Garrison Capital (GARS) 10-Q 2013 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2013

OR

o	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 814-00878

 

Garrison Capital Inc.

(Exact name of registrant as specified in its charter)

 

Delaware	90-0900145
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1290 Avenue of the Americas, Suite 914
New York, New York 10104

(Address of principal executive offices)

(212) 372-9590

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesx Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero	Accelerated filero
Non-accelerated filerx (Do not check if a smaller reporting company)	Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Nox

As of November 6, 2013 the Registrant had 16,758,779 shares of common stock, $0.001 par value, outstanding.

Table of Contents

	Page
Part I. Financial Information
Item 1. Financial Statements		1
Consolidated Statements of Financial Condition as of September 30, 2013 (unaudited) and December 31, 2012		1
Consolidated Schedules of Investments as of September 30, 2013 (unaudited) and December 31, 2012		2
Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2013 and September 30, 2012		14
Consolidated Statements of Changes in Net Assets/Members’ Capital (unaudited) for the nine months ended September 30, 2013 and September 30, 2012		15
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2013 and September 30, 2012		16
Notes to Consolidated Financial Statements		17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
Item 3. Quantitative and Qualitative Information about Market Risk		58
Item 4. Controls and Procedures		59
Part II. Other Information
Item 1. Legal Proceedings		59
Item 1A. Risk Factors		59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		62
Item 3. Defaults Upon Senior Securities		62
Item 4. Mine Safety Disclosures		62
Item 5. Other Information		62
Item 6. Exhibits		63

i

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Financial Condition

Part I. Financial Information

Item 1. Financial Statements

	September 30, 2013			December 31, 2012
	(unaudited)
Assets
Cash and cash equivalents	$	3,111,162		$	21,680,791
Cash and cash equivalents, restricted		30,780,085			69,902,136
Due from counterparties		4,761			—
Investments, fair value
Non-control/Non-affiliate investments (amortized cost of $411,491,187 and $233,938,360, respectively)		411,525,374			220,105,785
Accrued interest receivable		1,917,409			1,535,344
Deferred debt issuance costs (net of accumulated amortization of $1,209,668 and $434,672, respectively)		4,582,313			2,764,703
Deferred offering costs		—			—
Other assets		673,305			—
Total assets	$	452,594,409		$	315,988,759
Liabilities
Due to counterparties	$	10,290,000		$	15,742,446
Payables to affiliates		339,275			112,411
Senior secured revolving note (Note 7)		50,000,000			—
Senior secured term note (Note 7)		137,748,370			125,000,000
Interest payable		87,379			510,417
Accrued expenses and other payables		856,203			953,993
Total liabilities		199,321,227			142,319,267
Net assets
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 16,758,779 and 10,498,544 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		16,759			10,499
Paid-in-capital in excess of par		259,194,509			187,394,017
(Over)/under distributed net investment income		(5,972,272	)		97,551
Net unrealized depreciation from investments		34,186			(13,832,575	)
Total net assets		253,273,182			173,669,492
Total liabilities and net assets	$	452,594,409		$	315,988,759
Common shares outstanding(1)		16,758,779			10,498,544
Net asset value per common share(1)	$	15.11		$	16.54

(1) Adjusted for Reverse Stock Split. See Note 1.

 
 
See accompanying notes to consolidated financial statements.

1

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par/Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Investments – United States
Common Equity
Consumer Finance Services
Prosper Marketplace, Series B Preferred Stock		1,000,000	$	1,000,000	$	1,000,000		0.39	%
Total Consumer Finance Services				1,000,000		1,000,000		0.39
Miscellaneous Manufacturing
Valterra Products Holdings, LLC, Common Class A		185,847		185,847		185,847		0.07
Valterra Products Holdings, LLC, Common Class B		20,650		20,650		20,650		0.01
Total Miscellaneous Manufacturing				206,497		206,497		0.08
Miscellaneous Retail
Provo Craft Holdings, LLC, Common		101		—		77		—
Total Miscellaneous Retail				—		77		—
Oil & Gas
Anchor Drilling Fluids USA, Inc., Common		959		2,038,456		2,038,460		0.80
Total Oil & Gas				2,038,456		2,038,460		0.80
Transportation Services
EZE Trucking, LLC, Common		2,678		267,801		165,828		0.07
Total Transportation Services				267,801		165,828		0.07
Total Common Equity			$	3,512,754	$	3,410,862		1.34	%
Preferred Equity
Oil & Gas
Anchor Drilling Fluids USA, Inc., Preferred, 10.00% PIK		1,723	$	2,721,574	$	4,453,182		1.76	%
Total Oil & Gas				2,721,574		4,453,182		1.76
Total Preferred Equity			$	2,721,574	$	4,453,182		1.76	%
Bank Loans
Apparel Products
Joe's Jeans Inc., Term Loan*
Libor (“L”) + 10.75%, 1.25% L Floor, 9/30/2018		10,500,000	$	10,290,115	$	10,290,000		4.06	%
Totes Isotoner Corporation, Delayed Draw Term Loan* L+ 5.75%, 1.50% L Floor, 7/7/2017		425,748		425,748		425,748		0.17
Totes Isotoner Corporation, Initial Term Loan (First Lien)* L+ 5.75%, 1.50% L Floor, 7/7/2017		5,106,025		5,052,072		5,106,025		2.02
Total Apparel Products				15,767,935		15,821,773		6.25
Automotive
BBB Industries LLC, Term Loan* L+ 4.25%, 3.25% L Floor, 3/27/2019		4,972,500		4,927,042		4,960,069		1.96
Holley Performance Products Inc., Term Loan* Base Rate+ 6.00%**, 11/30/2017		9,750,000		9,647,698		9,750,000		3.85
Penda Corporation, Term Loan L+ 14.00%, 1/26/2019		7,176,457		7,038,221		7,037,641		2.77
Total Automotive				21,612,961		21,747,710		8.58

