc. | | Cosmetics, Beauty Supplies, and Perfume Stores | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.75% | | (L +8.75%) | | 11/16/2017 | | 6/30/2025 | | 1,636,364 | | | 1,624,785 | | | 1,636,364 | | | 6.0 | |
| | | | | | | | | | | | | | | | | | |
| Pelican Products, Inc. | | Unlaminated Plastics Profile Shape Manufacturing | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.75% | | (L +7.75%) | | 9/24/2018 | | 5/1/2026 | | 2,000,000 | | | 2,007,100 | | | 1,979,900 | | | 7.2 | |
| | | | | | | | | | | | | | | | | | |
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) (8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Professional Pipe Holdings, LLC | | Plumbing, Heating, and Air-Conditioning Contractors | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.75% cash / 1.50% PIK | | (L +8.75%) | | 3/23/2018 | | 3/23/2023 | | $ | 379,552 | | | $ | 375,340 | | | $ | 368,870 | | | 1.3 | % |
| Common Equity (86 units) (7) | | | | | | | | 3/23/2018 | | | | | | 85,714 | | | 73,000 | | | 0.3 | |
| | | | | | | | | | | | 379,552 | | | 461,054 | | | 441,870 | | | 1.6 | |
| Resource Label Group, LLC | | Commercial Printing (except Screen and Books) | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 5.50% | | (L +4.50%) | | 6/7/2017 | | 5/26/2023 | | 68,105 | | | 67,831 | | | 67,337 | | | 0.2 | |
| Senior Secured Loan | | | | 9.50% | | (L +8.50%) | | 6/7/2017 | | 11/26/2023 | | 178,571 | | | 177,371 | | | 178,204 | | | 0.6 | |
| | | | | | | | | | | | 246,676 | | | 245,202 | | | 245,540 | | | 0.8 | |
| Rocket Software, Inc. | | Software Publishers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.46% | | (L +8.25%) | | 11/20/2018 | | 11/28/2026 | | 1,285,406 | | | 1,268,054 | | | 1,278,549 | | | 4.7 | |
| | | | | | | | | | | | | | | | | | |
| RPLF Holdings, LLC | | Software Publishers | | | | | | | | | | | | | | | | |
| Common Equity (45,890 units) (7) (13) | | | | | | | | 1/17/2018 | | | | | | 88,917 | | | 109,000 | | | 0.4 | |
| | | | | | | | | | | | | | | | | | |
| SourceHOV Tax, Inc. | | Other Accounting Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan (6) | | | | 7.61% | | (L +6.11%) | | 3/16/2020 | | 3/17/2025 | | 3,552,124 | | | 3,525,944 | | | 3,569,555 | | | 13.0 | |
| | | | | | | | | | | | | | | | | | |
| Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.) | | Child Day Care Services | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.50% | | (L +8.25%) | | 7/26/2018 | | 7/30/2026 | | 704,000 | | | 699,087 | | | 628,475 | | | 2.3 | |
| | | | | | | | | | | | | | | | | | |
| STS Operating, Inc. | | Industrial Machinery and Equipment Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 5.25% | | (L +4.25%) | | 5/15/2018 | | 12/11/2024 | | 103,836 | | | 103,681 | | | 99,705 | | | 0.4 | |
| Senior Secured Loan | | | | 9.00% | | (L +8.00%) | | 5/15/2018 | | 4/30/2026 | | 1,593,220 | | | 1,593,192 | | | 1,506,214 | | | 5.6 | |
| | | | | | | | | | | | 1,697,056 | | | 1,696,873 | | | 1,605,919 | | | 6.0 | |
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) (8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| The Escape Game, LLC | | All other amusement and recreation industries | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 9.75% | | (L +8.75%) | | 7/18/2019 | | 12/22/2022 | | $ | 500,000 | | | $ | 498,036 | | | $ | 474,777 | | | 1.7 | % |
| Senior Secured Loan | | | | 9.75% | | (L +8.75%) | | 12/22/2017 | | 12/31/2021 | | 166,667 | | | 166,667 | | | 158,259 | | | 0.6 | |
| Senior Secured Loan | | | | 8.00% | | (L +7.00%) | | 7/20/2018 | | 12/31/2021 | | 333,333 | | | 333,333 | | | 318,765 | | | 1.2 | |
| Senior Secured Loan (Delayed Draw) | | | | 9.75% | | (L +8.75%) | | 7/20/2018 | | 12/22/2022 | | 500,000 | | | 500,000 | | | 474,777 | | | 1.7 | |
| | | | | | | | | | | | 1,500,000 | | | 1,498,036 | | | 1,426,579 | | | 5.2 | |
| Truck Hero, Inc. | | Truck Trailer Manufacturing | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 3.90% | | (L +3.75%) | | 5/30/2017 | | 4/22/2024 | | 15,826 | | | 15,750 | | | 15,829 | | | 0.1 | |
| Senior Secured Loan | | | | 9.25% | | (L +8.25%) | | 5/30/2017 | | 4/21/2025 | | 1,878,456 | | | 1,821,347 | | | 1,878,456 | | | 6.8 | |
| | | | | | | | | | | | 1,894,282 | | | 1,837,097 | | | 1,894,285 | | | 6.9 | |
| TTG Healthcare, LLC | | Diagnostic Imaging Centers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 8.50% | | (L +7.50%) | | 3/1/2019 | | 11/28/2025 | | 1,625,354 | | | 1,609,224 | | | 1,619,283 | | | 5.9 | |
| Preferred Equity (191 units) (7) (13) | | | | | | | | 3/1/2019 | | | | | | 191,409 | | | 338,000 | | | 1.2 | |
| | | | | | | | | | | | 1,625,354 | | | 1,800,633 | | | 1,957,283 | | | 7.1 | |
| Wastebuilt Environmental Solutions, LLC. | | Industrial Supplies Merchant Wholesalers | | | | | | | | | | | | | | | | |
| Senior Secured Loan | | | | 10.25% | | (L +8.75%) | | 10/11/2018 | | 10/11/2024 | | 1,500,000 | | | 1,480,183 | | | 1,256,550 | | | 4.6 | |
| | | | | | | | | | | | | | | | | | |
| Xperi | | Semiconductor and Related Device Manufacturing | | | | | | | | | | | | | | | | |
| Senior Secured Loan (9) | | | | 4.15% | | (L +4.00%) | | 6/1/2020 | | 6/1/2025 | | 83,214 | | | 76,747 | | | 83,492 | | | 0.3 | |
| | | | | | | | | | | | | | | | | | |
| Total Debt and Equity Investments | | | | | | | | | | | | $ | 41,359,765 | | | $ | 41,529,984 | | | $ | 40,317,562 | | | 146.9 | % |
| | | | | | | | | | | | | | | | | | |
| Structured Finance Note Investments | | | | | | | | | | | | | | | | | | |
| Apex Credit CLO 2020 | | | | | | | | | | | | | | | | | | |
| Subordinated Notes (16) | | | | 14.16% (14) | | | | 11/16/2020 | | 11/19/2031 (11) | | 3,650,000 | | | 3,116,775 (15) | | 3,295,738 | | | 12.0 | |
| | | | | | | | | | | | | | | | | | |
| Monroe Capital MML CLO X, LTD. | | | | | | | | | | | | | | | | | | |
| Mezzanine bond - Class E | | | | 9.08% | | (L +8.85%) | | 8/7/2020 | | 8/20/2031 (11) | | 862,500 | | | 801,944 | | | 838,043 | | | 3.1 | |
| | | | | | | | | | | | | | | | | | |
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) (8) Investment Type | | Industry | | Interest Rate (3) | | Spread Above Index (3) | | Initial Acquisition Date | | Maturity | | Principal
Amount | | Amortized Cost | | Fair Value (4) | | Percent of
Net Assets |
| Park Avenue Institutional Advisers CLO 2017-1 – Class D | | | | | | | | | | | | | | | | | | |
| Mezzanine bond - Class D | | | | 6.44% | | (L +6.22%) | | 6/5/2020 | | 11/14/2029 (11) | | $ | 100,000 | | | $ | 82,564 | | | $ | 95,269 | | | 0.3 | % |
| | | | | | | | | | | | | | | | | | |
| Regatta II Funding – Class DR2 | | | | | | | | | | | | | | | | | | |
| Mezzanine bond - Class DR2 | | | | 7.19% | | (L +6.95%) | | 6/5/2020 | | 1/15/2029 (11) | | 800,000 | | | 695,314 | | | 768,076 | | | 2.8 | |
| | | | | | | | | | | | | | | | | | |
| Total Structured Finance Note Investments | | | | | | | | | | | | $ | 5,412,500 | | | $ | 4,696,597 | | | $ | 4,997,126 | | | 18.2 | % |
| | | | | | | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | $ | 46,772,265 | | | $ | 46,226,581 | | | $ | 45,314,688 | | | 165.1 | % |
(1) Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as "restricted securities" as such term is defined under Rule 6-03(f) of Regulation S-X or Rule 144 of the Securities Act.
(2) The interest rate on this investment contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities as payment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for this investment. The following table provides additional details on this PIK investment, including the maximum annual PIK interest rate allowed as of December 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company | | Investment Type | | Range of PIK
Option | | Range of Cash
Option | | Maximum PIK
Rate Allowed |
| Eblens Holdings, Inc. | | Subordinated Loan | | 0% or 1.00% | | 13.00% or 12.00% | | 1.00% |
(3) Substantially all of the investments that bear interest at a variable rate are indexed to LIBOR (L), generally between 0.75% and 1.0% at December 31, 2020, and reset monthly, quarterly, or semi-annually. Variable-rate loans with an aggregate cost of $39,315,954 include LIBOR reference rate floor provisions of generally 0.75% to 1.0% at December 31, 2020; the reference rate on such instruments was generally below the stated floor provisions. For each investment, the Company has provided the spread over the reference rate and current interest rate in effect at December 31, 2020. Unless otherwise noted, all investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision.
(4) Unless otherwise noted with footnote 9, fair value was determined using significant unobservable inputs for all of the Company's investments and are considered Level 3 under GAAP. See Note 5 for further details.
(5) Not meaningful as there is no outstanding balance on the revolver. The Company earns unfunded commitment fees on undrawn revolving lines of credit balances, which are reported in fee income. The Company considers undrawn amounts in the determination of fair value on revolving lines of credit.
Hancock Park Corporate Income, Inc.
Consolidated Schedule of Investments
December 31, 2020
(6) The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of December 31, 2020: | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company | | Reported Interest Rate | | Interest Rate per Credit Agreement | | Additional Interest per Annum |
| Chemical Resources Holdings, Inc. | | 9.17% | | 7.50% | | 1.67% |
| Milrose Consultants, LLC | | 7.62% | | 7.00% | | 0.62% |
| SourceHOV Tax, Inc. | | 7.61% | | 7.00% | | 0.61% |
(7) Non-income producing.
(8) Investments pledged as collateral under the PWB Credit Facility.
(9) Fair value was determined by reference to observable inputs other than quoted prices in active markets and are considered Level 2 under GAAP. See Note 5 for further details.
(10) Investment was on non-accrual status as of December 31, 2020, meaning the Company has suspended recognition of all or a portion of income on the investment. See Note 4 for further details.
(11) Maturity date represents the contractual maturity date of the Structured Finance Notes. Projected cash flows, including the projected amount and timing of terminal principal payments which may be projected to occur prior to contractual maturity date, were utilized in deriving the effective yield of the investments.
(12) Subject to unfunded commitments. See Note 6 for further details.
(13) Investment held by HPCI-MB, a wholly owned subsidiary subject to corporate income tax.
(14) The rate disclosed is the estimated effective yield, generally established at purchase and re-evaluated upon receipt of distributions, and based upon projected amounts and timing of future distributions and the projected amount and timing of terminal principal payments at the time of estimation. The estimated yield and investment cost may ultimately not be realized.
(15) Amortized cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO subordinated debt investments.
(16) CLO subordinated debt investments are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying securities less contractual payments to debt holders and fund expenses.
See Notes to Consolidated Financial Statements.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Note 1. Organization
The Company is a Maryland corporation formed on December 8, 2015 as an externally managed, non-diversified, closed-end investment company. The Company has elected to be regulated as a BDC and as a RIC under Subchapter M of the Code.
The Company’s objective is to provide stockholders with current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments primarily in middle-market companies located principally in the United States. OFS Advisor, an affiliate of the Company and a registered investment adviser, manages the day-to-day operations of, and provides investment advisory services to, the Company and, effective as of August 3, 2020, CIM Capital, an affiliate of the Company, OFS Advisor and CCO, Capital and a registered investment adviser, serves as the Company's sub-adviser.
In addition, OFS Advisor serves as the investment adviser to OFS Capital, a publicly traded BDC with an investment strategy similar to that of the Company. OFS Advisor also serves as the investment adviser to OCCI, a non-diversified, externally managed, closed-end management investment company that is registered as an investment company under the 1940 Act and primarily invests in the equity tranche of CLOs.
The Company intends to raise up to $200,000,000 through offering shares of its common stock to investors in a continuous offering in reliance on exemptions from the registration requirements of the Securities Act. In addition, throughThrough August 3, 2020, the Company and OFS Advisor were party to a dealer manager agreement (the "Prior Dealer Management Agreement") with International Asset Advisory, LLC ("IAA"). Placement activities were conducted by IAA and participating broker dealers who solicited subscriptions to purchase shares of the Company’s common stock. For the six months ended June 30, 2019, fees and expenses pursuant to the Dealer Manager Agreement were paid by OFS Advisor.
On August 3, 2020, the Prior Dealer Manager Agreement was amended and restated to include CCO Capital, LLC, a Delaware limited liability company (the “Dealer Manager”), an affiliate of the Company, OFS Advisor and CIM Capital, as an additional dealer manager for the Offering. From August 3, 2020 through August 31, 2020, the parties intend for the Dealer ManagerCCO and IAA to serveserved as “co-dealer managers” and, effective September 1, 2020, IAA shall assignassigned and transfertransferred all of IAA’s rights, obligations, interests and benefits under the Dealer Manager Agreement to the Dealer Manager.CCO.
The Company may also make investments through HPCI-MB, a wholly owned subsidiary taxed under subchapter C of the Code that generally holds the Company's equity investments of the Companyin portfolio companies that are taxed as pass-through entities.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation: The accompanying interim financial statements of the Company and related financial information have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to ASC Topic 946, Financial Services–Investment Companies, the requirements for reporting on Form 10-Q, and Articles 6, 10 and 12 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting only of normal and recurring accruals and adjustments, necessary for fair presentation as of and for the periods presented. Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation. These financial statements and notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10 K for the year ended December 31, 2019.2020. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
Significant Accounting Policies: The following information supplements the description of significant accounting policies contained in Note 2 to the Company's financial statements included in the Company's Annual Report on Form 10 K for the year ended December 31, 2019.2020.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
Concentration of credit risk: Aside from its debt instruments, financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places cash deposits only with high credit quality institutions; management believes this risk of loss is minimal. The amount of loss due to credit risk from debt investments if borrowers completely fail to perform according to the terms of the contracts, and the collateral or other security for those instruments proved to be of no value to the Company, is equal to the Company's recorded investment in debt instruments and the unfunded loan commitments as disclosed in Note 6.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
New accounting pronouncement issued: In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 840): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates (e.g., LIBOR) that are expected to be discontinued. ASU 2020-04 allows, among other things, certain contract modifications, such as those within the scope of Topic 310 on receivables, to be accounted as a continuation of the existing contract. This ASU was effective upon the issuance and its optional relief can be applied through December 31, 2022. The Company will consider this optional guidance prospectively, if applicable.
Note 3. Related Party Transactions
Investment Advisory and Management Agreement: OFS Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company pursuant to an Investment Advisory Agreement, which became effective on August 30, 2016, when the Company satisfied the Minimum Offering Requirement.2016. Under the terms of the Investment Advisory Agreement, which are in accordance with the 1940 Act and subject to the overall supervision of the Company’s Board, OFS Advisor is responsible for sourcing potential investments, conducting research and diligence on potential investments and equity sponsors, analyzing investment opportunities, structuring investments, and monitoring investments and portfolio companies on an ongoing basis. OFS Advisor is a subsidiary of OFSAM and a registered investment advisor under the Advisers Act.
OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to us and OFS Advisor is free to furnish similar services to other entities, including other BDCs affiliated with OFS Advisor, so long as its services to us are not impaired. OFS Advisor also serves as the investment adviser to CLO funds and other companies, including OFS Capital and OCCI.
OFS Advisor receives fees for providing services, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.25% and based on the average value of the Company’s total assets (other than cash, but including assets purchased with borrowed amounts and assets owned by any consolidated entity) at the end of the two most recently completed calendar quarters, adjusted for any share issuances or repurchases during the quarter.
The incentive fee has two parts. The first part ("Income Incentive Fee") is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination and sourcing, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest or dividend feature (such as OID, debt instruments with PIK interest, equity investments with accruing or PIK dividend and zero coupon securities), accrued income that the Company has not yet received in cash.
Pre-incentive fee net investment income is expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter. The incentive fee with respect to pre-incentive fee net income is 100.0% of the amount, if any, by which the pre-incentive fee net investment income for the immediately preceding calendar quarter exceeds a 1.75% (which is 7.0% annualized) “hurdle rate” but is less than 2.1875% (or 8.75% annually), referred to as the “catch-up” provision, and 20.0% of the amount of pre-incentive fee net investment income, if any, that exceeds 2.1875%. The “catch-up” is meant to provide OFS Advisor with 20.0% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this pre-incentive fee net investment income exceeds 2.1875% in any calendar quarter.
Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the base management fee. These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during such quarter.
The second part of the incentive fee (the “Capital Gain Fee”) will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and will equal 20.0% of the Company’s aggregate realized capital gains, if any, on a cumulative basis through the end of each calendar year, computed
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
net of all realized capital losses and unrealized capital depreciation through the end of such year, less all previous amounts paid in respect of the Capital Gain Fee.
The Company accrues the Capital Gain Fee if, on a cumulative basis, the sum of net realized capital gains and (losses) plus net unrealized appreciation and (depreciation) is positive. If, on a cumulative basis, the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation) decreases during a period, the Company will reverse any excess Capital Gain Fee previously accrued such that the amount of Capital Gains Fee accrued is no more than 20% of the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation).
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
The Investment Advisory Agreement was originally approved for a period of two years from August 30, 2016 to August 30, 2018 and, unless terminated earlier as described below, will remain in effect from year-to-year upon annual approval by the Company’s Board or by the affirmative vote of the holders of a majority of the Company’s outstanding voting securities, and, in either case, if also approved by a majority of the Company’s directors who are not “interested persons” as defined in the 1940 Act. On April 2, 2020,1, 2021, the Board approved the continuation of the Investment Advisory Agreement for a twelve month period from August 30, 2020 to August 30, 2021.Agreement. The Investment Advisory Agreement will automatically terminate in the event of its assignment, as defined in the 1940 Act, and may be terminated by the Company or OFS Advisor without penalty upon not less than 60 days written notice to the other. The holders of a majority of our outstanding voting securities may also terminate the Investment Advisory Agreement without penalty upon not less than 60 days written notice.
Investment Sub-Advisory Agreement: CIM Capital serves as the Company’s sub-adviser pursuant to the CIM Sub-Advisory Agreement, which became effective on August 3, 2020. Pursuant to the terms of the CIM Sub-Advisory Agreement, CIM Capital evaluates and advises the Company on its private capital market strategy, including market trends and terms, provides financial and strategic planning advice and analysis, interprets market demand for products, assists in establishing the Company's operational readiness and selecting and negotiating engagements with third-party service providers, and coordinates the dissemination of customary information to interested parties.
Under the CIM Sub-Advisory Agreement, at the end of each calendar quarter, OFS Advisor shall pay CIM Capital a fee calculated by: (i) taking the total management fees (base management fees plus any incentive fees) payable to OFS Advisor by the Company for each such quarter and multiplying such amount by a fraction, the numerator of which shall equal total unlevered equity capital attributable to the sale of the Company’s common stock through the end of the quarter (the “Total Contributed Capital”) minus $29,512,462 and the denominator of which shall equal the Total Contributed Capital (such product, the “Adjusted Management Fee Amount”); and (ii) multiplying the Adjusted Management Fee Amount by 0.50. CIM Capital's fees will be paid by OFS Advisor out of the fees OFS Advisor receives from the Company pursuant to the Investment Advisory Agreement and will not impact the Company’s expenses.
Dealer Manager Agreement: Pursuant to the Dealer Manager Agreement, IAA and the Dealer Manager,CCO, an affiliate of the Company, OFS Advisor and CIM Capital, will together and, effective September 1, 2020, the Dealer Manager will solely, provideprovides certain sales, promotional and marketing services to the Company in connection with the Offering. The Company will pay the co-dealer managers, or the Dealer Manager, as applicable,pays CCO an aggregate dealer manager fee of 3.0% of the gross proceeds from sales of the Offering.
Administration Agreement: OFS Services furnishes the Company with office facilities and equipment, necessary software licenses and subscriptions, and clerical, bookkeeping and record keeping services at such facilities pursuant to the Administration Agreement. Under the Administration Agreement, OFS Services performs, or oversees the performance of, the Company’s required administrative services, which include being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and all other reports and materials required to be filed with the SEC or any other regulatory authority. In addition, OFS Services assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Under the Administration Agreement, OFS Services also provides managerial assistance on the Company’s behalf to those portfolio companies that have accepted the Company’s offer to provide such assistance. Payment under the Administration Agreement is equal to an amount based upon the Company’s allocable portion of OFS Services’ overhead in performing its obligations under the Administration Agreement, including, but not limited to, rent, information technology services and the Company’s allocable portion of the cost of its officers, including its chief executive officer, chief financial officer, chief compliance officer, chief accounting officer, and their respective staffs. To the extent that OFS Services outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to OFS Services. Amounts charged under the Administration Agreement exclude Contractual Issuer Expenses.
Equity Ownership: As of June 30, 2020,March 31, 2021, affiliates of OFS Advisor held 74,084 shares of common stock, which is approximately 3% of the Company's outstanding shares of common stock.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Distributions paid to affiliates and expensesExpenses recognized under agreements with OFS Advisorthe Advisors, CCO and OFS Services and distributions paid to affiliates for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 are presented below:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| Base management fees | | $ | 134,632 |
|
| $ | 98,319 |
|
| $ | 265,397 |
|
| $ | 191,041 |
|
| Incentive fees | | 65,427 |
| | 29,296 |
| | 141,477 |
| | 78,066 |
|
| Administration fees | | 215,124 |
|
| 185,164 |
|
| 401,741 |
|
| 327,038 |
|
| Distributions paid to affiliates | | 18,069 |
|
| 19,447 |
|
| 37,516 |
|
| 38,894 |
|
Expense Limitation Agreements: Prior to August 3, 2020, OFS Advisor limited the Company's incurred expenses under two agreements: the Investment Advisory Agreement, which contains provisions limiting offering costs and Contractual Issuer Expenses; and an Expense Support Agreement, which limits all other operating expenses. Expense limitations provided under the Investment Advisory Agreement and Expense Support Agreement for the three and six months ended June 30, 2020 and 2019, are presented below: | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2021 | | 2020 |
| Base management fees | | | | | | $ | 141,168 | | | $ | 130,765 | |
| Incentive fees | | | | | | 68,764 | | | 76,050 | |
| Administration fees | | | | | | 186,389 | | | 186,617 | |
| Dealer manager fees | | | | | | 9,000 | | | — | |
| Reimbursements of organizational, offering and Contractual Issuer Expenses | | | | | | 4,500 | | | 2,400 | |
| Distributions paid to affiliates | | | | | | 18,803 | | | 19,447 | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 |
| 2019 | | 2020 | | 2019 |
| Net offering costs and Contractual Issuer Expenses limitations under Investment Advisory Agreement | | $ | 79,445 |
|
| $ | 1,282 |
| | $ | 161,918 |
| | $ | 8,977 |
|
| Operating expense limitations under Expense Support Agreement | | 425,718 |
|
| 238,847 |
| | 759,878 |
| | 511,394 |
|
| Net expense limitations under agreements with OFS Advisor | | $ | 505,163 |
| | $ | 240,129 |
| | $ | 921,796 |
| | $ | 520,371 |
|
The Company is conditionally obligated to reimburse OFS Advisor for aggregate expense support provided of $4,420,935 and $4,167,383 at June 30, 2020 and December 31, 2019, respectively, as presented below:
|
| | | | | | | | |
| | | June 30, 2020 | | December 31, 2019 |
| Unreimbursed costs under Investment Advisory Agreement: | | | | |
| Offering costs: | | | | |
| Unamortized as of period end | | $ | 168,508 |
|
| $ | 167,776 |
|
| Amortized as of period end | | 529,212 |
| | 418,283 |
|
| Contractual Issuer Expenses | | 49,767 |
| | 77,476 |
|
| Total unreimbursed costs under Investment Advisory Agreement | | 747,487 |
| | 663,535 |
|
| Unreimbursed operating expense support under Expense Support Agreement | | 3,673,448 |
| | 3,503,848 |
|
| Total conditional reimbursement obligation under expense limitation agreements with OFS Advisor | | $ | 4,420,935 |
| | $ | 4,167,383 |
|
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Expense Limitation Agreements: The Advisory Agreements and ESAs limit the Company's incurred expenses. The Advisory Agreements and the ESAs are substantively identical in their terms and conditions with respect to expense limitation support provided to the Company. Expense limitations prior to August 3, 2020, were provided by OFS Advisor and expense limitations on or after August 3, 2020, are provided by CIM Capital. Expense limitations provided under the Advisory Agreements and ESAs for the three months ended March 31, 2021 and 2020, are presented below:
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2021 | | 2020 |
| Net offering costs and Contractual Issuer Expenses limitations under the Advisory Agreements | | | | | | $ | 37,928 | | | $ | 82,473 | |
| Operating expense limitations under the ESAs | | | | | | 253,800 | | | 334,160 | |
| Net expense limitations under agreements with the Advisors | | | | | | $ | 291,728 | | | $ | 416,633 | |
The Company is conditionally obligated to reimburse the Advisors for aggregate expense support provided of $4,406,936 and $4,570,949 at March 31, 2021 and December 31, 2020, respectively, as presented below:
| | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| Unreimbursed costs under the Advisory Agreements: | | | | |
| | | | |
| Offering costs: | | | | |
| Unamortized as of period end | | $ | 27,686 | | | $ | 69,293 | |
| Amortized as of period end | | 568,879 | | | 572,063 | |
| Contractual Issuer Expenses | | 27,021 | | | 30,773 | |
| Total unreimbursed costs under the Advisory Agreements | | 623,586 | | | 672,129 | |
| Unreimbursed operating expense support under the ESAs | | 3,783,350 | | | 3,898,820 | |
| Total conditional reimbursement obligation under expense limitation agreements with the Advisors | | $ | 4,406,936 | | | $ | 4,570,949 | |
Offering Costs and Contractual Issuer Expense Limitations: The Company is conditionally liable for offering costs and Contractual Issuer Expenses that OFS Advisor and its affiliatesthe Advisors have incurred on its behalf under the terms of the Investment Advisory Agreement.Agreements. The Investment Advisory Agreement entitles OFS AdvisorAgreements entitle the Advisors to receive up to 1.5% of the gross proceeds raised in the Offering until all reimbursable offering costs and Contractual Issuer Expenses paid by OFS Advisor and its affiliates have been recovered. Offering expenses and Contractual Issuer Expenses incurred by OFS Advisor or its affiliatesthe Advisors will be eligible for reimbursement for three years from the date incurred. Unreimbursed offering costs and Contractual Issuer Expenses subject to conditional reimbursement as of June 30, 2020,March 31, 2021, are summarized below:
|
| | | | | | |
| Period incurred | | Unreimbursed Total | | Expiration of reimbursement eligibility (1) |
| Three months ended September 30, 2017 | | $ | 43,760 |
| | September 30, 2020 |
| Three months ended December 31, 2017 | | 79,120 |
| | December 31, 2020 |
| Three months ended March 31, 2018 | | 49,363 |
| | March 31, 2021 |
| Three months ended June 30, 2018 | | 50,109 |
| | June 30, 20221 |
| Three months ended September 30, 2018 | | 26,413 |
| | September 30, 2021 |
| Three months ended December 31, 2018 | | 23,452 |
| | December 31, 2021 |
| Three months ended March 31, 2019 | | 4,113 |
| | March 31, 2022 |
| Three months ended June 30, 2019 | | 137,749 |
| | June 30, 2022 |
| Three months ended September 30, 2019 | | 85,068 |
| | September 30, 2022 |
| Three months ended December 31, 2019 | | 78,506 |
| | December 31, 2022 |
| Three months ended March 31, 2020 | | 82,976 |
| | March 31, 2023 |
| Three months ended June 30, 2020 | | 86,858 |
| | June 30, 2023 |
| Total unreimbursed organization and offering costs, and Contractual Issuer Expenses | | $ | 747,487 |
| | |
| | | | | | | | | | | | | | |
| Period incurred | | Unreimbursed
Total | | Expiration of reimbursement eligibility (1) |
| Three months ended June 30, 2018 | | $ | 50,109 | | | June 30, 2021 |
| Three months ended September 30, 2018 | | 26,413 | | | September 30, 2021 |
| Three months ended December 31, 2018 | | 23,452 | | | December 31, 2021 |
| Year ended December 31, 2019 | | 305,436 | | | December 31, 2022 |
| Year ended December 31, 2020 | | 217,356 | | | December 31, 2023 |
| Three months ended March 31, 2021 | | 820 | | | March 31, 2024 |
| Total unreimbursed offering costs and Contractual Issuer Expenses | | $ | 623,586 | | | |
(1) Expenses are pooled monthly for the determination of their reimbursement expiration date. Therefore, the unreimbursed totals each consist of three monthly expense pools. The expirationdate and are summarized into quarterly and yearly pools for presentation purposes. Expirations of reimbursement eligibility for portions of each pool occurs at each month-end within the quarterly periods presented above.