 
 
See accompanying notes to consolidated financial statements.

2

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Broadcasting & Entertainment
KXLA TV 44, Inc., Term Loan* L+ 9.50%, 2.00% L Floor, 3/31/2016		8,330,436	$	8,399,432	$	8,413,740		3.32	%
Sesac Holdco II, LLC, Term Loan (First Lien)* L+ 4.75%, 1.25% L Floor, 2/7/2019		992,500		983,644		994,981		0.39
Sesac Holdco II, LLC, Term Loan (Second Lien)* L+ 8.75%, 1.25% L Floor, 7/12/2019		5,250,000		5,383,992		5,355,000		2.11
Total Broadcasting & Entertainment				14,767,068		14,763,721		5.82
Chemicals
Arclin US Holdings Inc., Second Lien Term Loan L+ 6.00%, 1.75% L Floor, 1/15/2015		2,605,347		2,563,750		2,605,347		1.02
Porex Corporation, US Term Loan A* L+ 5.25%, 1.50% L Floor, 3/31/2015		3,101,082		3,088,619		3,101,083		1.23
Total Chemicals				5,652,369		5,706,430		2.25
Communications
Aspect Software, Inc., Tranche B Term Loan* L+ 5.25%, 1.75% L Floor, 5/7/2016		7,831,439		7,809,054		7,831,439		3.09
ConvergeOne Holdings Corp, Term Loan* L+ 8.00%, 1.25% L Floor, 5/8/2019		11,910,000		11,743,634		11,776,013		4.65
HC Cable OpCo, LLC, Term Loan L+ 9.50%**, 9/30/2013		11,010,638		10,825,972		10,825,866		4.27
Northland Cable Television, Inc., Term Loan* L+ 9.50%**, 9/30/2013		2,853,043		2,758,299		2,788,849		1.10
Sirva Worldwide, Loan* L+ 6.25%, 1.25% L Floor, 3/27/2019		4,975,000		4,884,245		5,024,750		1.98
U.S. Telepacific Corp., Term Loan* L+ 4.50%, 1.25% L Floor, 2/23/2017		2,932,732		2,929,795		2,921,734		1.15
Total Communications				40,950,999		41,168,651		16.24
Crop Agriculture
Earthbound Holdings III, LLC, Term Loan* L+ 4.25%, 1.50% L Floor, 12/21/2016		2,917,536		2,893,940		2,913,159		1.15
Total Crop Agriculture				2,893,940		2,913,159		1.15
Consumer Finance Services
PlanMember Financial Corporation, Term Loan* L+ 8.50%, 1.50% L Floor, 2/14/2018		985,000		963,463		963,450		0.38
Total Consumer Finance Services				963,463		963,450		0.38
Electrical Equipment
Roberts-Gordon LLC, Term Loan* L+ 10.00%, 2.00% L Floor, 4/20/2016		9,983,588		9,953,796		10,039,607		3.96
Syncsort Incorporated, Term Loan* Base Rate+ 4.25%**, 3/31/2015		3,175,561		3,152,614		3,175,561		1.27
Total Electrical Equipment				13,106,410		13,215,168		5.23

 
 
See accompanying notes to consolidated financial statements.