Pursuant to the terms of the CIM Sub-Advisory Agreement, beginning August 3, 2020, CIM Capital assumes responsibility for bearing the Company's offering costs and Contractual Issuer Expenses. Prior to August 3, 2020, OFS Advisor paid the Company's organization and offering costs and Contractual Issuer Expenses.22
CIM Capital will be entitled to receive reimbursement from the Company of offering costs and Contractual Issuer Expenses incurred after August 3, 2020 paid on behalf of the Company, up to 1.5% of the aggregate gross proceeds of the Offering, after offering costs and Contractual Issuer Expenses incurred prior to August 3, 2020 have expired or have been reimbursed. Offering expenses and Contractual Issuer Expenses incurred by CIM Capital or its affiliates will be eligible for reimbursement for three years from the date incurred. Any such reimbursement by the Company will be allocated first to reimburse any reimbursable expenses incurred by OFS Advisor or its affiliates that are eligible for reimbursement pursuant to the Investment Advisory Agreement.
Expense Support Agreement: The Expense Support Agreement is designed to ensure no portion of the Company’s distribution to stockholders will be paid from its Offering proceeds, and provides for expense-reduction payments from OFS Advisor to the Company in any quarterly period in which the Company’s cumulative distributions to stockholders exceeds its cumulative distributable ordinary income and net realized gains ("Cumulative Taxable Income"). Cumulative distributions to stockholders may exceed Cumulative Taxable Income to the extent of cumulative tax-basis return-of-capital distributions received by the Company from its investments without resulting in an expense limitation payment from OFS Advisor. The Expense Support Agreement provides for reimbursement of these payments ("Reimbursement Payments") by the Company to OFS Advisor, however, such liability shall only accrue (i) to the extent they do not cause the then-current annualized year-to-date and quarterly "Other Operating Expense Ratio" (defined below) to exceed such ratios for the annual and quarterly periods, respectively, for which the Company will reimburse OFS Advisor as presented in the table below, and (ii) if the then-current annualized rate of distribution per share equals or exceeds the annualized rate of distribution per share of the supported period for which the Company will reimburse OFS Advisor. The Other Operating Expense Ratio is defined as total operating expenses reported in the statement of operations excluding interest expense, management fees, incentive fees, organization cost, amortization of deferred offering costs, and Contractual Issuer Expenses as a percentage of net assets. OFS Advisor will not be entitled to reimbursement (i) if the Other Operating Expenses Ratio at the time of reimbursement, after consideration of the impact of reimbursement on such ratio, exceeds the Other Operating Expenses Ratio in effect at the time the expenses were
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
reimbursed or (ii) if our distribution rate is lower than the distribution rate for the period the expenses will be reimbursed. Payments under the Expense Support Agreement will be eligible for reimbursement for three years from the date accrued. All Reimbursement Payments shall be applied to the earliest eligible unreimbursed expense payments made by OFS Advisor to the Company within three years prior to the last business day of the quarter in which such Reimbursement Payment obligation is incurred.
Agreement:Unreimbursed support for operating expenses provided under the Expense Support AgreementESAs and subject to conditional reimbursement as of June 30, 2020,March 31, 2021, is summarized below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Other Operating Expense Ratio | | | |
| Supported period | | Amount of expense limitation | | Annualized for the quarter limitation was provided | | Annual for year limitation was provided | | Annualized rate of distribution per share (1) | Expiration of reimbursement
eligibility |
| Three months ended June 30, 2018 | | $ | 320,732 | | | 8.2 | % | | 7.2 | % | | 7.0% | June 30, 2021 |
| Three months ended September 30, 2018 | | 275,339 | | | 6.9 | % | | 7.2 | % | | 7.0% | September 30, 2021 |
| Three months ended December 31, 2018 | | 188,188 | | | 5.3 | % | | 7.2 | % | | 7.0% | December 31, 2021 |
| Three months ended March 31, 2019 | | 272,547 | | | 6.1 | % | | 5.5 | % | | 7.0% | March 31, 2022 |
| Three months ended June 30, 2019 | | 238,847 | | | 5.7 | % | | 5.5 | % | | 7.0% | June 30, 2022 |
| Three months ended September 30, 2019 | | 231,737 | | | 5.1 | % | | 5.5 | % | | 7.1% | September 30, 2022 |
| Three months ended December 31, 2019 | | 385,544 | | | 4.9 | % | | 5.5 | % | | 7.2% | December 31, 2022 |
| Three months ended March 31, 2020 | | 334,160 | | | 5.9 | % | | 6.2 | % | | 7.2% | March 31, 2023 |
| Three months ended June 30, 2020 | | 425,718 | | | 6.1 | % | | 6.2 | % | | 7.2% | June 30, 2023 |
| Three months ended September 30, 2020 | | 452,480 | | | 6.7 | % | | 6.2 | % | | 7.2% | September 30, 2023 |
| Three months ended December 31, 2020 | | 404,258 | | | 6.6 | % | | 6.2 | % | | 7.2% | December 31, 2023 |
| Three months ended March 31, 2021 | | 253,800 | | | 6.5 | % | | n/m(2) | | 7.2% | March 31, 2024 |
| Total unreimbursed operating expense limitations provided under the ESAs | | $ | 3,783,350 | | | | | | | | |
|
| | | | | | | | | | | | | |
| | | | | Other Operating Expense Ratio | | | |
| Supported period | | Amount of expense limitation | | Annualized for the quarter limitation was provided | | Annual for year limitation was provided | | Annualized rate of distribution per share (1) | Expiration of reimbursement eligibility |
| Three months ended September 30, 2017 | | $ | 314,987 |
| | 10.7 | % | | 18.1 | % | | 7.0% | September 30, 2020 |
| Three months ended December 31, 2017 | | 316,379 |
| | 8.1 | % | | 18.1 | % | | 7.0% | December 31, 2020 |
| Three months ended March 31, 2018 | | 369,270 |
| | 10.1 | % | | 7.2 | % | | 7.0% | March 31, 2021 |
| Three months ended June 30, 2018 | | 320,732 |
| | 8.2 | % | | 7.2 | % | | 7.0% | June 30, 2021 |
| Three months ended September 30, 2018 | | 275,339 |
| | 6.9 | % | | 7.2 | % | | 7.0% | September 30, 2021 |
| Three months ended December 31, 2018 | | 188,188 |
| | 5.3 | % | | 7.2 | % | | 7.0% | December 31, 2021 |
| Three months ended March 31, 2019 | | 272,547 |
| | 6.1 | % | | 5.5 | % | | 7.0% | March 31, 2022 |
| Three months ended June 30, 2019 | | 238,847 |
| | 5.7 | % | | 5.5 | % | | 7.0% | June 30, 2022 |
| Three months ended September 30, 2019 | | 231,737 |
| | 5.1 | % | | 5.5 | % | | 7.1% | September 30, 2022 |
| Three months ended December 31, 2019 | | 385,544 |
| | 4.9 | % | | 5.5 | % | | 7.2% | December 31, 2022 |
| Three months ended March 31, 2020 | | 334,160 |
| | 5.9 | % | | n/m(2) |
| | 7.2% | March 31, 2023 |
| Three months ended June 30, 2020 | | 425,718 |
| | 6.1 | % | | n/m(2) |
| | 7.2% | June 30, 2023 |
| Total unreimbursed operating expense limitations provided under Expense Support Agreement | | $ | 3,673,448 |
| | | | | | | |
| |
(1) | (1) The annualized rate of distributions per share is expressed as a percentage equal to the annualized distribution amount as of the end of the applicable period (which is calculated by annualizing the regular quarterly cash distribution per share as of such date without compounding), divided by our Offering price per share as of such date. |
| |
(2) | Not meaningful. Annual Other Operating Expense Ratio upon which reimbursement is conditioned is based on the full-year results, and will not be determined until after December 31, 2020. |
On August 3, 2020, the Expense Support Agreement was amended to, among other things, require CIM Capital to pay future expense support payments. In addition, any Reimbursement Payments relate to the unreimbursed expense support payments identified by OFS Advisor from the expense support payments made by OFS Advisor to the Company within three years prior to the last business dayannualized distribution amount as of the quarter in which such Reimbursement Payment obligation is incurred. Thereafter, Reimbursement Payments relate to the unreimbursed expense support payments identified by CIM Capital from the expense support payments made by CIM Capital to the Company within three years prior to the last business dayend of the quarter inapplicable period (which is calculated by annualizing the regular quarterly cash distribution per share as of such date without compounding), divided by our Offering price per share as of such date.
(2) Not meaningful. Annual Other Operating Expense Ratio upon which such reimbursement payment obligation is incurred.conditioned is based on the full-year results, and will not be determined until after December 31, 2021.
Amounts Due to OFS Advisor and its Affiliates: Amounts due to OFS Advisor and its affiliates of $71,302$636,995 and $107,024$589,318 reported in the consolidated statements of assets and liabilities as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, representsrepresent amounts payable under the Investment Advisory Agreement and Administration Agreement netAgreement. Amount due from CIM Capital of $609,923 and $659,003 reported in the consolidated statements of assets and liabilities as of March 31, 2021 and December 31, 2020, respectively, represents amounts receivable under the Expense Support Agreement.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Note 4. Investments
As of June 30, 2020,March 31, 2021, the Company had loans to 3324 portfolio companies, of which 98%99% were senior secured loans and 2%1% were subordinated loans, at fair value, as well as common and preferred equity investments in seven of these portfolio companies. The Company also held only equity in onetwo portfolio companycompanies in which it did not hold a debt investment and twothree Structured Finance Note investments. At June 30, 2020,March 31, 2021, investments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Percentage of Total | | | | Percentage of Total |
| Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
Senior secured debt investments (1) | $ | 38,040,437 | | | 84.3 | % | | 135.9 | % | | $ | 38,188,008 | | | 85.9 | % | | 136.5 | % |
| Subordinated debt investments | 1,483,613 | | | 3.3 | | | 5.3 | | | 266,218 | | | 0.6 | | | 1.0 | |
| Preferred equity investments | 191,409 | | | 0.4 | | | 0.7 | | | 349,436 | | | 0.8 | | | 1.2 | |
| Common equity investments | 540,157 | | | 1.2 | | | 1.9 | | | 688,919 | | | 1.5 | | | 2.5 | |
| Total debt and equity investments | 40,255,616 | | | 89.2 | | | 143.8 | | | 39,492,581 | | | 88.8 | | | 141.2 | |
| Structured Finance Notes | 4,869,599 | | | 10.8 | | | 17.4 | | | 4,969,163 | | | 11.2 | | | 17.8 | |
| Total investments | $ | 45,125,215 | | | 100.0 | % | | 161.2 | % | | $ | 44,461,744 | | | 100.0 | % | | 159.0 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
Senior secured debt investments (1) | $ | 41,083,694 |
| | 93.4 | % | | 156.5 | % | | $ | 39,179,018 |
| | 93.9 | % | | 149.3 | % |
| Subordinated debt investments | 1,481,630 |
| | 3.4 |
| | 5.6 |
| | 904,371 |
| | 2.2 |
| | 3.4 |
|
| Preferred equity investments | 191,409 |
| | 0.4 |
| | 0.7 |
| | 289,158 |
| | 0.7 |
| | 1.1 |
|
| Common equity investments | 497,130 |
| | 1.1 |
| | 1.9 |
| | 523,445 |
| | 1.3 |
| | 2.0 |
|
| Total debt and equity investments | $ | 43,253,863 |
| | 98.3 | % | | 164.7 | % | | $ | 40,895,992 |
| | 98.1 | % | | 155.8 | % |
| Structured Finance Notes | 753,024 |
| | 1.7 |
| | 2.9 |
| | 789,725 |
| | 1.9 |
| | 3.0 |
|
| Total investments | $ | 44,006,887 |
| | 100.0 | % | | 167.6 | % | | $ | 41,685,717 |
| | 100.0 | % | | 158.8 | % |
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
(1) Includes debt investments, typically referred to as unitranche, in which we have entered into contractual arrangements with co-lenders whereby, subject to certain conditions, we have agreed to receive our principal payments after the repayment of certain co‑lenders pursuant to a payment waterfall. Amortized cost and fair value of these investments were $8,345,918$8,669,729 and $8,256,180,$8,871,259, respectively.
At June 30,March 31, 2021, all of the Company’s debt and equity investments were domiciled in the United States, while its Structured Finance Notes were domiciled in the Cayman Islands. Structured Finance Notes generally hold underlying portfolios of investments in companies domiciled in the United States of America. Geographic composition is determined by the location of the corporate headquarters of the portfolio company. The industry compositions of the Company’s portfolio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Administrative and Support and Waste Management and Remediation Services | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Security Systems Services (except Locksmiths) | | $ | 3,135,940 | | | 6.9 | % | | 11.2 | % | | $ | 3,135,940 | | | 7.1 | % | | 11.2 | % |
| | | | | | | | | | | | |
| Arts, Entertainment, and Recreation | | | | | | | | | | | | |
| All Other Amusement and Recreation Industries | | 1,498,282 | | | 3.3 | | | 5.4 | | | 1,483,796 | | | 3.3 | | | 5.3 | |
| Construction | | | | | | | | | | | | |
| Plumbing, Heating, and Air-Conditioning Contractors | | 428,923 | | | 1.0 | | | 1.5 | | | 392,200 | | | 0.9 | | | 1.4 | |
| Finance and Insurance | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Insurance Agencies and Brokerages | | 3,112,384 | | | 6.9 | | | 11.1 | | | 3,130,829 | | | 7.0 | | | 11.2 | |
| Health Care and Social Assistance | | | | | | | | | | | | |
| Child Day Care Services | | 699,305 | | | 1.5 | | | 2.5 | | | 629,830 | | | 1.4 | | | 2.3 | |
| Diagnostic Imaging Centers | | 1,796,854 | | | 4.0 | | | 6.4 | | | 1,976,373 | | | 4.4 | | | 7.1 | |
| Home Health Care Services | | 988,850 | | | 2.2 | | | 3.5 | | | 1,000,000 | | | 2.2 | | | 3.6 | |
| | | | | | | | | | | | |
| Outpatient Mental Health and Substance Abuse Centers | | 3,483,897 | | | 7.7 | | | 12.5 | | | 3,500,000 | | | 7.9 | | | 12.5 | |
| Information | | | | | | | | | | | | |
| Data Processing, Hosting, and Related Services | | 115,154 | | | 0.3 | | | 0.4 | | | 190,391 | | | 0.4 | | | 0.7 | |
| Directory and Mailing List Publishers | | 1,289,009 | | | 2.9 | | | 4.6 | | | 1,328,493 | | | 3.0 | | | 4.8 | |
| Software Publishers | | 383,650 | | | 0.9 | | | 1.4 | | | 402,602 | | | 0.9 | | | 1.4 | |
| Manufacturing | | | | | | | | | | | | |
| Commercial Printing (except Screen and Books) | | 245,155 | | | 0.5 | | | 0.9 | | | 246,156 | | | 0.6 | | | 0.9 | |
| Custom Compounding of Purchased Resins | | 1,413,773 | | | 3.1 | | | 5.1 | | | 1,565,849 | | | 3.5 | | | 5.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Unlaminated Plastics Profile Shape Manufacturing | | 2,105,271 | | | 4.7 | | | 7.5 | | | 2,100,000 | | | 4.7 | | | 7.5 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Professional, Scientific, and Technical Services | | | | | | | | | | | | |
| Administrative Management and General Management Consulting Services | | 3,894,596 | | | 8.6 | | | 13.8 | | | 4,004,447 | | | 9.0 | | | 14.3 | |
| | | | | | | | | | | | |
| Marketing Consulting Services | | 982,990 | | | 2.2 | | | 3.5 | | | 990,287 | | | 2.2 | | | 3.5 | |
| Other Accounting Services | | 3,527,828 | | | 7.8 | | | 12.6 | | | 3,600,893 | | | 8.1 | | | 12.9 | |
| Other Computer Related Services | | 1,079,986 | | | 2.4 | | | 3.9 | | | 1,093,888 | | | 2.5 | | | 3.9 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Public Administration | | | | | | | | | | | | |
| Other Justice, Public Order, and Safety Activities | | 52,159 | | | 0.1 | | | 0.2 | | | 36,735 | | | 0.1 | | | 0.1 | |
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Retail Trade | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Shoe Store | | $ | 513,150 | | | 1.1 | % | | 1.8 | % | | $ | 260,336 | | | 0.6 | % | | 0.9 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Wholesale Trade | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Construction and Mining (except Oil Well) Machinery and Equipment Merchant Wholesalers | | 1,799,177 | | | 4.0 | | | 6.4 | | | 1,778,550 | | | 4.0 | | | 6.4 | |
| Industrial Machinery and Equipment Merchant Wholesalers | | 1,696,617 | | | 3.8 | | | 6.1 | | | 1,634,672 | | | 3.7 | | | 5.8 | |
| Industrial Supplies Merchant Wholesalers | | 1,544,071 | | | 3.4 | | | 5.5 | | | 1,558,195 | | | 3.5 | | | 5.6 | |
| Motor Vehicle Parts (Used) Merchant Wholesalers | | 3,460,631 | | | 7.7 | | | 12.4 | | | 3,446,237 | | | 7.8 | | | 12.3 | |
| Stationery and Office Supplies Merchant Wholesalers | | 1,007,963 | | | 2.2 | | | 3.6 | | | 5,882 | | | — | | | — | |
| Total debt and equity investments | | $ | 40,255,615 | | | 89.2 | % | | 143.8 | % | | $ | 39,492,581 | | | 88.8 | % | | 141.2 | % |
| Structured Finance Notes | | 4,869,599 | | | 10.8 | | | 17.4 | | | 4,969,163 | | | 11.2 | | | 17.8 | |
| Total investments | | $ | 45,125,214 | | | 100.0 | % | | 161.2 | % | | $ | 44,461,744 | | | 100.0 | % | | 159.0 | % |
As of December 31, 2020, the Company had loans to 29 portfolio companies, of which 99% were senior secured loans and 1% were subordinated loans, at fair value, as well as equity investments in five of these portfolio companies. The Company also held equity investments in two portfolio companies in which it did not hold a debt investment and four investments in Structured Finance Notes. At December 31, 2020, the Company's investments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Percentage of Total | | | | Percentage of Total |
| Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
Senior secured debt investments (1) | $ | 39,315,954 | | | 85.1 | % | | 143.3 | % | | $ | 38,890,010 | | | 85.8 | % | | 141.8 | % |
| Subordinated debt investments | 1,482,464 | | | 3.2 | | | 5.4 | | | 381,516 | | | 0.8 | | | 1.4 | |
| Preferred equity investments | 191,409 | | | 0.4 | | | 0.7 | | | 338,000 | | | 0.7 | | | 1.2 | |
| Common equity investments | 540,157 | | | 1.2 | | | 2.0 | | | 708,036 | | | 1.6 | | | 2.6 | |
| Total debt and equity investments | 41,529,984 | | | 89.8 | | | 151.4 | | | 40,317,562 | | | 89.0 | | | 147.0 | |
| Structured Finance Notes | 4,696,597 | | | 10.2 | | | 17.1 | | | 4,997,126 | | | 11.0 | | | 18.2 | |
| Total investments | $ | 46,226,581 | | | 100.0 | % | | 168.5 | % | | $ | 45,314,688 | | | 100.0 | % | | 165.2 | % |
(1) Includes debt investments in which we entered into contractual arrangements with co‑lenders whereby, subject to certain conditions, we agreed to receive our principal payments after the repayment of certain co‑lenders pursuant to a payment waterfall. Amortized cost and fair value of these investments were $8,665,211 and $8,736,860, respectively.
At December 31, 2020, all of the Company’s debt and equity investments were domiciled in the United States, while its Structured Finance Notes were domiciled in the Cayman Islands. Structured Finance Notes generally represent beneficial interests in underlying portfolios of investments in companies domiciled in the United States. Geographic composition is determined by the location of the corporate headquarters of the portfolio company. The industry compositions of the Company’s portfolio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Administrative and Support and Waste Management and Remediation Services | | | | | | | | | | | | |
| Security Systems Services (except Locksmiths) | | $ | 2,353,885 | | | 5.1 | % | | 8.6 | % | | $ | 2,330,921 | | | 5.1 | % | | 8.5 | % |
| | | | | | | | | | | | |
| Arts, Entertainment, and Recreation | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Percentage of Total | | | | Percentage of Total |
| | | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Administrative and Support and Waste Management and Remediation Services |
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Security Systems Services (except Locksmiths) |
| $ | 2,350,520 |
|
| 5.4 | % | | 9.0 | % | | $ | 2,249,263 |
|
| 5.5 | % | | 8.6 | % |
| Arts, Entertainment, and Recreation |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| All Other Amusement and Recreation Industries |
| 1,495,357 |
|
| 3.5 |
| | 5.7 |
| | 1,408,893 |
|
| 3.4 |
| | 5.4 |
|
| Construction |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Plumbing, Heating, and Air-Conditioning Contractors |
| 514,587 |
|
| 1.2 |
| | 2.0 |
| | 472,992 |
|
| 1.2 |
| | 1.8 |
|
| Finance and Insurance |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Direct Health and Medical Insurance Carriers |
| 1,349,353 |
|
| 3.1 |
| | 5.1 |
| | 1,338,518 |
|
| 3.3 |
| | 5.1 |
|
| Insurance Agencies and Brokerages |
| 1,401,302 |
|
| 3.2 |
| | 5.3 |
| | 1,236,657 |
|
| 3.0 |
| | 4.7 |
|
| Health Care and Social Assistance |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Child Day Care Services |
| 698,642 |
|
| 1.6 |
| | 2.7 |
| | 660,787 |
|
| 1.6 |
| | 2.5 |
|
| Diagnostic Imaging Centers |
| 1,182,957 |
|
| 2.7 |
| | 4.5 |
| | 1,275,536 |
|
| 3.1 |
| | 4.9 |
|
| Home Health Care Services |
| 2,183,626 |
|
| 5.0 |
| | 8.3 |
| | 2,184,786 |
|
| 5.3 |
| | 8.3 |
|
| Offices of Physicians, Mental Health Specialists |
| 2,031,634 |
|
| 4.7 |
| | 7.7 |
| | 1,912,880 |
|
| 4.7 |
| | 7.3 |
|
| Outpatient Mental Health and Substance Abuse Centers |
| 993,281 |
|
| 2.3 |
| | 3.8 |
| | 950,826 |
|
| 2.3 |
| | 3.6 |
|
| Information |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Data Processing, Hosting, and Related Services |
| 1,193,499 |
|
| 2.8 |
| | 4.5 |
| | 1,176,268 |
|
| 2.9 |
| | 4.5 |
|
| Software Publishers |
| 3,170,958 |
|
| 7.4 |
| | 12.1 |
| | 3,121,706 |
|
| 7.5 |
| | 11.9 |
|
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| All other amusement and recreation industries | | 1,498,036 | | | 3.2 | | | 5.5 | | | 1,426,579 | | | 3.1 | | | 5.2 | |
| Construction | | | | | | | | | | | | |
| Plumbing, Heating, and Air-Conditioning Contractors | | 461,054 | | | 1.0 | | | 1.7 | | | 441,870 | | | 1.0 | | | 1.6 | |
| Health Care and Social Assistance | | | | | | | | | | | | |
| Child Day Care Services | | 699,087 | | | 1.5 | | | 2.5 | | | 628,475 | | | 1.4 | | | 2.3 | |
| Diagnostic Imaging Centers | | 1,800,633 | | | 3.9 | | | 6.6 | | | 1,957,283 | | | 4.3 | | | 7.1 | |
| Home Health Care Services | | 987,954 | | | 2.1 | | | 3.6 | | | 1,000,000 | | | 2.2 | | | 3.6 | |
| Offices of Physicians, Mental Health Specialists | | 2,031,579 | | | 4.4 | | | 7.4 | | | 2,035,075 | | | 4.5 | | | 7.4 | |
| Outpatient Mental Health and Substance Abuse Centers | | 994,006 | | | 2.2 | | | 3.6 | | | 1,000,000 | | | 2.2 | | | 3.6 | |
| Industry | | | | | | | | | | | | |
| Construction and Mining (except Oil Well) Machinery and Equipment Merchant Wholesalers | | 1,821,294 | | | 3.9 | | | 6.6 | | | 1,864,107 | | | 4.1 | | | 6.8 | |
| Information | | | | | | | | | | | | |
| Data Processing, Hosting, and Related Services | | 115,154 | | | 0.2 | | | 0.4 | | | 178,000 | | | 0.4 | | | 0.6 | |
| Software Publishers | | 1,673,276 | | | 3.6 | | | 6.1 | | | 1,702,816 | | | 3.8 | | | 6.2 | |
| Finance and Insurance | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Insurance Agencies and Brokerages | | 1,405,677 | | | 3.0 | | | 5.1 | | | 1,391,331 | | | 3.1 | | | 5.1 | |
| Manufacturing | | | | | | | | | | | | |
| Commercial Printing (except Screen and Books) | | 245,202 | | | 0.5 | | | 0.9 | | | 245,540 | | | 0.5 | | | 0.9 | |
| Custom Compounding of Purchased Resins | | 1,412,938 | | | 3.1 | | | 5.1 | | | 1,570,850 | | | 3.5 | | | 5.7 | |
| | | | | | | | | | | | |
| Truck Trailer Manufacturing | | $ | 1,837,097 | | | 4.0 | % | | 6.7 | % | | $ | 1,894,285 | | | 4.2 | % | | 6.9 | % |
| Unlaminated Plastics Profile Shape Manufacturing | | 2,007,100 | | | 4.3 | | | 7.3 | | | 1,979,900 | | | 4.4 | | | 7.2 | |
| National industry | | | | | | | | | | | | |
| Marketing Consulting Services | | 982,009 | | | 2.1 | | | 3.6 | | | 982,009 | | | 2.2 | | | 3.6 | |
| Other Accounting Services | | 3,525,944 | | | 7.6 | | | 12.8 | | | 3,569,555 | | | 7.9 | | | 13.1 | |
| Semiconductor and Related Device Manufacturing | | 76,747 | | | 0.2 | | | 0.3 | | | 83,492 | | | 0.2 | | | 0.3 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Professional, Scientific, and Technical Services | | | | | | | | | | | | |
| Administrative Management and General Management Consulting Services | | 4,936,764 | | | 10.8 | | | 18.1 | | | 4,979,205 | | | 11 | | | 18.2 | |
| Other Computer Related Services | | 1,083,163 | | | 2.3 | | | 3.9 | | | 1,060,897 | | | 2.3 | | | 3.9 | |
| | | | | | | | | | | | |
| Public Administration | | | | | | | | | | | | |
| Other Justice, Public Order, and Safety Activities | | 52,133 | | | 0.1 | | | 0.2 | | | 40,279 | | | 0.1 | | | 0.1 | |
| Retail Trade | | | | | | | | | | | | |
| Cosmetics, Beauty Supplies, and Perfume Stores | | 1,624,785 | | | 3.5 | | | 5.9 | | | 1,636,364 | | | 3.6 | | | 6.0 | |
| Shoe Store | | 512,823 | | | 1.1 | | | 1.9 | | | 229,885 | | | 0.5 | | | 0.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Wholesale Trade | | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Percentage of Total | | | | Percentage of Total |
| | | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Manufacturing |
|
|
|
| |
| |
|
|
| |
|
| Commercial Printing (except Screen and Books) |
| $ | 245,290 |
|
| 0.6 | % | | 0.9 | % | | $ | 226,788 |
|
| 0.6 | % | | 0.9 | % |
| Custom Compounding of Purchased Resins |
| 1,411,231 |
|
| 3.3 |
| | 5.4 |
| | 1,424,558 |
|
| 3.5 |
| | 5.4 |
|
| Semiconductor and Related Device Manufacturing |
| 91,341 |
|
| 0.2 |
| | 0.3 |
| | 91,341 |
|
| 0.2 |
| | 0.3 |
|
| Truck Trailer Manufacturing |
| 1,830,479 |
|
| 4.2 |
| | 7.0 |
| | 1,766,157 |
|
| 4.3 |
| | 6.6 |
|
| Unlaminated Plastics Profile Shape Manufacturing |
| 2,007,771 |
|
| 4.6 |
| | 7.6 |
| | 1,780,000 |
|
| 4.4 |
| | 6.7 |
|
| Other Services (except Public Administration) |
|
|
|
| |
| |
|
|
| |
|
| Automotive Oil Change and Lubrication Shops |
| 547,711 |
|
| 1.3 |
| | 2.1 |
| | 533,237 |
|
| 1.3 |
| | 2.0 |
|
| Professional, Scientific, and Technical Services |
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Administrative Management and General Management Consulting Services |
| 3,029,345 |
|
| 7.0 |
| | 11.5 |
| | 2,986,649 |
|
| 7.3 |
| | 11.4 |
|
| Other Accounting Services |
| 2,290,022 |
|
| 5.3 |
| | 8.7 |
| | 2,274,760 |
|
| 5.6 |
| | 8.7 |
|
| Other Computer Related Services |
| 1,180,883 |
|
| 2.7 |
| | 4.5 |
| | 1,110,463 |
|
| 2.7 |
| | 4.2 |
|
| Public Administration |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Other Justice, Public Order, and Safety Activities |
| 53,405 |
|
| 0.1 |
| | 0.2 |
| | 54,497 |
|
| 0.1 |
| | 0.2 |
|
| Retail Trade |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Cosmetics, Beauty Supplies, and Perfume Stores |
| 1,984,251 |
|
| 4.6 |
| | 7.6 |
| | 1,912,814 |
|
| 4.7 |
| | 7.3 |
|
| Shoe Store |
| 511,989 |
|
| 1.2 |
| | 2.0 |
| | 487,216 |
|
| 1.2 |
| | 1.9 |
|
| Wholesale Trade |
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
| Construction and Mining (except Oil Well) Machinery and Equipment Merchant Wholesalers |
| 2,102,652 |
|
| 4.9 |
| | 8.0 |
| | 2,109,278 |
|
| 5.2 |
| | 8.0 |
|
| Industrial Machinery and Equipment Merchant Wholesalers |
| 1,697,385 |
|
| 3.9 |
| | 6.5 |
| | 1,549,707 |
|
| 3.8 |
| | 5.9 |
|
| Industrial Supplies Merchant Wholesalers |
| 1,477,539 |
|
| 3.4 |
| | 5.6 |
| | 1,059,689 |
|
| 2.6 |
| | 4.0 |
|
| Motor Vehicle Parts (Used) Merchant Wholesalers |
| 3,219,712 |
|
| 7.5 |
| | 12.3 |
| | 3,094,466 |
|
| 7.6 |
| | 11.8 |
|
| Stationery and Office Supplies Merchant Wholesalers |
| 1,007,141 |
|
| 2.3 |
| | 3.8 |
| | 445,260 |
|
| 1.1 |
| | 1.7 |
|
|
| $ | 43,253,863 |
|
| 100.0 | % | | 164.7 | % | | $ | 40,895,992 |
|
| 100.0 | % | | 155.6 | % |
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2019, the Company had loans to 33 portfolio companies, of which 96% were senior secured loans and 4% were subordinated loans, at fair value, as well as equity investments in five of these portfolio companies. The Company also held an equity investment in a portfolio company in which it did not hold a debt investment. At December 31, 2019, investments consisted of the following:
|
| | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
Senior secured debt investments (1) | $ | 38,648,951 |
| | 94.8 | % | | 132.7 | % | | $ | 37,953,346 |
| | 94.5 | % | | 130.4 | % |
| Subordinated debt investments | 1,478,811 |
| | 3.6 |
| | 5.1 |
| | 1,384,896 |
| | 3.5 |
| | 4.8 |
|
| Preferred equity investments | 191,409 |
| | 0.5 |
| | 0.7 |
| | 201,006 |
| | 0.5 |
| | 0.7 |
|
| Common equity investments | 450,958 |
| | 1.1 |
| | 1.5 |
| | 585,675 |
| | 1.5 |
| | 2.0 |
|
| Total | $ | 40,770,129 |
| | 100.0 | % | | 140.0 | % | | $ | 40,124,923 |
| | 100.0 | % | | 137.9 | % |
(1) Includes debt investments in which we have entered into contractual arrangements with co-lenders whereby, subject to certain conditions, we have agreed to receive our principal payments after the repayment of certain co-lenders pursuant to a payment waterfall. Amortized cost and fair value of these investments were $6,067,017 and $6,038,539, respectively.
At December 31, 2019, all of the Company’s investments were domiciled in the United States. Geographic composition is determined by the location of the corporate headquarters of the portfolio company. The industry compositions of the Company’s portfolio were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Percentage of Total | | | | Percentage of Total |
| | | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Administrative and Support and Waste Management and Remediation Services | | | | | | | | | | | | |
| Security Systems Services (except Locksmiths) | | $ | 1,856,192 |
| | 4.6 | % | | 6.4 | % | | $ | 1,862,669 |
| | 4.6 | % | | 6.4 | % |
| Temporary Help Services | | 905,329 |
| | 2.2 |
| | 3.1 |
| | 897,210 |
| | 2.2 |
| | 3.1 |
|
| Arts, Entertainment, and Recreation | | | | | | | | | | | | |
| All other amusement and recreation industries | | 1,329,352 |
| | 3.3 |
| | 4.6 |
| | 1,328,022 |
| | 3.3 |
| | 4.6 |
|
| Construction | | | | | | | | | | | | |
| Plumbing, Heating, and Air-Conditioning Contractors | | 510,467 |
| | 1.3 |
| | 1.8 |
| | 580,538 |
| | 1.4 |
| | 2.0 |
|
| Health Care and Social Assistance | | | | | | | | | | | | |
| Child Day Care Services | | 792,812 |
| | 1.9 |
| | 2.7 |
| | 806,492 |
| | 2.0 |
| | 2.8 |
|
| Diagnostic Imaging Centers | | 1,181,330 |
| | 2.9 |
| | 4.1 |
| | 1,176,600 |
| | 2.9 |
| | 4.0 |
|
| Home Health Care Services | | 2,181,688 |
| | 5.4 |
| | 7.5 |
| | 2,119,046 |
| | 5.3 |
| | 7.3 |
|
| Offices of Physicians, Mental Health Specialists | | 1,691,151 |
| | 4.1 |
| | 5.8 |
| | 1,687,791 |
| | 4.2 |
| | 5.8 |
|
| Outpatient Mental Health and Substance Abuse Centers | | 992,562 |
| | 2.4 |
| | 3.4 |
| | 1,000,000 |
| | 2.5 |
| | 3.4 |
|
| Information | | | | | | | | | | | | |
| Data Processing, Hosting, and Related Services | | 1,200,566 |
| | 2.9 |
| | 4.1 |
| | 1,210,257 |
| | 3.0 |
| | 4.2 |
|
| Software Publishers | | 3,305,628 |
| | 8.1 |
| | 11.3 |
| | 3,274,482 |
| | 8.2 |
| | 11.2 |
|
| Finance and Insurance | | | | | | | | | | | | |
| Direct Health and Medical Insurance Carriers | | 1,347,363 |
| | 3.3 |
| | 4.6 |
| | 1,370,999 |
| | 3.4 |
| | 4.7 |
|
| Insurance Agencies and Brokerages | | 440,144 |
| | 1.1 |
| | 1.5 |
| | 433,920 |
| | 1.1 |
| | 1.5 |
|
| Manufacturing | | | | | | | | | | | | |
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Percentage of Total | | | | Percentage of Total |
| | | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Commercial Printing (except Screen and Books) | | $ | 245,952 |
| | 0.6 | % | | 0.8 | % | | $ | 237,890 |
| | 0.6 | % | | 0.8 | % |
| Custom Compounding of Purchased Resins | | 1,409,541 |
| | 3.5 |
| | 4.8 |
| | 1,480,944 |
| | 3.7 |
| | 5.1 |
|
| Truck Trailer Manufacturing | | 1,823,933 |
| | 4.5 |
| | 6.3 |
| | 1,807,404 |
| | 4.5 |
| | 6.2 |
|
| Unlaminated Plastics Profile Shape Manufacturing | | 2,008,434 |
| | 4.8 |
| | 6.9 |
| | 1,971,656 |
| | 4.9 |
| | 6.8 |
|
| Other Services (except Public Administration) | | | | | | | | | | | | |
| Automotive Oil Change and Lubrication Shops | | 555,017 |
| | 1.4 |
| | 1.9 |
| | 563,102 |
| | 1.4 |
| | 1.9 |
|
| Communication Equipment Repair and Maintenance | | 1,511,250 |
| | 3.7 |
| | 5.2 |
| | 1,511,250 |
| | 3.8 |
| | 5.2 |
|
| Professional, Scientific, and Technical Services | | | | | | | | | | | | |
| Administrative Management and General Management Consulting Services | | 3,026,099 |
| | 7.4 |
| | 10.4 |
| | 3,025,561 |
| | 7.6 |
| | 10.4 |
|
| Other Computer Related Services | | 1,216,104 |
| | 3.0 |
| | 4.2 |
| | 1,223,611 |
| | 3.0 |
| | 4.2 |
|
| Public Administration | | | | | | | | | | | | |
| Other Justice, Public Order, and Safety Activities | | 577,810 |
| | 1.4 |
| | 2.0 |
| | 32,579 |
| | 0.1 |
| | 0.1 |
|
| Retail Trade | | | | | | | | | | | | |
| Cosmetics, Beauty Supplies, and Perfume Stores | | 1,982,998 |
| | 4.9 |
| | 6.8 |
| | 1,982,998 |
| | 4.9 |
| | 6.8 |
|
| Shoe Store | | 509,170 |
| | 1.2 |
| | 1.7 |
| | 521,919 |
| | 1.3 |
| | 1.8 |
|
| Transportation and Warehousing | | | | | | | | | | | | |
| General Warehousing and Storage | | 1,019,049 |
| | 2.5 |
| | 3.5 |
| | 1,036,579 |
| | 2.6 |
| | 3.6 |
|
| Wholesale Trade | | | | | | | | | | | | |
| Industrial Machinery and Equipment Merchant Wholesalers | | 1,697,896 |
| | 4.2 |
| | 5.8 |
| | 1,690,356 |
| | 4.2 |
| | 5.8 |
|
| Industrial Supplies Merchant Wholesalers | | 1,474,924 |
| | 3.6 |
| | 5.1 |
| | 1,410,917 |
| | 3.5 |
| | 4.8 |
|
| Motor Vehicle Parts (Used) Merchant Wholesalers | | 2,970,229 |
| | 7.3 |
| | 10.2 |
| | 2,970,229 |
| | 7.5 |
| | 10.2 |
|
| Stationery and Office Supplies Merchant Wholesalers | | 1,007,141 |
| | 2.5 |
| | 3.5 |
| | 909,902 |
| | 2.3 |
| | 3.1 |
|
| | | $ | 40,770,129 |
| | 100.0 | % | | 140.0 | % | | $ | 40,124,923 |
| | 100.0 | % | | 137.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Percentage of Total | | | | Percentage of Total |
| | Amortized Cost | | Amortized Cost | | Net Assets | | Fair Value | | Fair Value | | Net Assets |
| Industrial Machinery and Equipment Merchant Wholesalers | | 1,696,873 | | | 3.7 | | | 6.2 | | | 1,605,919 | | | 3.5 | | | 5.9 | |
| Industrial Supplies Merchant Wholesalers | | 1,480,183 | | | 3.2 | | | 5.4 | | | 1,256,550 | | | 2.8 | | | 4.6 | |
| Motor Vehicle Parts (Used) Merchant Wholesalers | | 3,207,447 | | | 7.0 | | | 11.7 | | | 3,074,744 | | | 6.8 | | | 11.2 | |
| Stationery and Office Supplies Merchant Wholesalers | | 1,007,141 | | | 2.2 | | | 3.7 | | | 151,631 | | | 0.3 | | | 0.6 | |
| Total debt and equity investments | | 41,529,984 | | | 89.8 | | | 151.4 | | | 40,317,562 | | | 89.0 | | | 147.0 | |
| Structured Finance Notes | | 4,696,597 | | | 10.2 | | | 17.1 | | | 4,997,126 | | | 11.0 | | | 18.2 | |
| Total investments | | $ | 46,226,581 | | | 100.0 | % | | 168.5 | % | | $ | 45,314,688 | | | 100.0 | % | | 165.2 | % |
When there is reasonable doubt that principal, cash interest, or PIK interest will be collected, loan investments are placed on non-accrual status and the Company will generally cease recognizing cash interest, PIK interest, or Net Loan Fee amortization, as applicable. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal, interest and when, in the judgment of management, the investments are estimated to be fully collectible as to all principal. At June 30, 2020, theThe aggregate amortized cost and fair value of loansthe loan on non-accrual status with respect to all interest and Net Loan Fee amortization was $1,007,963 and $5,882, respectively, at March 31, 2021, and $1,007,141 and $445,260, respectively, and $577,810 and $32,579,$151,631 respectively, at December 31, 2019.2020.
On March 27, 2020, the Company's debt investments in Constellis Holdings, LLC were restructured, pursuant to which the Company converted its non-accrual debt investments forinto two new debt investments and 1,362 common shares of common equity. The cost and fair value of debt investments received were $6,174 and $6,172, respectively, and the cost and fair value of the shares of common sharesequity received were $46,403 and $46,410, respectively. For the three months ended March 31, 2020, theThe Company recognized a realized loss of $526,444 on the restructuring in 2020, which was fully recognized as an unrealized loss as of December 31, 2019.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Note 5. Fair Value of Financial Instruments
The Company’s investments are valued as determined by the Company's Board. These fair values are determined in accordance with a documented valuation policy and a consistently applied valuation process.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values are determined with models or other valuation techniques, valuation inputs, and assumptions market participants would use in pricing an asset or liability. Valuation inputs are organized in a hierarchy that gives the highest priority to prices for identical assets or liabilities quoted in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of inputs in the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2: Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived principally from or corroborated by observable market data.
Level 3: Unobservable inputs for the asset or liability, and situations where there is little, if any, market activity for the asset or liability at the measurement date.
The inputs into the determination of fair value are based upon the best information under the circumstances and may require significant judgment or estimation by management. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. The Company generally categorizes its investment portfolio into Level 2 and Level 3 of the hierarchy.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the measurement date. The Company observed significant declines in market liquidity due toThere were no transfers among Levels 1, 2 and 3 for the COVID-19 pandemic that disqualified certain NBIP as Level 2 inputs. Senior securitiesthree months ended March 31, 2021. A senior security with a fair value of $1,614,176 and $-0- were transfered$12,297 was transferred from Level 3 to Level 2, and senior securities with a fair value of $14,726 and $-0-$3,125,313 were transferred from Level 2 to Level 3 during the three and six months ended June 30,March 31, 2020. Senior securities with a fair value of $1,004,802 were transfered from Level 3 to Level 2 during the three and six months ended June 30, 2019.
Due to the inherent uncertainty of determining the fair value of Level 3 investments, the fair value of the investments may differ significantly from the values that would have been used had a ready market or observable inputs existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions, or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company might realize significantly less than the value at which such investment had previously been recorded. The Company’s investments are subject to market risk. Market risk, which is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.
The following tables present the Company's investment portfolio measured at fair value on a recurring basis as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Security | | Level 1 | | Level 2 | | Level 3 | | Fair Value at March 31, 2021 |
| Debt investments | | $ | — | | | $ | 1,429,882 | | | $ | 37,024,343 | | | $ | 38,454,225 | |
| Equity investments | | — | | | — | | | 1,038,355 | | | 1,038,355 | |
| Structured Finance Notes | | — | | | — | | | 4,969,163 | | | 4,969,163 | |
| | $ | — | | | $ | 1,429,882 | | | $ | 43,031,861 | | | $ | 44,461,743 | |
|
| | | | | | | | | | | | | | | | |
| Security | | Level 1 | | Level 2 | | Level 3 | | Fair Value at June 30, 2020 |
| Debt investments | | $ | — |
|
| $ | 1,705,516 |
|
| $ | 38,377,873 |
|
| $ | 40,083,389 |
|
| Equity investments | | — |
|
| — |
|
| 812,603 |
|
| 812,603 |
|
| Structured Finance Notes | | — |
|
| — |
|
| 789,725 |
|
| 789,725 |
|
| | | $ | — |
|
| $ | 1,705,516 |
|
| $ | 39,980,201 |
|
| $ | 41,685,717 |
|
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
| | | Security | | Level 1 | | Level 2 | | Level 3 | | Fair Value at December 31, 2019 | Security | | Level 1 | | Level 2 | | Level 3 | | Fair Value at December 31, 2020 |
| Debt investments | | $ | — |
| | $ | 3,360,575 |
| | $ | 35,977,667 |
| | $ | 39,338,242 |
| Debt investments | | $ | — | | | $ | 316,480 | | | $ | 38,954,956 | | | $ | 39,271,436 | |
| Equity investments | | — |
| | — |
| | 786,681 |
| | 786,681 |
| Equity investments | | — | | | — | | | 1,046,036 | | | 1,046,036 | |
| Structured Finance Notes | | Structured Finance Notes | | — | | | — | | | 4,997,216 | | | 4,997,216 | |
| | | $ | — |
| | $ | 3,360,575 |
| | $ | 36,764,348 |
| | $ | 40,124,923 |
| | $ | — | | | $ | 316,480 | | | $ | 44,998,208 | | | $ | 45,314,688 | |
The following tables provide quantitative information about valuation techniques and the Company’s significant inputs to the Company’s Level 3 fair value measurements as of June 30, 2020March 31, 2021 and December 31, 2019.2020. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy, the Company may also use other valuation
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
techniques and methodologies when determining the Company’s fair value measurements. The tables below provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements.
|
| | | | | | | | | |
| | Fair Value at June 30, 2020 | | Valuation techniques | | Unobservable input | | Range
(Weighted average) |
| Debt investments: |
|
|
|
|
|
|
|
|
| Senior secured | $ | 37,466,005 |
|
| Discounted cash flow |
| Discount rates |
| 6.11% - 24.01% (10.90%) |
| Senior secured | 7,497 |
|
| Market approach |
| EBITDA multiples |
| 9.15x - 9.15x (9.15x) |
| Subordinated | 459,111 |
|
| Discounted cash flow |
| Discount rates |
| 15.81% - 15.81% (15.81%) |
| Subordinated | 445,260 |
|
| Market approach |
| EBITDA multiples |
| 7.82x - 7.82x (7.82x) |
|
|
|
|
|
|
|
|
|
Structured Finance Notes(3): |
|
|
|
|
|
|
|
|
| Mezzanine debt | 789,725 |
|
| Discounted cash flow |
| Discount rates |
| 9.25% - 9.50% (9.47%) |
|
|
|
|
|
| Constant Default Rate(1) |
| 2.00% - 2.00% (2.00%) |
|
|
|
|
|
| Constant Default Rate(2) |
| 3.00% - 3.00% (3.00%) |
|
|
|
|
|
| Recovery Rate |
| 60.00% - 60.00% (60.00%) |
| Equity investments: |
|
|
|
|
|
|
|
|
| Preferred equity | 289,158 |
|
| Market approach |
| EBITDA multiples |
| 7.50x - 7.50x (7.50x) |
| Common equity and warrants | 523,445 |
|
| Market approach |
| EBITDA multiples |
| 3.25x - 10.75x (6.64x) |
|
|
|
|
|
|
|
|
|
| $ | 39,980,201 |
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at March 31, 2021 | | Valuation techniques | | Unobservable input | | Range
(Weighted average) |
| Debt investments: | | | | | | | |
| Senior secured | $ | 33,622,185 | | | Discounted cash flow | | Discount rates | | 5.97% - 16.11% (9.79%) |
| | | | | | | |
| Senior secured | 3,135,940 | | | Market approach | | Transaction Price | | |
| | | | | | | |
| | | | | | | |
| Subordinated | 266,218 | | | Market approach | | EBITDA multiples | | 2.71x - 6.00x (5.93x) |
| | | | | | | |
| Structured Finance Notes: | | | | | | | |
| Subordinated Notes | 3,172,439 | | | Discounted cash flow | | Discount rates(3) | | 11.00% - 11.00% (11.00%) |
| | | | | Constant Default Rate(1) | | 0.00% - 0.00% (0.00%) |
| | | | | Constant Default Rate(2) | | 2.00% - 2.00% (2.00%) |
| | | | | Recovery Rate | | 60.00% - 60.00% (60.00%) |
| | | | | | | |
| Mezzanine debt | 1,796,724 | | | Discounted cash flow | | Discount rates | | 7.80% - 9.45% (8.74%) |
| | | | | Constant Default Rate(1) | | 2.00% - 3.00% (2.57%) |
| | | | | | | |
| | | | | Recovery Rate | | 60.00% - 60.00% (60.00%) |
| Equity investments: | | | | | | | |
| Preferred equity | 349,436 | | | Market approach | | EBITDA multiples | | 6.50x - 6.50x (6.50x) |
| | | | | | | |
| Common equity and warrants | 688,919 | | | Market approach | | EBITDA multiples | | 3.75x - 12.00x (8.57x) |
| | | | | | | |
| $ | 43,031,861 | | | | | | | |
(1) Constant default rates for the next eighteensix months.
(2) Constant default rates for the twelve months following the next eighteensix months.
(3) The cash flows utilized in the discounted cash flow calculations assume liquidation at current market prices and redeployment of proceeds on all assets currently in default and all assets below specified fair value thresholds.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at December 31, 2020 | | Valuation techniques | | Unobservable input | | Range
(Weighted average) |
| Debt investments: | | | | | | | |
| Senior secured | $ | 37,591,521 | | | Discounted cash flow | | Discount rates | | 6.24% - 24.43% (10.02%) |
| Senior secured | 982,009 | | | Market approach | | Transaction Price | | |
| Subordinated | 381,516 | | | Market approach | | EBITDA multiples | | 7.05x - 9.10x (7.86x) |
| | | | | | | |
| Structured Finance Notes: | | | | | | | |
| Subordinated notes | 3,295,738 | | | Discounted cash flow | | Discount rates | | 15.00% - 15.00% (15.00%) |
| | | | | Constant default rate | | 0.00% - 0.00% (0.00%) |
| | | | | Constant default rate after 6 months | | 2.00% - 2.00% (2.00%) |
| | | | | Recovery rate | | 60.00% - 60.00% (60.00%) |
| | | | | | | |
| Mezzanine debt | 1,701,388 | | | Discounted cash flow | | Discount margin | | 7.25% - 9.45% (8.58%) |
| | | | | Constant default rate | | 0.00% - 2.00% (1.01%) |
| | | | | Constant default rate after 9 months | | 2.00% - 3.00% (2.49%) |
| | | | | Recovery rate | | 60.00% - 60.00% (60.00%) |
| | | | | | | |
| Equity investments: | | | | | | | |
| Preferred equity | 338,000 | | | Market approach | | EBITDA multiples | | 7.00x - 7.00x (7.00x) |
| Common equity | 708,036 | | | Market approach | | EBITDA multiples | | 3.75x - 11.50x (8.43x) |
| $ | 44,998,208 | | | | | | | |
|
| | | | | | | | | |
| | Fair Value at
December 31,
2019 | | Valuation techniques | | Unobservable input | | Range
(Weighted average) |
| Debt investments: | | | | | | | |
| Senior secured | $ | 31,600,042 |
| | Discounted cash flow | | Discount rates | | 5.64% - 35.00% (10.53%) |
| Senior secured | 22,500 |
| | Market approach | | EBITDA multiples | | 8.09x - 8.09x (8.09x) |
| Senior secured | 2,970,229 |
| | Market approach | | Transaction Price | | |
| | | | | | | | |
| Subordinated | 1,384,896 |
| | Discounted cash flow | | Discount rates | | 13.83% - 18.86% (17.14%) |
| | | | | | | | |
| Equity investments: | | | | | | | |
| Preferred equity | 201,006 |
| | Market approach | | EBITDA multiples | | 9.02x - 9.02x (9.02x) |
| Common equity | 585,675 |
| | Market approach | | EBITDA multiples | | 4.50x - 10.75x (6.35x) |
| | $ | 36,764,348 |
| | | | | | |
Averages in the preceding two tables were weighted by the fair value of the related instruments.
Changes in market credit spreads or events impacting the credit quality of the underlying portfolio company (both of which could impact the discount rate), among other things, could have a significant impact on debt fair value. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
The following tables present changes in the investment measured at fair value using Level 3 inputs for the sixthree months ended June 30, 2020March 31, 2021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior
Secured Debt
Investments | | Subordinated
Debt
Investments | | Preferred Equity | | Common Equity | | Structured Finance Notes | | Total |
| Level 3 assets, January 1, 2021 | $ | 38,573,440 | | | $ | 381,516 | | | $ | 338,000 | | | $ | 708,036 | | | $ | 4,997,216 | | | $ | 44,998,208 | |
| | | | | | | | | | | |
| Net unrealized appreciation (depreciation) on investments | 539,419 | | | (116,447) | | | 11,436 | | | (19,117) | | | (200,965) | | | 214,326 | |
| | | | | | | | | | | |
| Amortization of Net Loan Fees | 134,935 | | | 1,149 | | | — | | | — | | | 30,438 | | | 166,522 | |
| Paid-in-kind interest income | 40,509 | | | — | | | — | | | — | | | — | | | 40,509 | |
| Accretion of interest income on Structured Finance Notes | — | | | — | | | — | | | — | | | 107,037 | | | 107,037 | |
| Proceeds from principal payments on portfolio investments | (10,278,137) | | | — | | | — | | | — | | | (100,000) | | | (10,378,137) | |
| Sale of portfolio investments | — | | | — | | | — | | | — | | | — | | | — | |
| Purchase of portfolio investments | 7,747,959 | | | — | | | — | | | — | | | 135,437 | | | 7,883,396 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Level 3 assets, March 31, 2021 | $ | 36,758,125 | | | $ | 266,218 | | | $ | 349,436 | | | $ | 688,919 | | | $ | 4,969,163 | | | $ | 43,031,861 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Senior
Secured Debt
Investments | | Subordinated
Debt
Investments | | Preferred Equity | | Common Equity | | Structured Finance Notes | | Total |
| Level 3 assets, January 1, 2020 | $ | 34,592,771 |
|
| $ | 1,384,896 |
|
| $ | 201,006 |
|
| $ | 585,675 |
|
| $ | — |
| | $ | 36,764,348 |
|
| Net unrealized appreciation (depreciation) on investments | (1,153,660 | ) |
| (483,345 | ) |
| 88,152 |
|
| (108,633 | ) |
| 36,701 |
| | (1,620,785 | ) |
| Net realized loss on investments | (578,747 | ) | | — |
| | — |
| | — |
| | — |
| | (578,747 | ) |
| Amortization of Net Loan Fees | 42,577 |
|
| 420 |
|
| — |
|
| — |
|
| 1,024 |
| | 44,021 |
|
| Paid-in-kind interest income | 3,274 |
|
| 2,400 |
|
| — |
|
| — |
|
| — |
| | 5,674 |
|
| Proceeds from principal payments on portfolio investments | (3,851,527 | ) |
| — |
|
| — |
|
| — |
|
| — |
| | (3,851,527 | ) |
| Sale of portfolio investments | (800,983 | ) | | — |
| | — |
| | — |
| | — |
| | (800,983 | ) |
| Purchase of portfolio investments | 9,266,867 |
|
| — |
|
| — |
|
| — |
|
| 752,000 |
| | 10,018,867 |
|
| Conversion from debt investment to equity investment (Note 4) | (46,403 | ) | | — |
| | — |
| | 46,403 |
| | — |
| | — |
|
| Amendment fees collected | (667 | ) |
| — |
|
| — |
|
| — |
|
| — |
| | (667 | ) |
| Level 3 assets, June 30, 2020 | $ | 37,473,502 |
|
| $ | 904,371 |
|
| $ | 289,158 |
|
| $ | 523,445 |
| | $ | 789,725 |
| | $ | 39,980,201 |
|
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | |
| | Senior
Secured Debt
Investments | | Subordinated
Debt
Investments | | Preferred Equity | | Common Equity | | Total |
| Level 3 assets, January 1, 2019 | $ | 26,391,677 |
| | $ | 1,450,840 |
| | $ | — |
| | $ | 258,984 |
| | $ | 28,101,501 |
|
| Net unrealized appreciation on investments | 206,139 |
| | 27,781 |
| | 15,591 |
| | 212,547 |
| | 462,058 |
|
| Net realized gain on investments | 52 |
| | — |
| | — |
| | — |
| | 52 |
|
| Amortization of Net Loan Fees | 25,779 |
| | 2,220 |
| | — |
| | — |
| | 27,999 |
|
| Paid-in-kind interest and dividend income | 1,697 |
| | 7,388 |
| | — |
| | — |
| | 9,085 |
|
| Proceeds from principal payments on portfolio investments | (1,488,187 | ) | | — |
| | — |
| | — |
| | (1,488,187 | ) |
| Sale or redemption of portfolio investments | (1,539,696 | ) | | — |
| | — |
| | — |
| | (1,539,696 | ) |
| Purchase of portfolio investments | 5,467,709 |
| | — |
| | 191,409 |
| | 166,469 |
| | 5,825,587 |
|
| Transfers out of Level 3 | (1,004,802 | ) | | — |
| | — |
| | — |
| | (1,004,802 | ) |
| Level 3 assets, June 30, 2019 | $ | 28,060,368 |
| | $ | 1,488,229 |
| | $ | 207,000 |
| | $ | 638,000 |
| | $ | 30,393,597 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior
Secured Debt
Investments | | Subordinated
Debt
Investments | | Preferred Equity | | Common Equity | | Total | | | | | | | | |
| Level 3 assets, January 1, 2020 | $ | 34,592,771 | | | $ | 1,384,896 | | | $ | 201,006 | | | $ | 585,675 | | | $ | 36,764,348 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net unrealized appreciation (depreciation) on investments | (1,325,847) | | | (469,126) | | | 69,994 | | | (115,168) | | | (1,840,147) | | | | | | | | | |
| Net realized loss on investments | (573,849) | | | — | | | — | | | — | | | (573,849) | | | | | | | | | |
| Amortization of Net Loan Fees | 14,471 | | | 209 | | | — | | | — | | | 14,680 | | | | | | | | | |
| Paid-in-kind interest income | 1,633 | | | 1,199 | | | — | | | — | | | 2,832 | | | | | | | | | |
| Proceeds from principal payments on portfolio investments | (2,601,786) | | | — | | | — | | | — | | | (2,601,786) | | | | | | | | | |
| Sale of portfolio investments | (800,983) | | | — | | | — | | | — | | | (800,983) | | | | | | | | | |
| Purchase of portfolio investments | 9,038,326 | | | — | | | — | | | — | | | 9,038,326 | | | | | | | | | |
| Conversion from debt investment to equity investment (see Note 4) | (46,403) | | | — | | | — | | | 46,403 | | | — | | | | | | | | | |
| Transfers out of Level 3 | (12,297) | | | — | | | — | | | — | | | (12,297) | | | | | | | | | |
| Transfers into of Level 3 | 3,125,313 | | | — | | | — | | | — | | | 3,125,313 | | | | | | | | | |
| Level 3 assets, March 31, 2020 | $ | 41,411,349 | | | $ | 917,178 | | | $ | 271,000 | | | $ | 516,910 | | | $ | 43,116,437 | | | | | | | | | |
The net unrealized appreciation (depreciation) reported in the Company’s consolidated statements of operations for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, attributable to the Company’s assets still held at those respective period ends was as follows:
| | | | Period ended June 30, | | Period ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Senior secured debt investments | $ | (1,746,799 | ) | | $ | 189,039 |
| Senior secured debt investments | $ | 664,946 | | | $ | (1,958,512) | |
| Subordinated debt investments | (483,345 | ) | | 27,781 |
| Subordinated debt investments | (116,447) | | | (469,126) | |
| Preferred equity | 88,152 |
| | 15,591 |
| Preferred equity | 11,436 | | | 69,994 | |
| Common equity | (108,633 | ) | | 212,547 |
| Common equity | (19,116) | | | (114,937) | |
| Structured Finance Notes | 36,701 |
| | — |
| Structured Finance Notes | (188,260) | | | — | |
| Net unrealized appreciation (depreciation) on investments held | $ | (2,213,924 | ) | | $ | 444,958 |
| Net unrealized appreciation (depreciation) on investments held | $ | 352,559 | | | $ | (2,472,581) | |
Other Financial Assets and Liabilities
GAAP requiresThe Company provides disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments, such as cash, receivables and payables, approximate the fair value of such items due to the short maturity of such instruments. The PWB Credit Facility is a variable rate instrument and fair value approximates book value as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
The following tables present the fair value measurements of the Company's debt and indicate the fair value hierarchy of the significant unobservable inputs utilized by the Company to determine such fair values as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Description | Level 1 | | Level 2 | | Level 3 (1) | | Total |
| PWB Credit Facility | $ | — | | | $ | — | | | $ | 625,000 | | | $ | 625,000 | |
| Unsecured Note | — | | | — | | | 15,462,242 | | | 15,462,242 | |
| Total debt, at fair value | $ | — | | | $ | — | | | $ | 16,087,242 | | | $ | 16,087,242 | |
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | |
| | June 30, 2020 |
| Description | Level 1 | | Level 2 | | Level 3 (1) | | Total |
| PWB Credit Facility | $ | — |
| | $ | — |
| | $ | 1,800,000 |
| | $ | 1,800,000 |
|
| Unsecured Note | — |
| | — |
| | 15,339,971 |
| | 15,339,971 |
|
| Total debt, at fair value | $ | — |
| | $ | — |
| | $ | 17,139,971 |
| | $ | 17,139,971 |
|
| | | | December 31, 2019 | | December 31, 2020 |
| Description | Level 1 | | Level 2 | | Level 3 (1) | | Total | Description | Level 1 | | Level 2 | | Level 3 (1) | | Total |
| PWB Credit Facility | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| PWB Credit Facility | $ | — | | | $ | — | | | $ | 4,775,000 | | | $ | 4,775,000 | |
| Unsecured Note | — |
| | — |
| | 14,641,555 |
| | 14,641,555 |
| Unsecured Note | — | | | — | | | 15,723,415 | | | 15,723,415 | |
| Total debt, at fair value | $ | — |
| | $ | — |
| | $ | 14,641,555 |
| | $ | 14,641,555 |
| Total debt, at fair value | $ | — | | | $ | — | | | $ | 20,498,415 | | | $ | 20,498,415 | |
(1) For Level 3 measurements, fair value is estimated by discounting remaining payments using current market rates for similar instruments at the measurement date and considering such factors as the legal maturity date.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
The following aretable sets forth the carrying values and fair values of the Company’s debt as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | As of June 30, 2020 | | As of December 31, 2019 | | As of March 31, 2021 | | As of December 31, 2020 |
| Description | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | Description | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| PWB Credit Facility | $ | 1,800,000 |
| | $ | 1,800,000 |
| | $ | — |
| | $ | — |
| PWB Credit Facility | $ | 625,000 | | | $ | 625,000 | | | $ | 4,775,000 | | | $ | 4,775,000 | |
| Unsecured Note | 14,677,366 |
| | 15,339,971 |
| | 14,696,550 |
| | 14,641,555 |
| Unsecured Note | 14,732,269 | | | 15,462,242 | | | 14,714,235 | | | 15,723,415 | |
| Total debt, at fair value | $ | 16,477,366 |
| | $ | 17,139,971 |
| | $ | 14,696,550 |
| | $ | 14,641,555 |
| |
| Total debt | | Total debt | $ | 15,357,269 | | | $ | 16,087,242 | | | $ | 19,489,235 | | | $ | 20,498,415 | |
The information presented should not be interpreted as an estimate of the fair value of the entire Company since fair value measurements are only required for a portion of the Company’s assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
Note 6. Commitments and Contingencies
The Company has the following unfunded commitments to portfolio companies as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively:
| | | Name of Portfolio Company | | Investment Type | | June 30, 2020 | | December 31, 2019 | Name of Portfolio Company | | Investment Type | | March 31, 2021 | | December 31, 2020 |
| Carolina Lubes, Inc. | | Senior Secured Loan (Revolver) | | $ | 80,357 |
| | $ | 80,357 |
| |
| A&A Transfer, LLC | | A&A Transfer, LLC | | Senior Secured Loan (Revolver) | | $ | 237,303 | | | $ | 237,303 | |
| I&I Sales Group, LLC | | I&I Sales Group, LLC | | Senior Secured Loan (Revolver) | | 29,304 | | | 29,304 | |
| Inergex Holdings, LLC | | Senior Secured Loan (Revolver) | | 93,750 |
| | 62,500 |
| Inergex Holdings, LLC | | Senior Secured Loan (Revolver) | | 187,500 | | | 187,500 | |
| | | $ | 174,107 |
| | $ | 142,857 |
| | $ | 454,107 | | | $ | 454,107 | |
From time to time, the Company is involved in legal proceedings in the normal course of its business. Although the outcome of such litigation cannot be predicted with any certainty, management is of the opinion, based on the advice of legal counsel, that final disposition of any litigation should not have a material adverse effect on the financial position of the Company as of June 30, 2020 and DecemberMarch 31, 2019, respectively.2021.
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnification. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. The Company believes the risk of any material obligation under these indemnifications to be low.
Note 7. Borrowings
PWB Credit Facility: The Company has a $10.0$15.0 million credit commitment under its PWB Credit Facility, maturing February 28, 2021,2023, of which $1.8$0.6 million was drawn as of June 30, 2020.March 31, 2021. The effective interest rate on the PWB Credit Facility was 6.20%5.65% at June 30, 2020.March 31, 2021. The unfunded commitment under the PWB Credit Facility was $14.4 million as of June 30, 2020 was $8.2 millionMarch 31, 2021 and is available, subject to a borrowing base and other covenants. All investments are pledged as collateral under the PWB Credit Facility.
On February 17, 2021, the Company executed an amendment (the “Secured Revolver Amendment”) to the BLA with Pacific Western Bank. The Secured Revolver Amendment, among other things: (i) increased the maximum amount available under the PWB Credit Facility from $10.0 million to $15.0 million; (ii) decreased the interest rate floor from 5.50% per annum to 5.25%
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
per annum; (iii) restricts the transfer of certain assets to the Company's subsidiaries or incurrence of debt by, or the encumbrance of assets of, the Company's subsidiaries; and (iv) extended the maturity date from February 28, 2021 to February 28, 2023.
Unsecured Note: As of June 30, 2020,March 31, 2021, the Company's Unsecured Note had an aggregate outstanding principal of $15.0 million. The Unsecured Note has a fixed interest rate of 6.50% and is due on November 27, 2024. The effective interest rate on the Unsecured Note was 6.92%6.99% at June 30, 2020.March 31, 2021.
The Unsecured Note contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of the Company’s status as a business development company within the meaning of the 1940 Act, and minimum asset coverage ratio. The Note Purchase Agreement also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, certain judgements and orders, and certain events of bankruptcy.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
The Company's interest expense, average outstanding borrowing and weighted average interest expense on the Company's debt are presented below:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| PWB Credit Facility | $ | 73,276 |
| | $ | 103,670 |
| | $ | 114,710 |
| | $ | 199,019 |
| PWB Credit Facility | | $ | 46,167 | | | $ | 41,434 | |
| Unsecured Note | 259,158 |
| | — |
| | 518,316 |
| | — |
| Unsecured Note | | 261,783 | | | 259,158 | |
Total interest expense (1) | $ | 332,434 |
| | $ | 103,670 |
| | $ | 633,026 |
| | $ | 199,019 |
| Total interest expense (1) | | $ | 307,950 | | | $ | 300,592 | |
| | | | | | | | | | | | | |
| Average dollar borrowings | $ | 19,179,121 |
| | $ | 5,221,429 |
| | $ | 17,932,967 |
| | $ | 4,930,663 |
| Average dollar borrowings | | $ | 17,447,777 | | | $ | 16,686,813 | |
| Weighted average interest rate | 6.76 | % | | 7.96 | % | | 6.80 | % | | 8.14 | % | Weighted average interest rate | | 7.06 | % | | 6.84 | % |
(1) Interest expense is inclusive of interest on the outstanding balance, commitment fees on undrawn amounts, and the amortization of deferred debt issuance costs.
Note 8. Federal Income Tax
The Company has elected to be taxed as a RIC under Subchapter M of the Code. The determination of the tax attributes of the Company's distributions is made annually as of the end of its fiscal year based on its ICTI and distributions for the full year.
The tax-basis of portfolio investments and net unrealized appreciation (depreciation) on investments did not materially differ from their GAAP basis as of June 30, 2020 and December 31, 2019, respectively.
For further information, see the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Note 9.8. Financial Highlights
The following is a schedule of financial highlights for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| Per share operating performance: | | | | | | | |
| Net asset value per share at beginning of period | | | | | $ | 12.59 | | | $ | 13.00 | |
Net investment income (6) | | | | | 0.25 | | | 0.26 | |
Net realized loss on non-control/non-affiliate investments (6) | | | | | — | | | (0.26) | |
Net unrealized appreciation (depreciation) on non-control/non-affiliate investments, net of taxes (6) | | | | | 0.11 | | | (0.85) | |
| Total from investment operations | | | | | 0.36 | | | (0.85) | |
Distributions (1) | | | | | (0.25) | | | (0.26) | |
Issuance of common stock (2) (6) | | | | | 0.01 | | | — | |
| Net asset value per share at end of period | | | | | $ | 12.71 | | | $ | 11.89 | |
Total return based on net asset value (3)(8) | | | | | 3.0 | % | | (6.5) | % |
| Shares outstanding or subscribed at end of period | | | | | 2,200,627 | | | 2,250,747 | |
| Weighted average shares outstanding or subscribed | | | | | 2,187,362 | | | 2,245,143 | |
| Ratio/Supplemental Data | | | | | | | |
Average net asset value (4) | | | | | $ | 27,702,600 | | | $ | 27,939,037 | |
| Net asset value at end of period | | | | | $ | 27,963,326 | | | $ | 26,757,567 | |
| Net investment income | | | | | $ | 550,116 | | | $ | 586,860 | |
Ratio of total net operating expenses to average net assets (5) | | | | | 10.3 | % | | 8.4 | % |
Ratio of net investment income to average net assets (5) | | | | | 7.9 | % | | 8.4 | % |
Portfolio turnover (7) | | | | | 20.5 | % | | 8.4 | % |
(1)The per share data for distributions is the actual amount of distributions declared per share during the period. The determination of the tax attributes of the Company’s distributions is made annually as of the end of its fiscal year based upon its ICTI for the full year and distributions paid for the full year. The Company anticipates its distributions to be comprised 100% from net investment income.
(2)The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the issuance of shares of common stock in the Company’s continuous public offering, the retirement of shares from the Company's repurchases of common stock and the dilutive or anti-dilutive impact from significant changes in weighted-average shares outstanding during the year.
(3)Calculated as ending net asset value less beginning net asset value, adjusting for distributions reinvested at the Company’s most recent quarter-end net asset value prior to the respective payment date of the distributions.
(4)Based on the average of the net asset value at the beginning and end of the indicated period and if applicable the preceding calendar quarters.
(5)Annualized.
(6)Calculated on the average share method.
(7)Portfolio turnover rate is calculated using the lesser of period-to-date sales and principal payments or period-to-date purchases over the average of the invested assets at fair value.
(8)Not annualized.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Per share operating performance: | | | | | | | |
| Net asset value per share at beginning of period | $ | 11.89 |
|
| $ | 13.28 |
| | $ | 13.00 |
|
| $ | 13.00 |
|
Net investment income (6) | 0.24 |
|
| 0.24 |
| | 0.50 |
|
| 0.49 |
|
Net realized loss on non-control/non-affiliate investments (6) | (0.01 | ) |
| — |
|
| (0.26 | ) |
| — |
|
Net unrealized appreciation (depreciation) on non-control/non-affiliate investments (6) | 0.11 |
|
| (0.04 | ) | | (0.76 | ) |
| 0.24 |
|
| Total from investment operations | 0.34 |
| | 0.20 |
|
| (0.52 | ) | | 0.73 |
|
Distributions (1) | (0.24 | ) | | (0.26 | ) | | (0.51 | ) | | (0.52 | ) |
Issuance of common stock (2) (6) | 0.01 |
| | 0.02 |
| | 0.03 |
| | 0.03 |
|
| Net asset value per share at end of period | $ | 12.00 |
|
| $ | 13.24 |
| | $ | 12.00 |
|
| $ | 13.24 |
|
Total return based on net asset value (3)(8) | 3.0 | % |
| 1.7 | % | | (3.7 | )% |
| 5.9 | % |
| Shares outstanding at end of period | 2,188,275 |
| | 2,092,378 |
| | 2,188,275 |
| | 2,092,378 |
|
| Weighted average shares outstanding | 2,229,750 |
|
| 1,964,548 |
| | 2,237,446 |
| | 1,916,979 |
|
| Ratio/Supplemental Data | | | | | | | |
Average net asset value (4) | $ | 26,503,630 |
|
| $ | 26,730,286 |
| | $ | 27,375,922 |
|
| $ | 25,699,486 |
|
| Net asset value at end of period | $ | 26,249,692 |
|
| $ | 27,706,535 |
| | $ | 26,249,692 |
|
| $ | 27,706,535 |
|
| Net investment income | $ | 535,016 |
|
| $ | 480,858 |
| | $ | 1,121,876 |
|
| $ | 943,289 |
|
Ratio of total net operating expenses to average net assets (5) | 7.7 | % |
| 6.1 | % | | 8.0 | % |
| 5.9 | % |
Ratio of net investment income to average net assets (5) | 8.1 | % |
| 7.2 | % | | 8.2 | % |
| 7.3 | % |
Portfolio turnover (7) | 2.5 | % |
| 2.6 | % | | 15.3 | % |
| 10.0 | % |
| |
(1) | The per share data for distributions is the actual amount of distributions declared per share during the period. The determination of the tax attributes of the Company’s distributions is made annually as of the end of its fiscal year based upon its ICTI for the full year and distributions paid for the full year. The Company anticipates its distributions to be comprised 100% from net investment income. |
| |
(2) | The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the issuance of shares of common stock in the Company’s continuous public offering and the dilutive or anti-dilutive impact from significant changes in weighted-average shares outstanding during the period. |
| |
(3) | Calculated as ending net asset value less beginning net asset value, adjusting for distributions reinvested at the Company’s most recent quarter-end net asset value prior to the respective payment date of the distributions. |
| |
(4) | Based on the average of the net asset value at the beginning and end of the indicated period and if applicable the preceding calendar quarters. |
| |
(6) | Calculated on the average share method. |
| |
(7) | Portfolio turnover rate is calculated using the lesser of period-to-date sales and principal payments or period-to-date purchases over the average of the invested assets at fair value. |
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
Note 10.9. Capital Transactions
Common stock transactions
Below is a summary of transactions with respect to shares of the Company’s common stock issued or subscribed in the Offering during the sixthree months ended June 30, 2020March 31, 2021 and 2019:2020: |
| | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2020 | | 2019 |
| | | Shares | | Amount | | Shares | | Amount |
| Gross proceeds from the Offering | | 34,788 |
| | $ | 478,992 |
| | 290,014 |
| | $ | 4,069,625 |
|
| Commissions and dealer manager fees | | — |
| | (39,000 | ) | | — |
| | (271,869 | ) |
| Dealer manager fees paid by OFS Advisor | | — |
| | — |
| | — |
| | 122,036 |
|
| Net proceeds to the Company | | 34,788 |
| | $ | 439,992 |
| | 290,014 |
| | $ | 3,919,792 |
|
From May 19, 2017 through June 30, 2019, OFS Advisor paid the dealer manager fee on sales of shares of the Company's common stock in the Offering. Payments of dealer manager fees by OFS Advisor were not subject to reimbursement by the Company. The Company has agreed to pay the dealer manager fees on sales of shares of our common stock in the Offering subsequent to June 30, 2019. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| | Shares | | Amount | | Shares | | Amount |
| Gross proceeds from the Offering | | 21,707 | | | $ | 300,000 | | | 10,973 | | | $ | 160,000 | |
| Commissions and dealer manager fees | | — | | | (18,100) | | | — | | | (15,800) | |
| Net proceeds to the Company | | 21,707 | | | $ | 281,900 | | | 10,973 | | | $ | 144,200 | |
Distributions
The following table reflects the cash distributions per share that the Company declared on its common stock during the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020. Stockholders of record as of each respective record date were entitled to receive the distribution. |
| | | | | | | | | | | | |
| Date Declared | | Record Dates | | Payment Date | | Monthly Per Share Amount | | Cash Distribution |
| Six Months Ended June 30, 2019 | | | | | | |
| January 29, 2019 | | January 29, 2019, February 26, 2019 and March 27, 2019 | | April 15, 2019 | | $ | 0.0875 |
| | $ | 489,716 |
|
| April 26, 2019 | | April 26, 2019, May 29, 2019 and June 26, 2019 | | July 15, 2019 | | 0.0875 |
| | 514,645 |
|
| Six Months Ended June 30, 2020 | | | | | | |
| January 29, 2020 |
| January 29, 2020, February 26, 2020 and March 27, 2020 |
| April 15, 2020 |
| $ | 0.0875 |
|
| $ | 589,261 |
|
| April 28, 2020 |
| April 28, 2020 |
| July 15, 2020 |
| 0.0825 |
|
| 182,996 |
|
| May 27, 2020 |
| May 27, 2020 |
| July 15, 2020 |
| 0.0792 |
|
| 177,251 |
|
| June 25, 2020 |
| June 26, 2020 |
| July 15, 2020 |
| 0.0822 |
|
| 179,554 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Date Declared | | Record Dates | | Payment Date | | Monthly Per Share Amount | | Cash
Distribution |
| Three Months Ended March 31, 2020 | | | | | | |
| January 29, 2020 | | January 29, 2020, February 26, 2020 and March 27, 2020 | | April 15, 2020 | | $ | 0.0875 | | | $ | 589,261 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Three Months Ended March 31, 2021 | | | | | | |
| January 26, 2021 | | January 27, 2021 | | April 15, 2021 | | $ | 0.0846 | | | $ | 184,337 | |
| February 23, 2021 | | February 24, 2021 | | April 15, 2021 | | $ | 0.0846 | | | $ | 184,337 | |
| March 27, 2021 | | March 29, 2021 | | April 15, 2021 | | $ | 0.0846 | | | $ | 186,173 | |
The quarterly per share distribution amount was $0.2625$0.25 and $0.2439$0.26 for the three months ended March 31, 20202021 and three months ended June 30, 2020, respectively. The quarterly per share distribution amount was $0.2625 for the three months ended March 31, 2019 and three months ended June 30, 2019, respectively.
The above distributions were funded, in part, through the reimbursement of certain operating expenses by OFS Advisorthe Advisors under the Expense Support Agreement.ESAs. The Expense Support Agreement isESAs are designed to ensure no portion of the Company's distribution to stockholders will be paid from Offering proceeds, and will provide for expense reduction payments to the Company in any quarterly period in which the Company's cumulative distributions to stockholders exceeds the Company's cumulative ICTI and net realized gains. The Expense Support AgreementESAs may be terminated by OFS Advisor,the Advisors, without payment of any penalty, with or without notice to the Company.
Effective August 3, 2020, However, the Expense Support Agreement was amended to, among other things, require CIM Capital to pay future expense support paymentsESA is subordinated to the Company. The Expense Support Agreement may be terminated by CIM Capital, without paymentPWB Credit Facility, and prior to cancelling the ESA, the Advisors must provide Pacific Western Bank with 30 days advance written notice of any penalty, with or without notice to the Company.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
such termination.
Repurchases of Shares
The following table summarizes the common stock repurchases by the Company as of June 30, 2020:March 31, 2021:
| | | | | Number of Shares | | Amount | | Number of Shares | | Amount |
| November 6, 2018 through December 31, 2018 | | 18,425 |
| | $ | 243,030 |
| November 6, 2018 through December 31, 2018 | | 18,425 | | | $ | 243,030 | |
January 1, 2019 through April 5, 2019 (1) | | 7,407 |
| | 98,296 |
| January 1, 2019 through April 5, 2019 (1) | | 7,407 | | | 98,296 | |
| April 6, 2019 through June 30, 2019 | | 9,029 |
| | 119,821 |
| April 6, 2019 through June 30, 2019 | | 9,029 | | | 119,821 | |
| July 1, 2019 through September 30, 2019 | | 7,407 |
| | 97,111 |
| July 1, 2019 through September 30, 2019 | | 7,407 | | | 97,111 | |
| October 1, 2019 through December 31, 2019 | | 15,597 |
| | 204,317 |
| October 1, 2019 through December 31, 2019 | | 15,597 | | | 204,317 | |
January 1, 2020 through April 3, 2020 (2) | | 32,622 |
| | 364,383 |
| January 1, 2020 through April 3, 2020 (2) | | 32,622 | | | 364,384 | |
| April 4, 2020 through June 30, 2020 | | 53,665 |
| | 654,713 |
| April 4, 2020 through June 30, 2020 | | 53,665 | | | 654,713 | |
| July 1, 2020 through September 30, 2020 | | July 1, 2020 through September 30, 2020 | | 55,320 | | | 694,819 | |
| October 1, 2020 through December 31, 2020 | | October 1, 2020 through December 31, 2020 | | 55,674 | | | 700,935 | |
January 1, 2021 through March 31, 2021(3) | | January 1, 2021 through March 31, 2021(3) | | — | | | — | |
(1) The Company's February 11, 2019 tender offer that was originally scheduled to expire on March 27, 2019, was amended to extend the offer period to April 5, 2019.
Hancock Park Corporate Income, Inc.
Notes to Consolidated Financial Statements
(2) The Company's February 21, 2020 tender offer that was originally schedule to expire on March 27, 2020, was amended to extend the offer period to April 3, 2020.
(3) The Company's February 19, 2021 tender offer that was originally schedule to expire on March 26, 2021, was amended to extend the offer period to April 5, 2021. The Company repurchased 55,377 shares for $708,272.
All repurchased shares were retired upon acquisition.
Note 11.10. Subsequent Events Not Disclosed Elsewhere
Subsequent to June 30, 2020,March 31, 2021, the Company sold an additional 25,92617,718 common shares for additional net proceeds of $315,000.$230,000.
On July 28, 2020,April 27, 2021, the Board declared a distribution of $0.081$0.0846 per common share, which represents a 7.2%7.1% distribution yield, payable on OctoberJuly 15, 2020,2021, to stockholders of record on July 29, 2020.April 28, 2021.
On August 4, 2020,May 11, 2021, the Board approved a tender offer, commencing on AugustMay 28, 2020,2021, to purchase 2.5% of the weighted average number of shares of the outstanding Common Stock for the trailing 12-month period ending June 30, 2020.March 31, 2021.
COVID-19
The Company evaluated events subsequent to June 30, 2020March 31, 2021 through August 6, 2020. May 14, 2021. We are continuing to closely monitor the impact of the outbreak of COVID-19 on all aspects of our business, including how it impacts our portfolio companies, employees, due diligence and underwriting processes, and financial markets. The U.S. capital markets experienced extreme volatility and disruption following the COVID-19 pandemic, which appear to have subsided and returned to pre-COVID-19 levels. Nonetheless, certain economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a prolonged period of world-wide economic downturn.
On March 11,27, 2020, the World Health Organization declaredU.S. government enacted the novelCARES Act, which contains provisions intended to mitigate the adverse economic effects of the coronavirus as a pandemic, andpandemic. On December 27, 2020, the U.S. government enacted the December 2020 COVID Relief Package. Additionally, on March 13, 202011, 2021, the United States declared a national emergency with respectU.S. government enacted the American Rescue Plan, which included additional funding to mitigate the adverse economic effects of the COVID-19 pandemic. It is uncertain whether, or to what extent, our portfolio companies will be able to benefit from the CARES Act, the December 2020 COVID Relief Package, the American Rescue Plan, or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.
The outbreakextent of the impact of the COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. While several countries, as well as certain states in the United States, have begun to lift such restrictions with a view to reopening their economies, recurring COVID-19 outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Such actions have created, and continue to create, disruption in global supply chains and adversely impact a number of industries. The outbreak could have a continued adverse impact on economic and market conditions on a global scale. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic. Nevertheless, the ongoing COVID-19 pandemic presents material uncertainty and risks with respect to the underlying value of the Company’s portfolio companies, the Company’s business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. Further, theour operational and financial performance, ofincluding our ability to execute our business strategies and initiatives in the portfolio companies in which the Company makes investments have been, and may continue to be, significantly impacted by the COVID-19 pandemic, which in turn has, and may continue to have, an impact on the valuation of the Company’s investments.
Accordingly, the Company cannot predict the full extent to which its business, financial condition, results of operations and cash flows will be affected at this time. The potential impact to the Company’s resultsexpected time frame, will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of the COVID-19 pandemiccoronavirus, effectiveness of vaccination deployment and the actions taken by authoritiesgovernments (including stimulus measures or the lack thereof) and other entitiestheir citizens to contain the coronavirus or treat its impact, all of which are beyond our control. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition. Given the Company’s control.fluidity of the situation, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position, or cash flows at this time.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. For additional overview information on the Company, see "Item 1. Business" in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Overview
Key performance metrics are presented below:
| | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| Net asset value per common share | | $ | 12.71 | | | $ | 12.59 | |
|
| | | | | | | | |
| | | June 30, 2020 | | December 31, 2019 |
| Net asset value per common share | | $ | 12.00 |
| | $ | 13.00 |
|
| | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | | | 2021 | | 2020 |
| Net investment income per common share | | $ | 0.24 |
| | $ | 0.24 |
| | $ | 0.50 |
| | $ | 0.49 |
| Net investment income per common share | | | | $ | 0.25 | | | $ | 0.26 | |
| Net increase (decrease) in net assets resulting from operations per common share | | 0.34 |
| | 0.20 |
| | (0.52 | ) | | 0.72 |
| |
| Net increase in net assets resulting from operations per common share | | Net increase in net assets resulting from operations per common share | | | | 0.36 | | | (0.85) | |
| Distributions declared per common share | | 0.24 |
| | 0.26 |
| | 0.51 |
| | 0.52 |
| Distributions declared per common share | | | | 0.25 | | | 0.26 | |
Our portfolio experienced net gains of $220,214,$244,282, or $0.10$0.11 per share, during the three months ended June 30, 2020,March 31, 2021, principally due to the return of liquidity to the broadly syndicated loan market and tighter credit spreads in the underlying market.positive performance factors on our senior debt investments, primarily Wastebuilt Environmental Solutions, LLC, which appreciated $237,759. Net investment income per share remained consistent compared to the corresponding quarter in the prior year.year quarter. Weighted average yield on debt and Structured Finance Notes for the three months ended June 30, 2020, declinedMarch 31, 2021 increased to 9.15%9.33% from 10.99%9.21% in the second quarter ending June 30, 2019March 31, 2020, primarily due to the decrease in LIBOR and the placementour Structured Finance Note investments that have a weighted average yield of our loan to Online Tech Stores, LLC on non-accrual status. However, our11.87%. Our weighted average interest costs decreased slightly to 6.93%6.80% from 7.96% due to the issuance of the Unsecured Note and the decrease in Prime Rate.6.84%.
Since OFS Advisor implemented its business continuity plan in mid-March 2020, the OFS Advisor's entire team has effectively transitioned to remote work and we are currently capable of maintaining our normal functionality to complete our operational requirements.
We areOFS Advisor has actively monitoringmonitored our portfolio companies throughout this period of economic uncertainty, including assessingwhich included on-going assessments of our portfolio companies' operational and liquidity outlook. During the quarter, portfolio companies drew down credit commitments of $218,393. As of June 30, 2020,March 31, 2021, we havehad unfunded commitments of $174,107$454,107 to twothree portfolio companies. Also, all of our performing loans as of March 31, 2020, satisfied their second quarter 2020 interest payments. We believe new loan activity in the market in which we operate has slowed and we continue to observe a decrease in origination and underwriting activity. The number of deals currently being reviewed and evaluated has decreased since the beginning of the year. During the three months ended June 30, 2020,March 31, 2021, we purchased one broadly syndicated loanStructured Finance Note for an aggregate cost of $91,250,$135,438 and there has been no Portfolio Company Investments directly originated since March 16, 2020.for an aggregate cost of $9,048,510.
At June 30, 2020,March 31, 2021, our asset coverage ratio was 257%279% and we remained in compliance with all applicable financial covenant thresholds under our outstanding debt and our minimum asset coverage requirement under the 1940 Act. As of June 30, 2020,March 31, 2021, we had an unfunded commitment of $8.2$14.4 million under our PWB Credit Facility. Based on fair values and equity capital at June 30, 2020,March 31, 2021, we could access our entire commitment under the PWB Credit Facility and have an asset coverage ratio of 205%203%. We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and selectively deploy capital in new investment opportunities in this challenging environment.
On July 28, 2020,April 27, 2021, our Board declared a distribution of $0.081$0.0846 per common share distribution, payable on OctoberJuly 15, 2020,2021, to stockholders of record on July 29, 2020.April 28, 2021.
We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide, and the magnitude of the economic impact of the outbreak, including the impact of travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S. governmental authorities. As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which the COVID-19 pandemic will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies will experience financial distress and possibly default on their financial obligations to us and their other
capital providers. Some of our portfolio companies have significantly curtailed business operations, furloughed or laid off employees and terminated service providers and deferred capital expenditures, which could impair their business on a
permanent basis. These developments would likely result in a decrease in the value of our investment in any such portfolio company.
We are also subject to financial risks, including changes in market interest rates. As of June 30, 2020,March 31, 2021, approximately $42$38 million (principal amount) of our debt portfolio investments bore interest at variable rates, which are generally are LIBOR-based, (or based on an equivalent applicable currency rate), and many of which are subject to certainreference-rate floors. In connection with the COVID-19 pandemic, and primarily during the second quarter of 2020, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on anyour portfolio investments, a decrease in our operating expenses, including with respect to our income incentive fee, or a decrease in the interest rate of our floating interest rate liabilities tiedindexed to LIBOR. As of June 30, 2020,March 31, 2021, the majority of our variable rate debt investments are subject to the base rate floor, therefore, partially reducingmitigating the impact fromof the recent decrease in LIBOR over the past three months on our gross investment income.
We will continue to monitor the rapidly evolving situation relating to the COVID-19 pandemic and guidance from U.S. and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impactsimpact of the COVID-19 pandemic on our financial condition, results of operations or cash flows in the future. However, to the extent our portfolio companies continue to be adversely impacted by the COVID-19 pandemic, our future net investment income, financial condition, results of operations and the fair value of our portfolio investments may be materially adversely impacted.
Related Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
•The Investment Advisory Agreement with OFS Advisor to manage our operating and investment activities. Under the Investment Advisory Agreement we have agreed to pay OFS Advisor an annual base management fee based on the average value of our total assets (other than cash but including assets purchased with borrowed amounts and including assets owned by any consolidated entity) as well as an incentive fee based on our investment performance. See "Item 1. Financial Statements –– Notes to Consolidated Financial Statements – Note 3.3."
•The CIM Sub-Advisory Agreement with CIM Capital, an affiliate of OFS Advisor, to assist OFS Advisor with the management of our activities and operations. See "Item 1. Financial Statements –– Notes to Consolidated Financial Statements – Note 3.3."
•The Dealer Manager Agreement with CCO, Capital, LLC, an affiliate of OFS Advisor and CIM Capital, to provide sales, promotional and marketing services to us in connection with the Offering. See "Item 1. Financial Statements –– Notes to Consolidated Financial Statements – Note 3.3."
•The Administration Agreement with OFS Services, an affiliate of OFS Advisor, to provide us with the office facilities and administrative services necessary to conduct our operations. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 3.3."
•Expense Limitation Agreements: OFS Advisor, and effective August 3, 2020, CIM Capital, limit the Company's incurred expenses under two agreements: (1) the Investment Advisory Agreement, which contains provisions limiting organization and offering costs, and Contractual Issuer Expenses; and (2) an Expense Support Agreement, which limits all other operating expenses. Both agreements contain conditions under which we may become obligated to reimburse OFS Advisor or CIM Capital for expense limitations provided thereunder. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 3.3."
OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to us and OFS Advisor is free to furnish similar services to other entities, including other BDCs affiliated with OFS Advisor, so long as its services to us are not impaired. OFS Advisor also serves as the investment adviser to CLO funds and other assets, including OFS Capital and OCCI. OFS Advisor provides sub-advisory services to CMFT Securities Investments, LLC, a wholly owned subsidiary of CIM Real Estate Finance Trust, Inc., a corporation that qualifies as a real estate investment trust. Additionally, OFS Advisor serves as sub-adviser to CIM Real Assets & Credit Fund, a newly organizedan externally managed registered investment company that operates as an interval fund that invests primarily in a combination of real estate, credit and related investments.
The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so. On August 4, 2020, we received exemptive relief from the SEC to permit
us to co-invest in portfolio companies with certain other funds, including other BDCs and registered investment companies, managed by OFS Advisor (the “Affiliated Funds”) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). The Order, which superseded a previous order we received on October 12, 2016 and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds. Pursuant to the Order, we are generally permitted to co-invest with Affiliated Funds if a “required
majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
In addition, pursuant to an exemptive order issued by the SEC on April 8, 2020 and applicable to all BDCs, through at least December 31, 2020, the Company may,we were permitted, subject to the satisfaction of certain conditions, to co-invest in itsour existing portfolio companies with certain other funds managed by OFS Advisor or its affiliates, even if such other fund hasfunds had not previously invested in such existing portfolio company. Without this order, the Company generallyAffiliated Funds would not be able to participate in such co-investments with us unless the affiliated fundAffiliated Funds had previously acquired securities of the portfolio company in a co-investment transaction with us. Although the Company.conditional exemptive order expired on December 31, 2020, the SEC’s Division of Investment Management has indicated that until March 31, 2022, it will not recommend enforcement action, to the extent that any BDC with an existing co-investment order continues to engage in certain transactions described in the conditional exemptive order, pursuant to the same terms and conditions described therein.
Conflicts may arise when an account managed by OFS Advisor makes an investment in conjunction with an investment being made by another account managed by OFS Advisor or an affiliate of OFS Advisor (each, an "Affiliated Account"),Affiliated Account, or in a transaction where an Affiliated Account has already made an investment. Investment opportunities are, from time to time, appropriate for more than one account in the same, different or overlapping securities of a portfolio company’s capital structure. Conflicts arise in determining the terms of investments, particularly where these accounts may invest in different types of securities in a single portfolio company. Potential conflicts arise when addressing, among other things, questions as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced. For additional information see "Item 1A. Business — Conflicts of Interest" and "Item 1A. Risk Factors — Risks Related to Our Business and Structure — We have potential conflicts of interest related to obligations that OFS Advisor or its affiliates may have to other clients" in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are those relating to revenue recognition, expense limitation agreements and fair value estimates. Management has discussed the development and selection of each critical accounting policy and estimate with the Audit Committee of the Board. For descriptions of our revenue recognition and fair value policies, see "Item 8. Financial Statements – Notes to Consolidated Financial Statements – Note 2" and "Management's Discussion and Analysis – Critical Accounting Policies and Significant Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Fair value estimates. Our approach to fair value estimates was significantly adjusted in response to the economic uncertainty associated with the spread of the COVID-19 pandemic. Ourpandemic, principally through adjustments to the weights given the various methodologies we utilize to estimate discount rates, greater use of NBIP includes assessment of whether a sufficient number ofpandemic-adjusted forward-looking information, and shortening the evaluation periods used to assess the market quotations are available or whether a sufficient number of indicative prices from pricing services or brokers or dealers have been received, and whether the depth of the markets from which those quotes were received is sufficient to transact at those prices in amounts approximating our positions in such assets. Moreover, these assessments are generally based on a 90-day moving average of our depth and liquidity metrics. The 90-day moving average generally counters the effects of intermittent quoting activityassociated with Indicative Prices. These adjustments resulted from observed and month- and quarter-ends, irregular quoting activity that tends to artificially inflate our metrics. We observed significant declines in market liquidity beginning in the middle of March and concluded the 90-day moving average was not representative of current market conditions given the significant market dislocation during this period. Accordingly, we adjusted our depth and liquidity assessment to one based on a 5-day moving average of the metrics in our liquidity assessments as of March 31, 2020, and partially reverted, utilizing a 30-day moving average, in our June 30, 2020, assessments, as liquidity partially returned to the loan market. One measure of liquidity in the broadly syndicated loan market is the average bid-ask spread on the Refinitiv Market Overall (North America) Loan Index which narrowed to 1.98 points at June 30, 2020, from 3.41 points at March 31, 2020, but has not yet returned to its long-term historic average of 1.0. These changes to our depth and liquidity metrics, as well as changes in the level of the metrics themselves, led to the transfer of one instrument with an aggregate amortized cost of $15,820 from a fair value estimate based on Level 2 NBIP inputs to estimates based on models and Level 3 inputs at March 31, 2020, of which three instruments with an aggregate amortized cost of $1,619,847 reverted back to fair value estimate based on Level 2 NBIP inputs.
We also adjusted our Level 3 fair value models throughout this period of heightened economic uncertainty. Our processes included assessments of the impact of the COVID-19 pandemic on the financial condition, results of operations or cash flows of our portfolio companies. Initially, such forward-looking assessments were fragmentary, however as such forward-looking estimates became more reliable, such information was directly incorporated into our fair value models. In
circumstances in which reliable forward-looking information, we considered the market impact on performance-metric multiples and related impact on enterprise values. Additionally, management observed a decreasedecreases in the historic correlation between market spreads used inobservable inputs utilized on our synthetic debt rating method and those used invaluation models. However, as of December 31, 2020, we had reverted all of our reunderwriting analysis. These market spreads, though highly correlated before the on-set of the COVID-19 pandemic, relatemethodologies to different segments of the lending market primarily on the basis of borrower size: the synthetic debt rating method based on market spreads for larger borrowers with rated debt,their pre-pandemic weightings as financial markets stabilized and the reunderwring analysiscorrelations between observable market spreads for what are considered middle-market borrowers. Management concluded, given the break-down in this relationship, the relative weight given to each of these methods required adjustment to correspond to the market most closely associated with the subject investment. Accordingly, we decreased the weighting for the synthetic debt rating method and increased the weighting for the reunderwriting analysis in the current period year, from a weighting of 50/50 to a weighting of 10/90, at March 31, 2020, and partially reverting to generally 25/75 at June 30, 2020. We believe the overweighting to the reunderwriting analysis more accurately captures the market in which these instruments are exchanged.factors returned.
The following table illustrates the impact of our fair value measures if we selected the low or high end of the range of values for all investments at June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Fair Value at March 31, 2021 | | Range of Fair Value |
| Investment Type | | | Low-end | | High-end |
| Debt investments: | | | | | | |
| Senior secured | | $ | 35,052,068 | | | $ | 34,751,997 | | | $ | 35,361,576 | |
| Senior secured (Transaction Price) | | 3,135,940 | | | 3,135,940 | | | 3,135,940 | |
| Subordinated | | 266,218 | | | 212,247 | | | 320,189 | |
| | | | | | |
| Structured Finance Notes: | | | | | | |
| Subordinated notes | | 3,172,439 | | | 3,081,922 | | | 3,262,954 | |
| Mezzanine debt | | 1,796,724 | | | 1,764,644 | | | 1,828,805 | |
| | | | | | |
| Equity investments: | | | | | | |
| Preferred equity | | 349,436 | | | 289,826 | | | 409,046 | |
| Common equity | | 688,919 | | | 604,941 | | | 755,547 | |
| | $ | 44,461,744 | | | $ | 43,841,517 | | | $ | 45,074,057 | |
The SEC issued a final rule in 2020 modifying Rule 2a-5 under the 1940 Act to establish requirements for determining fair value in good faith for purposes of the 1940 Act. We are evaluating the impact of adopting Rule 2a-5 on the consolidated financial statements and intend to comply with the new rule’s requirements on or before the compliance date in September 2022.
|
| | | | | | | | | | | | |
| | | Fair Value at June 30, 2020 | | Range of Fair Value |
| Investment Type | | | Low-end | | High-end |
| Debt investments: | | |
| | |
| | |
|
| Senior secured | | $ | 39,179,018 |
| | $ | 38,428,320 |
| | $ | 39,931,568 |
|
| Subordinated | | 904,371 |
| | 840,288 |
| | 968,452 |
|
| | | | | | | |
| Structured Finance Notes: | | | | | | |
| Mezzanine debt | | 789,725 |
|
| 770,103 |
|
| 809,348 |
|
| | | | | | | |
| Equity investments: | | | | | | |
| Preferred equity | | 289,158 |
| | 251,319 |
| | 326,998 |
|
| Common equity | | 523,445 |
| | 420,296 |
| | 626,593 |
|
| | | $ | 41,685,717 |
| | $ | 40,710,326 |
| | $ | 42,662,959 |
|
Portfolio Composition and Investment Activity
Portfolio Composition
The following table summarizes the composition of our Portfolio Company Investments as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Senior secured debt investments (1) | $ | 38,040,437 | | | $ | 38,188,008 | | | $ | 39,315,954 | | | $ | 38,890,010 | |
| Subordinated debt investments | 1,483,613 | | | 266,218 | | | 1,482,464 | | | 381,516 | |
| Preferred equity investments | 191,409 | | | 349,436 | | | 191,409 | | | 338,000 | |
| Common equity investments | 540,157 | | | 688,919 | | | 540,157 | | | 708,036 | |
| Total Portfolio Company Investments | $ | 40,255,616 | | | $ | 39,492,581 | | | $ | 41,529,984 | | | $ | 40,317,562 | |
| Total number of portfolio companies | 26 | | | 26 | | | 35 | | | 35 | |
|
| | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Senior secured debt investments (1) | $ | 41,083,694 |
|
| $ | 39,179,018 |
| | $ | 38,648,951 |
| | $ | 37,953,346 |
|
| Subordinated debt investments | 1,481,630 |
|
| 904,371 |
| | 1,478,811 |
| | 1,384,896 |
|
| Preferred equity investments | 191,409 |
|
| 289,158 |
| | 191,409 |
| | 201,006 |
|
| Common equity investments | 497,130 |
|
| 523,445 |
| | 450,958 |
| | 585,675 |
|
| | $ | 43,253,863 |
|
| $ | 40,895,992 |
| | $ | 40,770,129 |
| | $ | 40,124,923 |
|
| Total number of portfolio companies | 34 |
| | 34 |
| | 34 |
| | 34 |
|
| |
(1) | Includes debt investments, typically referred to as unitranche, in which we have entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, we have agreed to receive our principal payments after the repayment of certain co‑lenders pursuant to a payment waterfall. At June 30, 2020, the aggregate amortized cost and fair value of these investments was $8,345,918 and $8,256,180, respectively. |
As of June 30, 2020,March 31, 2021, all of our senior secured debt investments were floating rate loans and our subordinated debt investments were fixed rate loans. Approximately 98%97% of our debt investmentsPortfolio Company Investments at fair value, are senior securities of the borrower, rather than in the subordinated securities, preferred equity or common equity. We believe the seniority of our debt
investments in the borrowers' capital structurestructures may provide greater downside protection against the impact of the COVID-19 pandemic.
As of June 30, 2020, our investment portfolio’sMarch 31, 2021, the three largest industries of our Portfolio Company Investments by fair value, were (1) Professional, Scientific, and Technical Services of 21.8%, (2) Wholesale Trade of 20.3%19.0%, (2)and (3) Health Care and Social Assistance of 17.0%, and (3) Professional, Scientific, and Technical Services of 15.6%15.9%, totaling approximately 52.9%56.7% of the investment portfolio. We have limited exposure to the Retail Trade
industry, 5.9%approximately 0.6%, which has been significantly impacted by the COVID-19 pandemic. For a full summary of our investment portfolio by industry, see "Item 1–Financial Statements–Note 4."
The weighted average yield on total investmentsNote 4(1) ."
The following table presents our debt investment portfolio by investment size as of June 30, 2020was 9.18% and 9.03% at March 31, 2021 and December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Fair Value |
| | June 30, 2020 | | December 31, 2019 | | June 30, 2020 | | December 31, 2019 |
| Up to $1,000,000 | $ | 5,821,077 |
| | 13.7 | % | | $ | 7,737,315 |
| | 19.3 | % | | $ | 6,102,371 |
| | 15.2 | % | | $ | 7,171,472 |
| | 18.2 | % |
| $1,000,000 to $1,500,000 | 13,740,701 |
| | 32.3 |
| | 13,360,333 |
| | 33.3 |
| | 11,858,086 |
| | 29.6 |
| | 13,198,830 |
| | 33.6 |
|
| $1,500,000 to $2,000,000 | 9,001,234 |
| | 21.1 |
| | 14,051,452 |
| | 35.0 |
| | 12,395,165 |
| | 30.9 |
| | 14,026,055 |
| | 35.6 |
|
| Greater than $2,000,000 | 14,002,312 |
| | 32.9 |
| | 4,978,662 |
| | 12.4 |
| | 9,727,767 |
| | 24.3 |
| | 4,941,885 |
| | 12.6 |
|
| Total | $ | 42,565,324 |
| | 100.0 | % | | $ | 40,127,762 |
| | 100.0 | % | | $ | 40,083,389 |
| | 100.0 | % | | $ | 39,338,242 |
| | 100.0 | % |
2020, respectively. The following table displays the composition of our performing debt investments and Structured Finance Note portfolio by yield range and its weighted average yieldyields as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | March 31, 2021 | | December 31, 2020 |
| | | June 30, 2020 | | December 31, 2019 | | | Senior
Secured | | Subordinated | | Structured Finance | | | | Senior
Secured | | Subordinated | Structured Finance | |
| | | Senior Secured | | Subordinated | | Structured Finance | | Total | | Senior Secured | | Subordinated | | Total | |
Weighted Average Yield (1) | | Debt | | Debt | | Notes | | Debt | | Debt | | Debt | | Debt | |
| Yield Range | | Yield Range | | Debt | | Debt | | Notes | | Total | | Debt | | Debt | Notes | Total |
| Less than 8% | | 11.3 | % | | — | % | | — | % | | 11.0 | % | | 1.7 | % | | — | % | | 1.7 | % | Less than 8% | | 29.0 | % | | — | % | | 33.8 | % | | 29.2 | % | | 25.5 | % | | — | % | 16.6 | % | 25.2 | % |
| 8% - 10% | | 60.4 |
| | — |
| | — |
| | 58.6 |
| | 45.9 |
| | — |
| | 44.2 |
| 8% - 10% | | 56.1 | | | — | | | — | | | 49.2 | | | 55.7 | | | — | | 17.1 | | 55.0 | |
| 10% - 12% | | 25.9 |
| | — |
| | — |
| | 25.2 |
| | 47.1 |
| | — |
| | 45.3 |
| 10% - 12% | | 8.2 | | | — | | | — | | | 7.2 | | | 16.3 | | | — | | — | | 16.1 | |
| 12% - 14% | | 2.4 |
| | 100.0 |
| | 100.0 |
| | 5.2 |
| | 5.3 |
| | 100.0 |
| | 8.8 |
| 12% - 14% | | 2.6 | | | 100.0 | | | — | | | 3.4 | | | 2.5 | | | 100.0 | | — | | 3.7 | |
| Greater than 14% | | Greater than 14% | | 4.1 | | | — | | | 66.2 | | | 11.0 | | | — | | | — | | 66.3 | | — | |
| Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | 100.0 | % | 100.0 | % |
Weighted average yield - performing debt and Structured Finance Note investments (1)(2) | | 9.25 | % | | 13.42 | % | | 13.50 | % | | 9.37 | % | | 10.15 | % | | 12.57 | % | | 10.24 | % | | 9.20 | % | | 13.94 | % | | 11.87 | % | | 9.55 | % | | 8.99 | % | | 12.73 | % | 12.12 | % | 9.03 | % |
Weighted average yield - total debt and Structured Finance Note investments (2)(3) | | 9.25 | % | | 4.30 | % | | 13.50 | % | | 9.15 | % | | 10.00 | % | | 12.57 | % | | 10.09 | % | | 9.20 | % | | 4.47 | % | | 11.87 | % | | 9.33 | % | | 8.99 | % | | 4.08 | % | 12.12 | % | 8.81 | % |
(1) The weighted average yield on our performing debt and Structured Finance Note investments is computed as (a) the sum of (i) the annual stated accruing interest on debt investments plus the annualized accretion of Net Loan Fees; and (ii) the annual effective yield on Structured Finance Notes divided by (b) amortized cost of our debt and Structured Finance Note investments, excluding debt investments in non-accrual status as of the balance sheet date.
(2) The weighted average yield on our total debt and Structured Finance Note investments is computed as (a) the sum of (i) the annual stated accruing interest plus the annualized accretion of Net Loan Fees and (ii) plus the annual effective yield on Structured Finance Notes divided by (b) amortized cost of our debt and Structured Finance Note investments, including debt investments in non-accrual status as of the balance sheet date.
The weighted average yield on senior secured debt investments decreased approximately 75 basis point during the six months ended June 30, 2020, primarily as a result of an effective yield of 8.4% on new investments in new portfolio companies and a decrease in LIBOR. During the six months ended June 30, 2020, the weighted average yield on subordinated debt decreased 8.27% due to the change in status of Online Tech Stores, LLC to non-accrual.
The weighted average yield on total investments was 8.78% and 9.93% at June 30, 2020 and December 31, 2019, respectively. Weighted average yield on total investments is computed as (a) the sum of (i) the annual stated accruing interest on our debt investments at the balance sheet date, plus the annualized accretion of Net Loan Fees, plus the effective yield on our performing preferred equity investments, (ii) plus the annual effective yield on Structured Finance Notes, divided by (b) amortized cost of our total investment portfolio, including assets in non-accrual status as of the balance sheet date.
(2) The weighted average yield on our performing debt and Structured Finance Note investments is computed as (a) the sum of (i) the annual stated accruing interest on debt investments plus the annualized accretion of Net Loan Fees; and (ii) the annual effective yield on Structured Finance Notes divided by (b) amortized cost of our debt and Structured Finance Note investments, excluding debt investments in non-accrual status as of the balance sheet date.
(3) The weighted average yield on our total debt and Structured Finance Note investments is computed as (a) the sum of (i) the annual stated accruing interest plus the annualized accretion of Net Loan Fees and (ii) plus the annual effective yield on Structured Finance Notes divided by (b) amortized cost of our debt and Structured Finance Note investments, including debt investments in non-accrual status as of the balance sheet date.
The weighted average yield of our investments is not the same as a return on investment for our stockholders but rather the gross investment income from our investment portfolio before the payment of all of our fees and expenses. There can be no assurance that the weighted average yield will remain at its current level.
Investment Activity
The following is a summary of our investment activity for the three and six months ended June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended
March 31, 2021 |
| | | | | | Debt
Investments | | Equity
Investments |
| Investments in new portfolio companies | | | | | | $ | 4,424,726 | | | $ | — | |
| Investments in existing portfolio companies: | | | | | | | | |
| Follow-on investments | | | | | | 4,623,784 | | | — | |
| Restructured investments | | | | | | — | | | — | |
| Delayed draw / revolver funding | | | | | | — | | | — | |
| Total investments in existing portfolio companies | | | | | | 4,623,784 | | | — | |
| Total investments in new and existing portfolio companies | | | | | | $ | 9,048,510 | | | $ | — | |
| Number of new portfolio company investments | | | | | | 4 | | | — | |
| Number of existing portfolio company investments | | | | | | 8 | | | — | |
| Proceeds from principal payments | | | | | | $ | 10,490,330 | | | — | |
| Proceeds from investments sold or redeemed | | | | | | 105,757 | | | — | |
| Total proceeds from principal payments, equity distributions and investments sold | | | | | | $ | 10,596,087 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, 2020 | | Six Months Ended
June 30, 2020 |
| | | Debt Investments | | Equity Investments | | Debt Investments | | Equity Investments |
| Investments in new portfolio companies | | $ | 91,250 |
| | $ | — |
| | $ | 6,278,807 |
| | $ | — |
|
| Investments in existing portfolio companies: | | | | | | | | |
| Follow-on investments | | — |
| | — |
| | 2,644,620 |
| | — |
|
| Restructured investments | | — |
| | — |
| | 10,147 |
| | 46,403 |
|
| Delayed draw / revolver funding | | 218,393 |
| | — |
| | 424,543 |
| | — |
|
| Total investments in existing portfolio companies | | 218,393 |
| | — |
| | 3,079,310 |
| | 46,403 |
|
| Total investments in new and existing portfolio companies | | $ | 309,643 |
| | $ | — |
| | $ | 9,358,117 |
| | $ | 46,403 |
|
| Number of new portfolio company investments | | 1 |
| | — |
| | 4 |
| | — |
|
| Number of existing portfolio company investments | | 3 |
| | — |
| | 11 |
| | 1 |
|
| Proceeds from principal payments | | $ | 1,250,387 |
| | — |
| | $ | 3,852,820 |
| | — |
|
| Proceeds from investments sold or redeemed | | 1,618,928 |
| | — |
| | 2,517,950 |
| | — |
|
| Total proceeds from principal payments, equity distributions and investments sold | | $ | 2,869,315 |
| | $ | — |
| | $ | 6,370,770 |
| | $ | — |
|
NotableDuring the three months ended March 31, 2021, notable investments in new portfolio companies during the six months ended June 30, 2020, include A&A Transfer, LLC.Convergint Technologies Holdings, LLC ($2.02.8 million senior secured loan), Confie Seguros Holdings II Co. ($1.7 million senior secured loan) and SourceHOV Tax,BayMark Health Services, Inc. ($2.31.4 million senior secured loan).
WeDuring the three months ended March 31, 2021, we also invested $752,000$135,438 in StructureStructured Finance Notes with a weighted average annual effective yield of 13.50% during the six months ended June 30, 2020.7.52%.
Non-cash investment activity
On March 27, 2020, our debt investments in Constellis Holdings, LLC were restructured. We converted our non-accrual debt investments for two new debt investments and 1,362 common shares of common equity. The cost and fair value of debt investments received were $6,174 and $6,172, respectively, and the cost and fair value of the common shares received were $46,403 and $46,410, respectively. For the sixthree months ended June 30, 2019,March 31, 2020, we recognized a realized loss on the restructuring of $526,444, which was fully recognized as an unrealized loss as of December 31, 2019.
The following is a summary of our investment activity for sixthree months ended June 30, 2019:March 31, 2020:
| | | | | Three Months Ended
June 30, 2019 | | Six Months Ended June 30, 2019 | | | Three Months Ended March 31, 2020 |
| | | Debt Investments | | Equity Investments | | Debt Investments | | Equity Investments | | | Debt
Investments | | Equity
Investments |
| Investments in new portfolio companies | | $ | — |
| | $ | — |
| | $ | 3,260,046 |
| | $ | 357,878 |
| Investments in new portfolio companies | | $ | 6,187,557 | | | $ | — | |
| Investments in existing portfolio companies: | | | | | | | | | Investments in existing portfolio companies: | | |
| Follow-on investments | | 781,286 |
| | — |
| | 1,598,711 |
| | — |
| Follow-on investments | | 2,644,620 | | | — | |
| Restructured investments | | Restructured investments | | 10,147 | | | 46,403 | |
| Delayed draw / revolver funding | | 407,910 |
| | — |
| | 608,952 |
| | — |
| Delayed draw / revolver funding | | 206,150 | | | — | |
| Total investments in existing portfolio companies | | 1,189,196 |
| | — |
| | 2,207,663 |
| | — |
| Total investments in existing portfolio companies | | 2,860,917 | | | 46,403 | |
| Total investments in new and existing portfolio companies | | $ | 1,189,196 |
| | $ | — |
| | $ | 5,467,709 |
| | $ | 357,878 |
| Total investments in new and existing portfolio companies | | $ | 9,048,474 | | | $ | 46,403 | |
| Number of new portfolio company investments | | — |
| | — |
| | 3 |
| | 2 |
| Number of new portfolio company investments | | 3 | | | — | |
| Number of existing portfolio company investments | | 6 |
| | — |
| | 10 |
| | — |
| Number of existing portfolio company investments | | 10 | | | 1 | |
| Proceeds from principal payments | | $ | 403,546 |
| | $ | — |
| | $ | 1,488,187 |
| | $ | — |
| Proceeds from principal payments | | $ | 2,602,433 | | | $ | — | |
| Proceeds from investments sold or redeemed | | 417,910 |
| | — |
| | 1,539,696 |
| | — |
| Proceeds from investments sold or redeemed | | 899,022 | | | — | |
| Total proceeds from principal payments, equity distributions and investments sold | | $ | 821,456 |
| | $ | — |
| | $ | 3,027,883 |
| | $ | — |
| Total proceeds from principal payments, equity distributions and investments sold | | $ | 3,501,455 | | | $ | — | |
Notable investments in new portfolio companies during the sixthree months ended June 30, 2019, include Chemical Resources Holdings, Inc.March 31, 2020, included A&A Transfer, LLC. ($1.22.0 million senior secured loanloan) and $0.2 million common equity), TTG Healthcare, LLC ($1.0 million senior secured loan and $0.2 million preferred stock), and Institutional Shareholder Services,SourceHOV Tax, Inc. ($1.02.3 million senior secured loan).
The weighted-average yield of debt investments in new portfolio companies during the six months ended June 30, 2019 was 11.7%.
Our level of investment activity may vary substantially from period to period depending on various factors, including, but not limited to, the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity and the general economic and competitive environment in which we make investments. We believe new loan activity in the market in which we operate has slowed and we have observed a decrease in origination and underwriting activity. The number of deals currently being reviewed and evaluated has decreased since the beginning of the year. During the three months ended June 30, 2020,March 31, 2021, we purchased one broadly syndicated loanStructured Finance Note for an aggregate cost of $91,250; however, there has been no$135,438, and Portfolio Company Investments directly originated since March 16, 2020.for an aggregate cost of $9,048,510.
We categorize debt investments into seven risk categories based on relevant information about the ability of borrowers to service their debt. For additional information regarding our risk categories, see “Item 1. Business–Portfolio Review/Risk Monitoring” in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. The following table shows the classification of our debt securities of portfolio companies by credit risk rating as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
| | | | | Debt Investments, at Fair Value | | Debt Investments, at Fair Value |
| Risk Category | | June 30, 2020 | | December 31, 2019 | Risk Category | | March 31, 2021 | | December 31, 2020 |
| 1 (Low Risk) | | $ | 2,650 |
|
| — | % |
| $ | — |
|
| — | % | 1 (Low Risk) | | $ | — | | | — | % | | $ | — | | | — | % |
| 2 (Below Average Risk) | | — |
|
| — |
|
| 1,036,579 |
|
| 2.6 |
| 2 (Below Average Risk) | | — | | | — | | | — | | | — | |
| 3 (Average) | | 38,167,644 |
|
| 95.2 |
|
| 37,359,182 |
|
| 95.0 |
| 3 (Average) | | 36,290,327 | | | 94.4 | | | 37,258,347 | | | 94.9 | |
| 4 (Special Mention) | | 1,467,835 |
|
| 3.7 |
|
| 909,902 |
|
| 2.3 |
| 4 (Special Mention) | | 2,158,019 | | | 5.6 | | | 1,861,548 | | | 4.7 | |
| 5 (Substandard) | | 445,260 |
|
| 1.1 |
|
| 10,079 |
|
| — |
| 5 (Substandard) | | 5,882 | | | — | | | 151,631 | | | 0.4 | |
| 6 (Doubtful) | | — |
|
| — |
|
| 22,500 |
|
| 0.1 |
| 6 (Doubtful) | | — | | | — | | | — | | | — | |
| 7 (Loss) | | — |
|
| — |
|
| — |
|
| — |
| 7 (Loss) | | — | | | — | | | — | | | — | |
| | | $ | 40,083,389 |
|
| 100.0 | % |
| $ | 39,338,242 |
|
| 100.0 | % | | $ | 38,454,227 | | | 100.0 | % | | $ | 39,271,526 | | | 100.0 | % |
Changes in the distribution of our debt investments across risk categories during the three months ended March 31, 2021 were a result of new debt investments, the receipt of amortization payments on existing debt investments, repayment of certain debt investments in full, changes in the fair value of our existing debt investments and realized gains on the sale of investments, as well asinvestments. During the risk rating change in debt investments from risk category 3three months ended March 31, 2021, there were no changes to risk category 4, with a total amortized cost and fair valuecategories of $1,906,412 and $1,462,988,
respectively, as well as the risk rating change in aour debt investment from risk category 4 to risk category 5, with an amortized cost and fair value of $1,007,141 and $445,260, respectively, and other investment activity.investments.
Non-Accrual Loans
When there is reasonable doubt that principal, cash interest, or PIK interest will be collected, loan investments are placed on non-accrual status and the Company will generally cease recognizing cash interest, PIK interest, or Net Loan Fee amortization, as applicable. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal, interest and when, in the judgment of management, the investments are estimated to be fully collectible as to all principal. During the six months ended June 30, 2020, our debt investment in Online Tech Stores, LLC, with an amortized cost of $1,007,141, wasNo new loans were placed on non-accrual status.status during the three months ended March 31, 2021. At June 30, 2020,March 31, 2021, the aggregate amortized cost and fair value of loans on non-accrual status with respect to all interest and Net Loan Fee amortization was $1,007,963 and $5,882, respectively, and $1,007,141 and $445,260, respectively, and $577,810 and $32,579$151,631 at December 31, 2019,2020, respectively.
On March 27, 2020, our debt investments in Constellis Holdings, LLC were restructured. We converted our non-accrual debt investments forinto two new debt investments and 1,362 common shares of common equity. The cost and fair value of debt investments received were $6,174 and $6,172, respectively, and the cost and fair value of the shares of common sharesequity received were $46,403 and $46,410, respectively.
Results of Operations
Our key financial measures are described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations–Results of Operations–Key Financial Measures" in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. The following is a discussion of the key financial measures that management employsuses in reviewing the performance of our operations.
We do not believe that our historical operating performance is necessarily indicative of our future results of operations. We are primarily focused on debt investments in middle-market and larger companies in the United States and, to a lesser extent, equity investments, including warrants and other minority equity securities. Moreover, as a BDC and a RIC, we will also be subject to certain constraints on our operations, including, but not limited to, limitations imposed by the 1940 Act and the Code. For the reasons described above, the results of operations described below may not necessarily be indicative of the results we expect to report in future periods.
Net increase in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, annual comparisons of net increase in net assets resulting from operations may not be meaningful.
The following analysis compares our quarterly results of operations to the preceding quarter, as well as our year-to-date results of operations to the corresponding period in the prior year. We believe a comparison of our current quarterly results to the preceding quarter is more meaningful and transparent than a comparison to the corresponding prior-year quarter as our results of operations are not influenced by seasonal factors the latter comparison is designed to elicit and highlight.
Comparison of the Three and Six Months Ended June 30,March 31, 2021, and December 31, 2020 and 2019
Operating results for the three and six months ended June 30, 2020 and 2019, are as follows:
Investment Income
| | | | | | | | | | | | Three Months Ended |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 |
| Interest income | $ | 1,025,471 |
|
| $ | 878,315 |
|
| $ | 2,138,765 |
| | $ | 1,659,366 |
| Interest income | | $ | 1,230,931 | | | $ | 1,095,924 | |
| Fee income | 20,577 |
|
| 8,430 |
|
| 79,002 |
| | 48,305 |
| Fee income | | 34,319 | | | 30,691 | |
| Total investment income | $ | 1,046,048 |
|
| $ | 886,745 |
|
| $ | 2,217,767 |
| | $ | 1,707,671 |
| Total investment income | | $ | 1,265,250 | | | $ | 1,126,615 | |
Investment income for the three and six months ended June 30, 2020March 31, 2021, consisted primarily of interest income on our debt investments and syndication fee income. The increase in interest income for three and six months ended June 30, 2020March 31, 2021 compared to the corresponding periods in the prior yearperiod was primarily due to an increase in the growth inweighted average yield of our portfolio from the deployment of funds raised through our Offeringinvestments and the deploymentacceleration of funds from the Unsecured Note into portfolio securities.Net Loan Fees related to payoffs. Fee income for the three and six months ended June 30, 2020 increasedMarch 31, 2021, remained stable compared to the corresponding periods in the prior year, primarily due to approximately $33.4 million in loan originations in which OFS Advisor sourced, structured, and arranged the lending group, and for which we were additionally compensated.
Due to the COVID-19 pandemic and the impact to our borrowers, we have experienced, and expect to continue to experience, a partial shift from cash interest to PIK interest as a result of concessions granted to borrowers to support the borrowers' liquidity. Since the onset of the COVID-19 pandemic, we have continued to source and screen loan investments, although we have observed a decrease in underwriting and origination activity. Other than the purchase of one broadly syndicated loan for $91,250, there has been no Portfolio Company Investments originated since March 16, 2020.
period.
Gross Expenses. Our gross expenses are limited under the Investment ManagementSub-Advisory Agreement and the Expense Support Agreement; see "—Expense Limitations." Investment expenses shown with respect to each governing expense limitation agreement for the three and six months ended June 30,March 31, 2021, and December 31, 2020, and 2019, are presented below:
| | | | | | | | | | | | Three Months Ended |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | March 31, 2021 | | December 31, 2020 |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| Expenses subject to limitation under Investment Advisory Agreement: | | | | | | | | |
| Expenses subject to limitation under the Sub-Advisory Agreement: | | Expenses subject to limitation under the Sub-Advisory Agreement: | | | |
| Amortization of deferred offering costs | $ | 84,229 |
|
| $ | 33,948 |
| | $ | 168,566 |
| | $ | 63,799 |
| Amortization of deferred offering costs | $ | 42,428 | | | $ | 62,007 | |
| Contractual issuer expenses | — |
|
| 3,084 |
| | 536 |
| | 6,196 |
| Contractual issuer expenses | — | | | 2,903 | |
| Total expenses subject to limitation under Investment Advisory Agreement | 84,229 |
| | 37,032 |
| | 169,102 |
| | 69,995 |
| |
| Expenses subject to limitation under Expense Support Agreement: | | | | | | | | |
| Total expenses subject to limitation under the Sub-Advisory Agreement | | Total expenses subject to limitation under the Sub-Advisory Agreement | 42,428 | | | 64,910 | |
| Expenses subject to limitation under the Expense Support Agreement: | | Expenses subject to limitation under the Expense Support Agreement: | | | |
| Interest expense | 332,434 |
| | 103,670 |
| | 633,026 |
| | 199,019 |
| Interest expense | 307,950 | | | 323,498 | |
| Management fees | 134,632 |
|
| 98,319 |
|
| 265,397 |
| | 191,041 |
| Management fees | 141,168 | | | 141,522 | |
| Incentive fees | 65,427 |
| | 29,296 |
| | 141,477 |
| | 78,066 |
| Incentive fees | 68,764 | | | 63,555 | |
| Administration fee | 215,124 |
|
| 185,164 |
|
| 401,741 |
| | 327,038 |
| Administration fee | 186,389 | | | 198,494 | |
| Professional fees | 124,772 |
|
| 119,193 |
|
| 289,068 |
| | 273,532 |
| Professional fees | 201,145 | | | 188,644 | |
| Insurance expense | 23,798 |
|
| 18,529 |
| | 48,709 |
| | 34,896 |
| Insurance expense | 26,944 | | | 24,403 | |
| Transfer agent fees | 22,286 |
|
| 24,302 |
| | 46,808 |
| | 54,121 |
| Transfer agent fees | 24,917 | | | 23,771 | |
| Other expenses | 13,493 |
|
| 30,511 |
|
| 22,359 |
| | 57,045 |
| Other expenses | 7,157 | | | 19,492 | |
| Total expenses subject to limitation under Expense Support Agreement | 931,966 |
| | 608,984 |
| | 1,848,585 |
| | 1,214,758 |
| |
| Total expenses subject to limitation under the ESAs | | Total expenses subject to limitation under the ESAs | 964,434 | | | 983,379 | |
| Total expenses | $ | 1,016,195 |
|
| $ | 646,016 |
|
| $ | 2,017,687 |
| | $ | 1,284,753 |
| Total expenses | $ | 1,006,862 | | | $ | 1,048,289 | |
Expenses Limited under the Investment Management AgreementAdvisory Agreements
Offering Expenses. OFS AdvisorCIM Capital incurred, on our behalf, offering costs of $86,858$820 and $134,665$108 during the three months ended June 30,March 31, 2021, and December 31, 2020, and 2019, respectively, which are deferred and amortized over the twelve months following incurrence. Offering costs for the three and six months ended June 30, 2020 and 2019, relate to ordinary due diligence and development of distribution platforms for our common stock.
Pursuant to the terms of the CIM Sub-Advisory Agreement, beginning August 3, 2020, CIM Capital assumesassumed responsibility for bearing costsoffering and Contractual Issuer Expenses relating to the Offering.
Amortization of offering costs were $84,229$42,428 and $168,566$62,007 for the three and six months ended June 30,March 31, 2021 and December 31, 2020, respectively, compared to $33,948 and $63,799 for the three and six months ended June 30, 2019, respectively. HigherLower amortization expense in the three and six months ended June 30, 2020 relateMarch 31, 2021, relates to additionalreduced monthly costs of developing distribution platforms of the Offering.
Contractual Issuer Expenses. Contractual Issuer Expenses declined in the three and six months ended June 30, 2020, compared to the corresponding periods in the prior year as the fund has grown and the marketing of the fund has required less direct involvement of OFS Advisor’s employees and employees of their affiliates.
Pursuant to the terms of the CIM Sub-Advisory Agreement, beginning August 3, 2020, CIM Capital assumes responsibility for bearing Contractual Issuer Expenses.
Expenses Limited under the Expense Support Agreement
Interest expense increased due to the average dollar amount of borrowings outstanding of $19,179,121 and $17,932,967 during the three and six months ended June 30, 2020, respectively, primarily due to the issuance of the Unsecured Note.
Management and incentive fees increased for the six months ended June 30, 2020, compared to the corresponding periods in the prior year as a result of growth in our portfolio and investment activity from the deployment of Offering proceeds and the Unsecured Note. Administrative fees are primarily related to accounting and record-keeping services, and preparation and filing of required periodic reports with the SEC. Administrative fees for the six months ended June 30, 2020, compared to the corresponding period in the prior year increased due to more labor allocated to the fund due to the increase in the size of our portfolio.
Professional fees include fees for our attorneys, independent accountants and consultants. Professional fees remained stable compared to the corresponding periods.
General and administrative expenses, including insurance, transfer agent and other expenses were $59,577 and $117,876 for the three and six months ended June 30, 2020, respectively, compared to $73,342 and $146,062 for the three and six months ended June 30, 2019, respectively. The decrease in general and administrative expenses was primarily due to a decrease in taxes.
Expense Limitations
Expense Limitations under Investment Advisory Agreement. We reimbursed OFS Advisor $4,784the Advisors $4,500 and $7,184$14,280 for offering expenses and Contractual Issuer Expenses for the three and six months ended June 30,March 31, 2021, and December 31, 2020, respectively, compared to $35,750respectively.
Expense Limitations under the Advisory Agreements. The expense limitations provided under the Advisory Agreements associated with offering costs and $61,018 forexpenses during the three and six months ended June 30, 2019, respectively. This amount consisted of Contractual Issuer ExpensesMarch 31, 2021, and offering expenses incurred in prior periods by OFS Advisor on our behalf.December 31, 2020, is presented below:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2021 | | December 31, 2020 |
| Total expenses limited under the Advisory Agreements | | $ | 42,428 | | | $ | 64,910 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Offering costs and Contractual Issuer Expenses reimbursed and incurred | | (4,500) | | | (14,280) | |
| Net offering costs and Contractual Issuer Expenses limitations under the Advisory Agreements | | $ | 37,928 | | | $ | 50,630 | |
We are conditionally obligated to pay OFS Advisorthe Advisors up to 1.5% of the gross proceeds raised in the Offering until all reimbursable offering costs and Contractual Issuer Expenses paid by OFS Advisor and its affiliatesthe Advisors have been recovered. Reimbursable offering costs and Contractual Issuer Expenses were $747,487$623,586 as of June 30, 2020.March 31, 2021.
Expenses Limited under the ESAs
During the three months ended March 31, 2021, interest expense decreased compared to the prior period due to the a lower average dollar amount of borrowings outstanding on the PWB Credit Facility.
All other expenses during the three months ended March 31, 2021 remained stable compared to the prior period.
CIM Capital will be entitled to receive reimbursement from us offor offering costs and Contractual Issuer Expenses incurredpaid on our behalf, after August 3, 2020, paid on our behalf, up to 1.5% of the aggregate gross proceeds of the Offering, after offering costs and Contractual Issuer Expenses incurred prior to August 3, 2020, have either expired or have been reimbursed. Offering expenses and Contractual Issuer Expenses incurred by CIM Capital or its affiliates will be eligible for reimbursement for three years from the date incurred. Any such reimbursement by us will be allocated first to reimburse any reimbursable expenses incurred by OFS Advisor or its affiliates that are eligible for reimbursement pursuant to the Investment Advisory Agreement.
The determination of expense limitations under the Investment Advisory Agreement is presented below.
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| Total expenses limited under Investment Advisory Agreement | | $ | 84,229 |
| | $ | 37,032 |
| | $ | 169,103 |
| | $ | 69,995 |
|
| Offering costs and Contractual Issuer Expenses reimbursed and incurred | | (4,784 | ) | | (35,750 | ) | | (7,185 | ) | | (61,018 | ) |
| Net offering costs and Contractual Issuer Expenses limitations under Investment Advisory Agreement | | $ | 79,445 |
| | $ | 1,282 |
| | $ | 161,918 |
| | $ | 8,977 |
|
Expense Limitations under Expense Support Agreementthe ESAs. Gross operating expenses (operating expenses exclusive of organization and offering expenses, and Contractual Issuer Expenses, and before limitations) are subject to limitation under the Expense Support Agreement. OFS Advisor'sESAs. The Advisors' obligation to provide such expense support is a function of declared distributions on our common stock, and the amount of support provided is determined by reference to investment company taxable income (expense) and net realized gains (losses) prior to expense limitation, and the amount of declared distributions; the Expense Support Agreement providesESAs provide expense support such that distributions are not paid from Offering proceeds. The determination of expense limitation under the Expense Support Agreement for the three and six months ended June 30,March 31, 2021 and December 31, 2020, and 2019, isare presented below. | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2021 | | December 31, 2020 |
| Total investment income | | $ | 1,265,250 | | | $ | 1,126,615 | |
Expenses limited under the Expense Support Agreement (1): | | | | |
| Interest expense, base management fees, and incentive fees | | 517,882 | | | 528,575 | |
Other operating expenses as defined in the Expense Support Agreement (2) | | 446,552 | | | 454,804 | |
| Total expenses limited under the Expense Support Agreement | | 964,434 | | | 983,379 | |
| Net investment income prior to limitation | | 300,816 | | | 143,236 | |
| Differences in recognition of ICTI and GAAP net investment income | | 231 | | | (1,703) | |
| | | | |
| ICTI prior to expense limitation | | 301,047 | | | 144,939 | |
| Declared distributions | | 554,847 | | | 549,197 | |
| Expense limitation under Expense Support Agreement | | $ | 253,800 | | | $ | 404,258 | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 |
| Total investment income | | $ | 1,046,048 |
|
| $ | 886,745 |
|
| $ | 2,217,767 |
| | $ | 1,707,671 |
|
Expenses limited under the Expense Support Agreement (1): | | | | | | | | |
| Interest expense, base management fees, and incentive fees | | 532,493 |
|
| 231,285 |
| | 1,039,900 |
| | 468,126 |
|
Other operating expenses as defined in the Expense Support Agreement (2) | | 399,472 |
| | 377,699 |
| | 808,683 |
| | 746,630 |
|
| Total expenses limited under the Expense Support Agreement | | 931,965 |
| | 608,984 |
| | 1,848,583 |
| | 1,214,756 |
|
| Net investment income prior to expense limitation | | 114,083 |
| | 277,761 |
| | 369,184 |
| | 492,915 |
|
| Net realized gain (loss) in ICTI | | — |
| | (1,964 | ) | | — |
| | 52 |
|
| ICTI prior to expense limitation | | 114,083 |
| | 275,797 |
| | 369,184 |
| | 492,967 |
|
| Declared distributions | | 539,801 |
| | 514,644 |
| | 1,129,062 |
| | 1,004,361 |
|
| Expense limitation under Expense Support Agreement | | $ | 425,718 |
| | $ | 238,847 |
| | $ | 759,878 |
| | $ | 511,394 |
|
| |
(1) | Expense limitation under Expense Support Agreement excludes organization costs, amortization of deferred offering costs, Contractual Issuer Expenses, and the related expense support under the Investment Advisory Agreement as such items are permanent differences between GAAP and taxable income.(1)Expense limitation under ESAs exclude organization costs, amortization of deferred offering costs, Contractual Issuer Expenses, and the related expense support under the Advisory Agreements, and other operating expenses of HPCI-MB as such expenses are permanent differences between GAAP and ICTI. See “Item 8. Financial Statements–Notes to Consolidated Financial Statements–Note 8” in our Annual Report on Form 10-K.(2)Generally defined in the ESAs as our operating expenses determined in accordance with GAAP excluding organization and offering expenses, Contractual Issuer Expenses, interest expense, base management fees, and incentive fees. The
annualized ratio of other operating expenses to net assets for the period support in which support is provided, and the annual ratio for the year in which support, constitute conditions for reimbursement to the Advisors. See "Item 8. Financial Statements–Note 3" in our Annual Report on Form 10-K. |
| |
(2) | Generally defined in the Expense Support Agreement as our operating expenses determined in accordance with GAAP excluding organization and offering expenses, Contractual Issuer Expenses, interest expenses, and base management fees, and incentive fees. The annualized ratio of other operating expenses to net assets at the time of support and annual ratio for the year in which support is provided constitute conditions for reimbursement to OFS Advisor. See "Item 1. Financial Statements–Notes to Financial Statements–Note 3."
|
Expense support provided by OFS Advisor or its affiliates is reimbursable for three years from the date incurred. Expense limitation under both the Investment Advisory Agreement and the Expense Support Agreement is cancelable at any time.
On August 3, 2020, the Expense Support Agreement was amended to, among other things, require CIM Capital to pay future expense support payments. In addition, any Reimbursement Payments relate to the unreimbursed expense support payments identified by OFS Advisor from the expense support payments made by OFS Advisor to us within three years prior to the last business day of the quarter in which such Reimbursement Payment obligation is incurred. Thereafter, Reimbursement Payments relate to the unreimbursed expense support payments identified by CIM Capital from the expense support payments made by CIM Capital to us within three years prior to the last business day of the quarter in which such reimbursement payment obligation is incurred.
Net realized and unrealized gain (loss) on investments
Three and sixOur portfolio experienced net gains of $248,422 in the first quarter of 2021, primarily as a result of performance improvements in our senior secured debt investments. During the three months ended June 30, 2020
WeMarch 31, 2021, we recognized net unrealized appreciation of $219,416$573,515 on our senior secured debt investments, primarily due to unrealized appreciation of $237,759 on our investment in Wastebuilt Environmental Solutions, LLC.
Our portfolio experienced net gains of $417,446 in the fourth quarter of 2020, primarily as a result of the performance improvements in our senior secured debt investments and equity investments. During the three months ended December 31, 2020, we recognized unrealized appreciation of $330,929 on our debt and Structured Finance Note investments, in the second quarter primarily due to the return of liquidity to the broadly syndicated loan market and tighter credit spreads in underlying market. One measure of liquidity in the broadly syndicated loan market is the average bid-ask spread on the Refinitiv Market Overall (North America) Loan Index which narrowed to 1.98 points at June 30, 2020, from 3.41 points at March 31, 2020, but has not yet returned to its long-term historic average of 1.0. Additionally, we incurred a realized loss of $16,148 on the sale of a broadly syndicated loan.
We recognized netas well as unrealized appreciation of $24,693$134,059 on our equity investments.
Comparison of the Three Months Ended March 31, 2021, and 2020
Operating results for the three months ended March 31, 2021 and 2020, are as follows:
Investment Income
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| Interest income | | | | | $ | 1,230,931 | | | $ | 1,113,294 | |
| Fee income | | | | | 34,319 | | | 58,425 | |
| Total investment income | | | | | $ | 1,265,250 | | | $ | 1,171,719 | |
Investment income for the three months ended March 31, 2021 consisted primarily of interest income on our debt investments and syndication fee income. The increase in interest income for three months ended March 31, 2021 compared to the corresponding period in the prior year was primarily due the acceleration of Net Loan Fees related to debt investment payoffs. Fee income for the three months ended March 31, 2021, compared to the corresponding prior year period, decreased due to a reduction in syndication fees.
Gross Expenses. Our gross expenses are limited under the Advisory Agreements and the ESAs; see "—Expense Limitations." Investment expenses shown with respect to each governing expense limitation agreement for the three months ended March 31, 2021 and 2020, are presented below:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| Expenses subject to limitation under the Advisory Agreements: | | | | | | | |
| Amortization of deferred offering costs | | | | | $ | 42,428 | | | $ | 84,337 | |
| Contractual issuer expenses | | | | | — | | | 536 | |
| Total expenses subject to limitation under the Advisory Agreements | | | | | 42,428 | | | 84,873 | |
| Expenses subject to limitation under the ESAs: | | | | | | | |
| Interest expense | | | | | 307,950 | | | 300,592 | |
| Management fees | | | | | 141,168 | | | 130,765 | |
| Incentive fees | | | | | 68,764 | | | 76,050 | |
| Administration fee | | | | | 186,389 | | | 186,617 | |
| Professional fees | | | | | 201,145 | | | 164,296 | |
| Insurance expense | | | | | 26,944 | | | 24,911 | |
| Transfer agent fees | | | | | 24,917 | | | 24,522 | |
| Other expenses | | | | | 7,157 | | | 8,866 | |
| Total expenses subject to limitation under the ESAs | | | | | 964,434 | | | 916,619 | |
| Total expenses | | | | | $ | 1,006,862 | | | $ | 1,001,492 | |
Expenses Limited under the Advisory Agreements
The Advisors incurred, on our behalf, offering costs of $820 and $82,439 during the three months ended June 30,March 31, 2021 and 2020, respectively, which are deferred and amortized over the twelve months following incurrence. Offering costs for
the three months ended March 31, 2020, related to ordinary due diligence and development of distribution platforms for our common stock.
Amortization of offering costs were $42,428 and $84,337 for the three months ended March 31, 2021 and 2020, respectively. Lower amortization expense in the three months ended March 31, 2021, relates to reduced monthly costs of developing distribution platforms of the Offering. We reimbursed the Advisors $4,500 and $2,400 for offering expenses and Contractual Issuer Expenses for the three months ended March 31, 2021 and 2020, respectively.
Expense Limitations under the Advisory Agreements. The expense limitations provided under the Advisory Agreements associated with offering costs and expenses during the three months ended March 31, 2021 and 2020, is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2021 | | 2020 |
| Total expenses limited under the Advisory Agreements | | | | | | $ | 42,428 | | | $ | 84,873 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Offering costs and Contractual Issuer Expenses reimbursed and incurred | | | | | | (4,500) | | | (2,400) | |
| Net offering costs and Contractual Issuer Expenses limitations under the Advisory Agreements | | | | | | $ | 37,928 | | | $ | 82,473 | |
Expenses Limited under the ESAs
For the three months ended March 31, 2021, total expenses were $964,434, compared to $916,619 for the corresponding prior year period. The increase was primarily due to an increase in professional fees of $36,849 relating to attorneys, independent accountants and valuation consultants.
Expense Limitations under the ESAs. The determination of expense limitation under the ESAs for the three months ended March 31, 2021 and 2020, are presented below.
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2021 | | 2020 |
| Total investment income | | | | | | $ | 1,265,250 | | | $ | 1,171,719 | |
Expenses limited under the ESAs (1): | | | | | | | | |
| Interest expense, base management fees, and incentive fees | | | | | | 517,882 | | | 507,407 | |
Other operating expenses as defined in the ESAs (2) | | | | | | 446,552 | | | 409,211 | |
| Total expenses limited under the ESAs | | | | | | 964,434 | | | 916,618 | |
| Net investment income prior to expense limitation | | | | | | 300,816 | | | 255,101 | |
| Differences in recognition of ICTI and GAAP net investment income | | | | | | 231 | | | — | |
| | | | | | | | |
| ICTI prior to expense limitation | | | | | | 301,047 | | | 255,101 | |
| Declared distributions | | | | | | 554,847 | | | 589,261 | |
| Expense limitation under ESAs | | | | | | $ | 253,800 | | | $ | 334,160 | |
(1)Expense limitation under the ESAs exclude organization costs, amortization of deferred offering costs, Contractual Issuer Expenses, and the related expense support under the Advisory Agreements, and other operating expenses of HPCI-MB as such expenses are permanent differences between GAAP and ICTI. See “Item 8. Financial Statements–Notes to Consolidated Financial Statements–Note 8” in our common equityAnnual Report on Form 10-K.
(2)Generally defined in the ESAs as our operating expenses determined in accordance with GAAP excluding organization and offering expenses, Contractual Issuer Expenses, interest expense, base management fees, and incentive fees. The annualized ratio of other operating expenses to net assets for the period support in which support is provided, and the annual ratio for the year in which support, constitute conditions for reimbursement to the Advisors. See "Item 8. Financial Statements––Notes to Consolidated Financial Statements–Note 3" in our Annual Report on Form 10-K.
Net realized and unrealized gain (loss) on investments in Chemical Resources Holdings, Inc. and TTG Holdings, LLC.
Our portfolio experienced net unrealized lossesgains of $1,675,963 during$248,422 in the sixfirst quarter of 2021, primarily as a result of performance improvements in our senior secured debt investments. During the three months ended June 30,March 31, 2021, we recognized unrealized appreciation of $573,515 on our senior secured debt investments, primarily due to unrealized appreciation of $237,759 on our investment in Wastebuilt Environmental Solutions, LLC.
The fair value of the portfolio declined due to the net unrealized depreciation of $1,920,072 in the first quarter of 2020, primarily due toas a result of the adverse economic effects of the COVID-19 pandemic on market conditions and the overall economy as of March 31, 2020 and the related declines in quoted loan prices, that have not yetincreases in underlying market credit spreads and company-specific negative impacts on past and expected future operating performance. Additionally, we incurred realized losses of $573,849 primarily due to the restructuring of our debt investments in Constellis Holdings, LLC, which was fully recovered.recognized as an unrealized loss as of December 31, 2019.
Three and six months ended June 30, 2019
We recognizedThe net unrealized appreciation (depreciation) of $(189,034) and $206,139 on senior secured investmentsdepreciation for the three and six months ended June 30, 2019, respectively, primarily as a result of negative company-specific performance factors in Constellis Holding, LLC during the three months ended June 30, 2019, offset by a market recovery observedMarch 31, 2020 is principally due to the decrease in the broadly syndicated loan market during the six months ended June 30, 2019. We recognized netfair value in our Online Tech Store, LLC and Wastebuilt Environmental Solutions, LLC investments for total unrealized appreciationdepreciation of $102,531 and $212,547 on common stock for the three and six months ended June 30, 2019, respectively, primarily as a result of positive impact of portfolio company-specific performance factors in DRS Imaging Services, LLC. and Professional Pipe Holdings, LLC.$745,289.
Liquidity and Capital Resources
At June 30, 2020,March 31, 2021, we held cash of $2,273,081$3,774,119 and had $8.2$14.4 million of unfunded commitments under our $15.0 million PWB Credit Facility that is available subject to a borrowing base and other covenants, under our $10 million PWB Credit Facility.covenants. Based on fair values and equity capital at June 30, 2020,March 31, 2021, we could access our entire PWB Credit Facility and have an asset coverage ratio of 205%203%. We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and selectively deploy capital in new investment opportunities in this challenging environment.
Sources and Uses of Cash
We expect to generate cash primarily from (i) the net proceeds of the Offering, (ii) cash flows from our operations, including net amounts received from OFS Advisor and CIM Capital, (iii) the PWB Credit Facility and any other financing arrangements we may enter into in the future and (iv) any future offerings of our equity or debt securities. We may fund a portion of our investments through borrowings from banks, including the PWB Credit Facility, and issuances of senior securities. Our primary use of cash will be for (i) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (ii) the cost of operations (including paying OFS Advisor and CIM Capital)the Advisors), (iii) debt service of any borrowings, including the Unsecured Note and (iv) cash distributions to the holders of our stock. These principal sources and uses of cash and liquidity are presented below:
| | | | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash from net investment income | | $ | 1,038,622 |
| | $ | 965,111 |
| Cash from net investment income | | $ | 339,916 | | | $ | 709,657 | |
| Net purchases and originations of portfolio investments | | (8,232,553 | ) | | (3,518,990 | ) | Net purchases and originations of portfolio investments | | 5,500,522 | | | (9,910,046) | |
| Net cash used in operating activities | | (7,193,931 | ) | | (2,553,879 | ) | |
| Net cash provided (used in) operating activities | | Net cash provided (used in) operating activities | | 5,889,518 | | | (9,200,389) | |
| Net proceeds from issuances of common stock | | 439,992 |
| | 3,919,792 |
| Net proceeds from issuances of common stock | | 281,900 | | | 144,200 | |
| Repurchase of common stock | | (364,384 | ) | | (218,118 | ) | Repurchase of common stock | | (700,935) | | | — | |
| Net borrowings under revolving line of credit | | 1,800,000 |
| | 375,000 |
| |
| Net borrowings (repayments) under revolving line of credit | | Net borrowings (repayments) under revolving line of credit | | (4,150,000) | | | 1,300,000 | |
| Common stock distributions paid | | (1,173,174 | ) | | (935,137 | ) | Common stock distributions paid | | (549,197) | | | (583,912) | |
| Payment of debt issuance costs | | (50,000 | ) | | — |
| Payment of debt issuance costs | | (10,000) | | | — | |
| Net change in cash | | $ | (6,541,497 | ) | | $ | 587,658 |
| Net change in cash | | $ | 761,286 | | | $ | (8,340,101) | |
We provided $5,889,518 and used $7,193,931 and $2,553,879$9,200,389 in cash from operating activities for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. As of June 30, 2020,March 31, 2021, the principal source of operating liquidity was investment income collected. The increasedecrease in total investment income collected is due to the growthacceleration of Net Loan Fees and timing differences in the recognition and collection of interest income on our portfolio from the deployment of Offering proceeds.subordinated note investment. Net cash used inprovided (used in) operating activities decreased $4,640,052increased $15,089,907 over the corresponding period, primarily due to an increase in net investment purchases of $4,713,563.proceeds from principal payments on portfolio investments. Net cash used in operating activities benefited from the positive cash flow impact of expense limitations under the Investment Advisory AgreementAgreements and the Expense Support AgreementESAs of $921,796$291,728 and $520,371$416,633 for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively, which reduced the net amount paid to OFS Advisor and affiliates.the Advisors. Expense support and limitation under both the Investment Advisory AgreementAgreements and the Expense Support Agreement isESAs are cancelable at any time. However, the ESA is subordinated to the PWB Credit Facility, and prior to cancelling the ESA, the Advisors must provide Pacific Western Bank with 30 days advance written notice of such termination.
All of our performing loans as of March 31, 2020 satisfied their second quarter 2020 interest payments.
Net purchases and origination of portfolio investments relates to the deployment of Offering proceeds. See "—Portfolio Composition and Investment Activity.Activity."
We collected $439,992$281,900 and $3,919,792$144,200 from the sale of our common stock during the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. Offering proceeds are net of aggregate commissions and dealer manager fees of $39,000$18,100 and $271,869
$15,800 for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively, of which $0 and $122,036, respectively, were paid by OFS Advisor.respectively.
During the sixthree months ended June 30, 2020,March 31, 2021, we paid $1,173,174$549,197 in dividends to common stockholders and, subsequent to June 30, 2020,March 31, 2021, we paid $539,800$554,847 in dividends to our common stockholders.
Borrowings
PWB Credit Facility: We are party to the BLA with Pacific Western Bank, as lender, to provide us with a $10.0 million senior secured revolving credit facility, or the PWB Credit Facility.. The PWB Credit Facility is available for general corporate purposes including investment funding and is scheduled to mature on February 28, 2021.2023. The maximum availability of the PWB Credit Facility is equal to 35% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which excludes subordinated loan investments and as otherwise specified in the BLA. The PWB Credit Facility bears interest at a variable rate of the Prime Rate plus a 0.75% margin, with a 5.50%5.25% floor, and includes an unused commitment fee equal to 0.50% per annum for any unused portion in excess of $3.0 million, payable monthly in arrears, equal to 0.50% per annum on any unused portion.arrears. As of June 30, 2020,March 31, 2021, the stated interest rate on the PWB Credit Facility was 5.50%5.25%. The PWB Credit Facility bore an effective interest rate of 6.20%5.65%, inclusive of interest on the outstanding balance, commitment fees on undrawn amounts, and the amortization of deferred financing costs.
Our PWCPWB Credit Facility is a $10.0$15.0 million revolving line of credit, of which $1.8$0.6 million was drawn as of June 30, 2020.March 31, 2021. As of June 30, 2020,March 31, 2021, the unfunded commitment under the PWB Credit Facility was $8.2$14.4 million, that is available, subject to a borrowing base and other covenants. As of June 30, 2020,March 31, 2021, we were in compliance with the applicable covenants under the PWB Credit Facility.
On February 17, 2021, we amended the BLA to among other things: (i) increase the maximum amount available under the PWB Credit Facility from $10.0 million to $15.0 million; (ii) decrease the interest rate floor from 5.50% per annum to 5.25% per annum; (iii) restrict the transfer of certain assets to our subsidiaries or incurrence of debt by, or the encumbrance of assets of our subsidiaries; and (iv) extend the maturity date from February 28, 2021 to February 28, 2023.
Unsecured NoteNote. : On November 27, 2019, we entered into an agreement with a qualified institutional investor ("Note Purchase Agreement") pursuant to which we issued the Unsecured Note. The purchase price of the Unsecured Note was $14,700,000 after deducting the offering price discount. The Unsecured Note has a fixed interest rate of 6.50% and is due on November 27, 2024, unless redeemed, purchased or prepaid prior to such date by us or its affiliates in accordance with its terms. Interest on the Unsecured Note will beis due quarterly. In addition,we are obligated to repay the Unsecured Note at par if certain change in control events occur. The Unsecured Note is a general unsecured obligation that ranks pari passu with all outstanding and future unsecured unsubordinated indebtedness we may issue.
The Note Purchase Agreement contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a business development company within the meaning of the 1940 Act, and minimum asset coverage ratio. The Note Purchase Agreement also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, certain judgments and orders, and certain events of bankruptcy. As of June 30, 2020,March 31, 2021, we were in compliance with the applicable covenants under the Note Purchase Agreement.
As of June 30, 2020,March 31, 2021, the Unsecured Note had the following terms and balances:
|
| | | | | | | | | | | | | | | | | | | |
| | Principal | | Unamortized Discount and Issuance Costs | | Stated Interest Rate | | Effective Interest Rate (1) | | Maturity | | 2020 Interest Expense (2) |
| Unsecured Note | $ | 15,000,000 |
| | $ | 322,634 |
| | 6.50 | % | | 6.92 | % | | 11/27/24 | | $ | 518,316 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal | | Unamortized Discount and Issuance Costs | | Stated Interest Rate | | Effective Interest Rate (1) | | Maturity | | 2021 Interest Expense (2) |
| Unsecured Note | $ | 15,000,000 | | | $ | 267,731 | | | 6.50 | % | | 6.99 | % | | 11/27/24 | | $ | 261,783 | |
(1) The effective interest rate on the Unsecured Note includes deferred debt issuance cost amortization.
(2) Interest expense includes debt issuance costs amortization of $30,816$18,033 for the sixthree months ended June 30, 2020.March 31, 2021.
Other Liquidity Matters
We expect to fund the growth of our investment portfolio through the private placement of our common shares and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act. We cannot assure stockholders that our plans to raise capital will be successful. In addition, we intend to distribute to our stockholders substantially all of our taxable income in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the ability to fund new investments or make additional investments in our portfolio companies. The illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
In addition, asAs a BDC, we generally will be required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of any borrowings or outstanding preferred stock of at least 200% (or 150% if certain requirements are met). This requirement limits the amount that we may borrow. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various
sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on
favorable terms, if at all.
On Effective November 6, 2018, a “required majority” (as defined in Section 57(o) of the 1940 Act) our Board approved the application of a reduced 150% asset coverage ratio to us. In accordance with the SBCAA, we extended to each of our stockholders as of November 6, 2018, an offer to repurchase the equity securities held by such stockholders with 25% of such equity securities to be repurchased in each of the four quarters following November 6, 2018. As a result,2019, the asset coverage ratio test applicable to us decreasedwas reduced from 200% to 150%, effective November 6, 2019..
As of June 30, 2020,March 31, 2021, the aggregate amount outstanding of the senior securities issued by the Companyoutstanding was $16.8$15.6 million, for which the Company’sour asset coverage was 257%279%. The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.
In addition, as a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States. Conversely, we may invest up to 30% of our portfolio in opportunistic investments not otherwise eligible under BDC regulations. Specifically, as part of this 30% basket, we may consider investments in investment funds that are operating pursuant to certain exceptions to the 1940 Act and in advisers to similar investment funds, as well as in debt or equity of middle-market portfolio companies located outside of the United States and debt and equity of public companies that do not meet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for in the 1940 Act. As of March 31, 2021, approximately 87.5% of our investments were qualifying assets.
Contractual Obligations
We, with approval byof our Board, entered into the Investment Advisory Agreement, the Expense Support Agreement,ESAs, the CIM Sub-Advisory Agreement, and the Administration Agreement. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 3.3."
The following table shows our contractual obligations as of June 30, 2020March 31, 2021 (in thousands):
| | | | | Payments due by period | | | Payments due by period |
| Contractual Obligation | | Total | | Less than year | | 1-3 years | | 3-5 years | | After 5 years | Contractual Obligation | | Total | | Less than year | | 1-3 years | | 3-5 years | | After 5 years |
PWB Credit Facility (1) | | $ | 1,800,000 |
| | $ | 1,800,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| PWB Credit Facility (1) | | $ | 625,000 | | | $ | — | | | $ | 625,000 | | | $ | — | | | $ | — | |
| Unsecured Note | | 15,000,000 |
| | — |
| | — |
| | 15,000,000 |
| | — |
| |
Unsecured Note (2) | | Unsecured Note (2) | | 15,000,000 | | | — | | | — | | | 15,000,000 | | | — | |
| Total | | $ | 16,800,000 |
| | $ | 1,800,000 |
| | $ | — |
| | $ | 15,000,000 |
| | $ | — |
| Total | | $ | 15,625,000 | | | $ | — | | | $ | 625,000 | | | $ | 15,000,000 | | | $ | — | |
(1) The PWB Credit Facility is scheduled to mature on February 28, 2021.2023.
(2) The Unsecured Note is scheduled to mature on November 27, 2024.
We continue to believe our long-dated financing, with approximately 89%96% of our total debt contractually maturing in
2024, affords us operational flexibility.
Off-Balance Sheet Arrangements
Amounts Conditionally Reimbursable to OFS Advisor.
OFS Advisor and its affiliates The Advisors have incurred organizational and offering costs and Contractual Issuer Expenses, related to the Company of which $747,487$623,586 and $663,534$672,129 were unreimbursed as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. We remain conditionally liable for organization and offering costs incurred by OFS Advisor and its affiliatesthe Advisors on our behalf. See "Item 1. Financial Statements – Notes to FInancialConsolidated Financial Statements – Note 3.3."
Pursuant to the terms of the CIM Sub-Advisory Agreement, beginning August 3, 2020, CIM Capital assumed responsibility for bearing costs relating to the Offering.
OFS Advisor hasThe Advisors have provided aggregate operating expense support of $3,673,448$3,783,350 and $3,503,848$3,898,820 as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. We remain conditionally liable for operating expense support provided by OFS Advisor.the Advisors. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 3.3."
On August 3, 2020, the Expense Support Agreement was amended to, among other things, require CIM Capital to pay future expense support payments on behalf of us.
Unfunded Commitments.
We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the
balance sheet. We had $174,107$454,107 of total unfunded commitments to twothree portfolio companies at June 30, 2020.March 31, 2021. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 6.6."
Distributions
We have elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain our status as a RIC, we are required to distribute annually to our stockholders at least 90% of our ICTI, as defined by the Code. Additionally, to avoid a 4% excise tax on undistributed earnings we are required to distribute each calendar year the sum of (i) 98% of our ordinary income
for such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year, and (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. Maintenance of our RIC status also requires adherence to certain source of income and asset diversification requirements. Generally, a RIC is entitled to deduct dividends it pays to its stockholders from its income to determine “taxable income.” Taxable income includes our taxable interest, dividend and fee income, and taxable net capital gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized. In addition, gains realized for financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains using installment sale treatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow, received as consideration from the sale of investments are collected in cash. Taxable income includes non-cash income, such as changes in accrued and reinvested interest and dividends, which includes contractual PIK interest, and the amortization of discounts and fees. Cash collections of income resulting from contractual PIK interest and dividends or the amortization of discounts and fees generally occur upon the repayment of the loans or debt securities that include such items. Non-cash taxable income is reduced by non-cash expenses, such as realized losses and depreciation, and amortization expense.
We do not currently qualify as a “publicly offered regulated investment company,” as defined in the Code. Accordingly, stockholders will be taxed as though they received a distribution of some of the our expenses. A “publicly offered regulated investment company” is a RIC whose shares are either (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market, or (iii) held by at least 500 persons at all times during the taxable year. We anticipate that we will not qualify as a publicly offered RIC for the 2020 tax year, and we cannot determine when we will qualify as a publicly offered RIC. Since we are not a publicly offered RIC, a non-corporate stockholder’s allocable portion of our affected expenses, including a portion of our management fees, will be treated as an additional distribution to the stockholder. A non-corporate stockholder’s allocable portion of these expenses are treated as miscellaneous itemized deductions that are not currently deductible by such stockholders.
Our Board maintains a variable dividend policy with the objective of distributing four quarterly distributions in an amount not less than 90-100% of our taxable quarterly income or potential annual income for a particular year. In addition, at the end of the year, we may also pay an additional special dividend, or fifth dividend, such that we may distribute approximately all of our annual taxable income in the year it was earned, while maintaining the option to spill over our excess taxable income to a following year. Each year, a statement on Form 1099-DIV identifying the source of the distribution is mailed to the Company’s stockholders.
Our distributions to datethrough June 30, 2020, were funded through expense limitation payments by OFS Advisor under the Prior Expense Support Agreement and, and our distributions may in the future, be funded through expense limitation payments by OFS AdvisorCIM Capital under the Expense Support Agreement. The Expense Support Agreement is designed to ensure no portion of our distribution to stockholders will be paid from Offering proceeds, and provides for expense limitation payments to us in any quarterly period our cumulative distributions to stockholders exceeds the Company's cumulative ICTI and net realized gains. Any such distributions funded through expense limitation payments are not based on our investment performance, and can only be sustained if we achieve positive investment performance in future periods and/or OFS AdvisorCIM Capital continues to make such payments. The Expense Support Agreement may be terminated by us or OFS Advisor,CIM Capital, without payment of any penalty, upon written notice to us.
Share Repurchases
OnSince November 6, 2018, a "required majority" (as defined in Section 57(o) of the 1940 Act) of our Board approved the application of a reduced 150% asset coverage ratio to us. In accordance with the SBCAA, we extended to each of our stockholders as of November 6, 2018, an offer to repurchase the equity securities held by such stockholders, with 25% of such equity securities to be repurchased in each of the four quarters following November 6, 2018. As a result, effective November 6, 2019, the asset coverage ratio test applicable to us was decreased from 200% to 150%. Additionally, in each fiscal quarter subsequent to November 6, 2019, the Board has approved quarterly tender offers to purchase shares of our outstanding common stock. Since November 2019, we have conducted quarterly tender offers to purchase, in each case, 2.5% of the weighted average number of shares of the outstanding common stock for the trailing 12-month period.
The repurchase offeroffers allowed our stockholders to sell their shares back to us at a price equal to the most recently disclosed net asset value per share of our common stock immediately prior to the date of repurchase. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 10" for details on share repurchases.
Recent Developments
On July 28, 2020,April 27, 2021, our Board declared a distribution of $0.081$0.0846 per common share, payable on OctoberJuly 15, 2020,2021, to stockholders of record on July 29, 2020.April 28, 2021.
On August 4, 2020,May 11, 2021, our Board approved a tender offer, commencing on AugustMay 28, 2020,2021, to purchase 2.5% of the weighted average number of shares of the outstanding Common Stock for the trailing 12-month period.
On August 3, 2020, we entered into the CIM Sub-Advisory Agreement, Dealer Manager Agreement, and Expense Support Agreement.
We evaluated events subsequent to June 30, 2020March 31, 2021 through August 6, 2020. May 14, 2021. We are continuing to closely monitor the impact of the outbreak of COVID-19 on all aspects of our business, including how it impacts our portfolio companies, employees, due diligence and underwriting processes, and financial markets. The U.S. capital markets experienced extreme volatility and disruption following the COVID-19 pandemic, which appear to have subsided and returned to pre-COVID-19 levels. Nonetheless, certain economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a prolonged period of world-wide economic downturn.
On March 11,27, 2020, the World Health Organization declaredU.S. government enacted the novelCARES Act, which contains provisions intended to mitigate the adverse economic effects of the coronavirus as a pandemic, andpandemic. On December 27, 2020, the U.S. government enacted the December 2020 COVID Relief Package. Additionally, on March 13, 202011, 2021, the United States declared a national emergency with respectU.S. government enacted the American Rescue Plan, which included additional funding to mitigate the adverse economic effects of the COVID-19 pandemic. It is uncertain whether, or to what extent, our portfolio companies will be able to benefit from the CARES Act, the December 2020 COVID Relief Package, the American Rescue Plan, or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.
The outbreakextent of the impact of the COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. While several countries, as well as certain states in the United States, have begun to lift such restrictions with a view to reopening their economies, recurring COVID-19 outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Such actions have created, and continue to create, disruption in global supply chains and adversely impact a number of industries. The outbreak could have a continued adverse impact on economic and market conditions on a global scale. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic. Nevertheless, the ongoing COVID-19 pandemic presents material uncertainty and risks with respect to the underlying value of our portfolio companies, our business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. Further, the operational and financial performance, of the portfolio companies in which we make investments have been, and may continueincluding our ability to be, significantly impacted by the COVID-19 pandemic, which in turn has, and may continue to have, an impact the valuation of our investments.
Accordingly, we cannot predict the full extent to whichexecute our business financial condition, results of operationsstrategies and cash flows will be affected at this time. The potential impact to our resultsinitiatives in the expected time frame, will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of the COVID-19 pandemiccoronavirus, effectiveness of vaccination deployment and the actions taken by authoritiesgovernments (including stimulus measures or the lack thereof) and other entitiestheir citizens to contain the coronavirus or treat its impact, all of which are beyond our control.
An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition. Given the fluidity of the situation, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position, or cash flows at this time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risks reported in our Annual Report on Form 10-K for the year ended December 31, 2019; however, uncertainty with respect2020. In a prolonged low interest rate environment, including a reduction of LIBOR to the economic effects of the COVID-19 outbreak has introduced significant volatility in the financial markets,zero, our net interest margin will be compressed and the effect of the volatility could materially impact our market risks. For additional information concerning the COVID-19 outbreak and its potential impact on our business andadversely affect our operating results, see Part II - Other information, Item 1A. Risk Factors.results.
Our outstanding Unsecured Note bears interest at a fixed rate. Our PWB Credit Facility has a floating interest rate provision based on the Prime Rate with a 5.50%5.25% interest rate floor, which resulted in an stated interest rate of 5.50%5.25% as of June 30, 2020.March 31, 2021. Assuming that the interim, unaudited Statement of Assets and Liabilities as of June 30, 2020March 31, 2021 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates:
| | | | | | | | | | | | | | | | | | | | |
| Basis point increase | | Interest income | | Interest expense | | Net increase
in net investment income |
| 25 | | $ | 7,772 | | | _(1) | | $ | 7,772 | |
| 50 | | 15,761 | | | _(1) | | 15,761 | |
| 75 | | 24,076 | | | _(1) | | 24,076 | |
| 100 | | 66,722 | | | _(1) | | 66,722 | |
| 125 | | 134,506 | | | _(1) | | 134,506 | |
| | | | | | | | | | | | | | | | | | | | |
| Basis point decrease | | Interest income | | Interest expense | | Net decrease
in net investment income |
| 25 | | $ | (4,303) | | | _(1) | | $ | (4,303) | |
| 50 | | (4,303) | | | _(1) | | (4,303) | |
| 75 | | (4,303) | | | _(1) | | (4,303) | |
| 100 | | (4,303) | | | _(1) | | (4,303) | |
| 125 | | (4,303) | | | _(1) | | (4,303) | |
(1) Any additional increase or decrease in LIBOR would not result in a change to interest expense due to a minimum base rate, or floor, that we incur on the PWB Credit Facility.
|
| | | | | | | | | | | | |
| Basis point increase | | Interest income | | Interest expense | | Net increase
in net investment income |
| 25 | | $ | 2,707 |
| | $ | — |
| | $ | 2,707 |
|
| 50 | | 101,438 |
| | — |
| | 101,438 |
|
| 75 | | 287,901 |
| | — |
| | 287,901 |
|
| 100 | | 497,118 |
| | — |
| | 497,118 |
|
| 125 | | 708,343 |
| | — |
| | 708,343 |
|
|
| | | | | | | | | | | | |
| Basis point decrease | | Interest income | | Interest expense | | Net decrease
in net investment income |
| 25 | | $ | (40,039 | ) | | $ | — |
| | $ | (40,039 | ) |
| 50 | | (40,039 | ) | | — |
| | (40,039 | ) |
| 75 | | (40,039 | ) | | — |
| | (40,039 | ) |
| 100 | | (40,039 | ) | | — |
| | (40,039 | ) |
| 125 | | (40,039 | ) | | — |
| | (40,039 | ) |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2020.March 31, 2021. The term “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of June 30, 2020,March 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2020March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We, OFS Advisor and OFS Services, are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
Investing in our common stock may be speculative and involves a high degree of risk. In addition to the other information contained in this Quarterly Report on Form 10-Q, including our financial statements, and the related notes, schedules and exhibits, you should carefully consider the risk factors described in "Part I – Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in "Part II, Item 1A. Risk Factors" in our Quarterly Report in Form 10-Q for the quarter ended March 31, 2020, (the "First Quarter 10-Q"), which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K and First Quarter 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Other than the risksrisk described below, there have been no material changes from the risk factors previously disclosed in "Part I – Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 and first Quarter Report on Form 10-Q. However, the risks below and disclosed in our Annual Report on Form 10-K and first Quarter Report on Form 10-Q, may be, and will continue to be, heightened or exacerbated by the COVID-19 pandemic and any worsening of the economic environment,2020. The risks previously disclosed in our Annual Report on Form 10-K and First Quarter 10-Q should be read together with the other information disclosed elsewhere in this Quarterly Report on Form 10-Q and our other reports filed with the SEC.
The interest rates of our loans to our portfolio companies that extend beyond 2021 might be subject to change based on recent regulatory changes, including the decommissioning of LIBOR.
LIBOR is the basic rate of interest used in lending transactions between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. We have been, and will continuetypically use LIBOR as a reference rate in loans we extend to be, adversely impacted byportfolio companies such that the outbreakinterest due to us pursuant to a loan extended to a portfolio company is calculated using LIBOR. The terms of COVID-19 and a potential worsening of the pandemic.our debt investments generally include minimum interest rate floors which are calculated based on LIBOR.
The COVID-19 pandemic has caused a sharp global slowdown of economic activity resulting in a recession, a steep increase in unemployment in the U.S., and significant volatility and disruption of financial markets. Health advisors warn that a “second wave” of the pandemic is possible if reopening is pursued too soon or in the wrong manner, which may negatively affect or exacerbate the global economy,On March 5, 2021, the United States economy and the global financial markets. The pandemic had a significant adverse impact on us during the first quarter of 2020, continues to have an adverse impact us during the second quarter of 2020 and is expected to continue to adversely impact our company beyond second-quarter 2020. As the potential impact of the COVID-19 pandemic is difficult to predict, the extent to which the COVID-19 pandemic could negatively affect our and our portfolio companies’ operating results or the duration of any potential business or supply-chain disruption, is uncertain. Any potential impact to our results of operations will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by authorities and other entities to contain the COVID-19 pandemic or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our and our portfolio companies’ operating results.
Uncertainty relating to the LIBOR calculation process and transition timing may adversely affect the value of any portfolio of LIBOR-indexed, floating-rate debt securities.
Uncertainty relating to the LIBOR calculation process may adversely affect the value of any portfolio of LIBOR-indexed, floating-rate debt securities. Concerns have been publicized that some of the member banks surveyed by the British Bankers' Association (“BBA”) in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing. Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined. Uncertainty
as to the nature of such potential changes may adversely affect the market for LIBOR-based securities, including our potential portfolio of LIBOR-indexed, floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our potential portfolio of LIBOR indexed, floating-rate debt securities.
On July 27, 2017, the United Kingdom’sKingdom's Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it intendswill not compel panel banks to phase outcontribute to the overnight 1, 3, 6 and 12 months U.S. LIBOR by the end oftenors after June 30, 2023 and all other tenors after December 31, 2021. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next several years. As a result of this transition, interest rates on financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with those financial instruments, may be adversely affected. Further, any uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adversely affect the value of our financial instruments tied to LIBOR rates. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by Treasury securities, called the Secured Overnight Financing Rate (“SOFR”). The first publication of SOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBOR replacement remains a question and the future of LIBOR at this time is uncertain.
Additionally, on July 12, 2019 the Staff of the SEC’s Division of Corporate Finance, Division of Investment Management, Division of Trading and Markets, and Office of the Chief Accountant issued a statement about the potentially significant effects on financial markets and market participants when LIBOR is discontinued in 2021 and no longer available as a reference benchmark rate. The Staff encouraged all market participants to identify contracts that reference LIBOR and begin transitions to alternative rates. On December 30, 2019, the SEC’s Chairman, Division of Corporate Finance and Office of the Chief Accountant issued a statement to encourage audit committees in particular to understand management’s plans to identify and address the risks associated with the elimination of LIBOR, and, specifically, the impact on accounting and financial reporting and any related issues associated with financial products and contracts that reference LIBOR, as the risks associated with the discontinuation of LIBOR and transition to an alternative reference rate will be exacerbated if the work is not completed in a timely manner.
In addition, on March 25, 2020, the FCA stated that although the central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed, the outbreak of COVID-19 has impacted the timing of many firms’ transition planning, and the FCA will continue to assess the impact of the COVID-19 pandemic on transition timelines and update the marketplace as soon as possible. It is unclear if after 2021at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. Central banks and regulators in a number of major jurisdictions (for example, United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for interbank offered rates (“IBORs”). To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the U.S. Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere or, whether the COVID-19 outbreak will have further effect on LIBOR transition plans.
The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for value of and/or valuetransferability of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations. If
Recently, the CLOs we have invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like those proposed by the ARRC of the Federal Reserve Board and the Federal Reserve Bank of New York) upon the occurrence of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor can we ensure the CLO investment managers will undertake the suggested amendments when able. We believe that because CLO managers and other CLO market
participants have been preparing for an eventual transition away from LIBOR, ceaseswe do not anticipate such a transition to exist,have a material impact on the liquidity or value of any of our LIBOR-referenced CLO investments. However, because the future of LIBOR at this time is uncertain and the specific effects of a transition away from LIBOR cannot be determined with certainty as of the date of this filing, a transition away from LIBOR could:
• adversely impact the pricing, liquidity, value of, return on and trading for a broad array of financial products, including any LIBOR-linked CLO investments;
• require extensive changes to documentation that governs or references LIBOR or LIBOR-based products, including, for example, pursuant to time-consuming renegotiations of existing documentation to modify the terms of outstanding investments;
• result in inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with one or more alternative reference rates;
• result in disputes, litigation or other actions with CLO investment managers, regarding the interpretation and enforceability of provisions in our LIBOR-based CLO investments, such as fallback language or other related provisions, including, in the case of fallbacks to the alternative reference rates, any economic, legal, operational or other impact resulting from the fundamental differences between LIBOR and the various alternative reference rates;
• require the transition and/or development of appropriate systems and analytics to effectively transition our risk management processes from LIBOR-based products to those based on one or more alternative reference rates, which may prove challenging given the limited history of the proposed alternative reference rates; and
• cause us to incur additional costs in relation to any of the above factors.
In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we may need to renegotiateinvest, is currently unclear. To the credit agreements extending beyond 2021 with our portfolio companiesextent that utilize LIBOR asany replacement rate utilized for senior secured loans differs from that utilized for a factor in determiningCLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on our net investment income and portfolio returns.
Many underlying corporate borrowers can elect to replacepay interest based on 1-month LIBOR, with3-month LIBOR and/or other rates in respect of the new standard thatloans held by CLOs in which we are invested, in each case plus an applicable spread, whereas CLOs generally pay interest to holders of the CLO’s debt tranches based on 3-month LIBOR plus a spread. The 3-month LIBOR currently exceeds the 1-month LIBOR by a historically high amount, which may result in many underlying corporate borrowers electing to pay interest based on 1-month LIBOR. This mismatch in the rate at which CLOs earn interest and the rate at which they pay interest on their debt tranches negatively impacts the cash flows on a CLO’s equity tranche, which may in turn adversely affect our cash flows and results of operations. Unless spreads are adjusted to account for such increases, these negative impacts may worsen as the amount by which the 3-month LIBOR exceeds the 1-month LIBOR increases.
The senior secured loans underlying the CLOs in which we invest typically have floating interest rates. A rising interest rate environment may increase loan defaults, resulting in losses for the CLOs in which we invest. In addition, increasing interest rates may lead to higher prepayment rates, as corporate borrowers look to avoid escalating interest payments or refinance floating rate loans. Further, a general rise in interest rates will increase the financing costs of the CLOs. However, since many of the senior secured loans within CLOs have LIBOR floors, if LIBOR is established.below the average LIBOR floor, there may not be corresponding increases in investment income resulting in smaller distributions to equity investors in these CLOs.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three month period ended June 30, 2020,March 31, 2021, we sold 23,81521,707 shares of our common stock for gross proceeds of $318,992,$300,000, or a weighted average price of $13.39$13.82 per share, to investors who participated in the Offering and each of whom met the criteria of an “accredited investor” as defined in Rule 501 of Regulation D under the Securities Act.
The offer and sale of the Company’s common stock in the Offering was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of, and Rule 506 of Regulation D under, the Securities Act. We paid $23,200 in commissions in connection with the sale of the shares. On May 19, 2017, OFS Advisor agreed to pay the dealer manager fee on sales of shares of our common stock in the Offering. Effective July 1, 2019, we pay the dealer manager fee on sales of shares of our common stock in the Offering. Previous payments of dealer manager fees by OFS Advisor are not subject to reimbursement by us.
Because shares of our common stock have been acquired by investors in one or more transactions "not involving a public offering," they are "restricted securities" and may be required to be held indefinitely. Our common stock may not be sold, transferred, assigned, pledged or otherwise disposed of unless: (i) the transferor provides OFS Advisor with at least 10 days written notice of the transfer; (ii) the transfer is made in accordance with applicable securities laws; and (iii) the transferee agrees in writing to be bound by these restrictions and the other restrictions imposed on the common stock and to execute such other instruments or certifications as are reasonably required by us. Accordingly, an investor must be willing to bear the economic risk of investment in the common stock until we are liquidated. No sale, transfer, assignment, pledge or other
disposition, whether voluntary or involuntary, of the common shares may be made except by registration of the transfer on our books.
Since November 6, 2018, a “required majority” (as defined in Section 57(o) of the 1940 Act)Board has approved quarterly tender offers to purchase shares of our board of directors approved the application of a reduced 150% asset coverage ratio to us. In accordance with the SBCAA,outstanding common stock. Since November 2019, we extended to each of our stockholders as of November 6, 2018, an offer to repurchase the equity securities held by such stockholders, with 25% of such equity securities to be repurchased in each of the four quarters following November 6, 2018. As a result, effective November 6, 2019, the asset coverage ratio test applicable to us decreased from 200% to 150%. Additionally, in each fiscal quarter subsequent to November 6, 2019, the Company's Board approvedhave conducted quarterly tender offers to purchase, in each case, 2.5% of the weighted average number of shares of the outstanding Common Stockcommon stock for the trailing 12-month period. The repurchase offers allowed our stockholders to sell their shares back to us at a price equal to the most recently disclosed net asset value per share of our common stock immediately prior to the date of repurchase.
The following table summarizes the common stock repurchases by us as of June 30, 2020:March 31, 2021:
| | | | | Number of Shares | | Amount | | Number of Shares | | Amount |
| November 6, 2018 through December 31, 2018 | | 18,425 |
| | $ | 243,030 |
| November 6, 2018 through December 31, 2018 | | 18,425 | | | $ | 243,030 | |
January 1, 2019 through April 5, 2019 (1) | | 7,407 |
| | 98,296 |
| January 1, 2019 through April 5, 2019 (1) | | 7,407 | | | 98,296 | |
| April 6, 2019 through June 30, 2019 | | 9,029 |
| | 119,821 |
| April 6, 2019 through June 30, 2019 | | 9,029 | | | 119,821 | |
| July 1, 2019 through September 30, 2019 | | 7,407 |
| | 97,111 |
| July 1, 2019 through September 30, 2019 | | 7,407 | | | 97,111 | |
| October 1, 2019 through December 31, 2019 | | 15,597 |
| | 204,317 |
| October 1, 2019 through December 31, 2019 | | 15,597 | | | 204,317 | |
January 1, 2020 through April 3, 2020 (2) | | 32,622 |
| | 364,383 |
| January 1, 2020 through April 3, 2020 (2) | | 32,622 | | | 364,384 | |
| April 4, 2020 through June 30, 2020 | | 53,665 |
| | 654,713 |
| April 4, 2020 through June 30, 2020 | | 53,665 | | | 654,713 | |
| July 1, 2020 through September 30, 2020 | | July 1, 2020 through September 30, 2020 | | 55,320 | | | 694,819 | |
| October 1, 2020 through December 31, 2020 | | October 1, 2020 through December 31, 2020 | | 55,674 | | | 700,935 | |
| January 1, 2021 through March 31, 2021 | | January 1, 2021 through March 31, 2021 | | — | | | — | |
(1) The Company's February 11, 2019 tender offer that was originally scheduled to expire on March 27, 2019, was amended to extend the offer period to April 5, 2019.
(2)The Company's February 21, 2020 tender offer that was originally schedule to expire on March 27, 2020, was amended to extend the offer period to April 3, 2020.
(3) The February 19, 2021 tender offer that was originally schedule to expire on March 26, 2021, was amended to extend the offer period to April 5, 2021. We repurchased 55,377 shares for $708,272. Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
Listed below are the exhibits that are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):
|
| | | | | | | | | | | | | |
| | | Incorporated by Reference | |
Exhibit
Number
| | Description | Form and SEC File No. | Filing Date with SEC | Filed with this 10-Q |
| | | | | |
| 10.1 | | | Form 8-K | August 3, 2020 | |
| | | | | |
10.2 | | | Form 8-K (814-001185) | August 3, 2020February 19, 2021 | |
| 10.11 | | 8-K (814-001185) | February 19, 2021 | | |
| 11.1 | | Computation of Per Share Earnings | | | + |
| | | | | |
| 31.1 | | | | | * |
| | | | | |
| 31.2 | | | | | * |
| | | | | |
| 32.1 | | | | | † |
| | | | | |
| 32.2 | | | | | † |
|
| | | | |
| + | Included in the statements of operations contained in this report |
| * | Filed herewith. |
| † | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | |
Dated: August 7, 2020May 14, 2021 | HANCOCK PARK CORPORATE INCOME, INC. |
| | | |
| | By: | /s/ Bilal Rashid |
| | Name: | Bilal Rashid |
| | Title: | Chief Executive Officer |
| | | |
| | By: | /s/ Jeffrey A. Cerny |
| | Name: | Jeffrey A. Cerny |
| | Title: | Chief Financial Officer |