3

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Food Stores – Retail
Apple & Eve, LLC, Term Loan* L+ 12.50%, 1.25% L Floor, 12/11/2017		9,812,500	$	9,730,174	$	9,730,120		3.84	%
Fairway Group Acquisition Company, Term Loan* L+ 4.00%, 1.00% L Floor, 8/17/2018		2,957,550		2,957,550		2,966,807		1.17
Sagittarius Restaurants LLC (Del Taco), Initial Term Loan* L+ 5.00%, 1.25% L Floor, 10/1/2018		4,946,429		4,901,559		4,934,063		1.95
Sqwincher Corporation (The), Term Loan* L+ 10.00%, 1.50% L Floor, 8/3/2016		7,423,900		7,344,859		7,486,342		2.96
Total Food Stores – Retail				24,934,142		25,117,332		9.92
Health Services
Ellman International, Inc., Term Loan L+ 7.50%, 1.50% L Floor, 2/28/2014		3,286,697		3,255,395		3,220,963		1.27
Ellman International, Inc., Revolver Base Rate+ 6.50%**, 2/28/2014		1,985,546		1,966,637		1,945,836		0.77
eResearchTechnology, Inc., Term Loan* L+ 4.75%, 1.25% L Floor, 5/2/2018		6,451,250		6,422,482		6,451,250		2.55
Virtual Radiologic Corporation, Term Loan B* L+ 5.50%, 1.75% L Floor, 12/22/2016		4,887,500		4,859,222		3,079,125		1.22
Walnut Hill Physicians' Hospital, Construction Loan 12.50%, 11/29/2013		1,959,728		1,959,728		1,959,728		0.77
Total Health Services				18,463,464		16,656,902		6.58
Hotels and Motels
Buffalo Thunder Inc., Term Loan* L+ 3.00%, 1/1/2014		1,237,039		1,228,183		1,237,039		0.49
Total Hotels and Motels				1,228,183		1,237,039		0.49
Insurance Agents
Worley Claims Services, LLC, Term Loan* L+ 11.00%, 1.50% L Floor, 7/6/2017		6,640,584		6,540,648		6,824,170		2.69
Total Insurance Agents				6,540,648		6,824,170		2.69
Metal Mining
Metal Services LLC (Phoenix), Term Loan* L+ 6.50%, 1.25% L Floor, 6/30/2017		3,248,182		3,201,684		3,264,423		1.29
Total Metal Mining				3,201,684		3,264,423		1.29

 
 
See accompanying notes to consolidated financial statements.

4

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Miscellaneous Manufacturing
Arctic Glacier USA, Inc., Term Loan (First Lien)* L+ 4.75%, 1.25% L Floor, 5/10/2019		4,713,188	$	4,691,180	$	4,699,425		1.87	%
Alpha Packaging Holdings, Inc., Tranche B Term Loan* L+ 4.50%, 1.25% L Floor, 9/17/2016		3,152,500		3,103,444		3,089,450		1.22
Anchor Hocking, LLC (EveryWare Global), Term Loan L+ 6.25%, 1.25% L Floor, 5/21/2020		6,982,500		6,917,049		7,034,869		2.78
Axia Acquisition Corporation, Term Loan A L+ 9.00%, 2.00% L Floor, 3/12/2016		1,780,403		1,695,978		1,709,187		0.67
Expera Specialty Solutions, LLC, Term Loan* L+ 10.75%, 1.25% L Floor, 12/26/2018		6,982,500		6,849,923		7,017,413		2.77
Kranos Acquisition Corp., Term Loan* L+ 11.00%, 1.00% L Floor, 6/15/2017		10,000,000		9,925,904		10,170,685		4.01
Nursery Supplies, Inc., Term Loan* L+ 7.50%, 1.00% L Floor, 6/13/2018		11,500,000		11,445,964		11,445,424		4.51
Ranpak Corp., Second Lien Term Loan* L+ 7.25%, 1.25% L Floor, 4/23/2020		1,000,000		990,677		1,020,000		0.40
Valterra Products Holdings, LLC, Term Loan* L+ 9.00%, 1.00% L Floor, 5/31/2018		8,736,404		8,573,446		8,573,350		3.39
Total Miscellaneous Manufacturing				54,193,565		54,759,803		21.62
Miscellaneous Retail
PSP Group, LLC, Term Loan* L+ 4.75%, 1.50% L Floor, 9/13/2016		4,422,706		4,388,357		4,400,592		1.74
Total Miscellaneous Retail				4,388,357		4,400,592		1.74
Miscellaneous Services
Ascensus, Inc., Initial Term Loan* L+ 6.75%, 1.25% L Floor, 12/21/2018		3,970,000		3,900,923		4,009,700		1.58
Attachmate Corporation, Second Lien Term Loan L+ 9.50%, 1.50% L Floor, 11/22/2018		4,865,221		4,908,980		4,776,041		1.89
Centiv Holding Company, Term Loan* 14.50%, 9/6/2016		7,200,000		7,082,809		7,268,709		2.87
Global Traffic Technologies, LLC, Term Loan A* L+ 5.25%, 1.25% L Floor, 6/30/2015		3,316,401		3,278,110		3,283,237		1.29
Global Traffic Technologies, LLC, Term Loan B* L+ 5.25%, 1.25% L Floor, 6/30/2015		3,560,206		3,536,434		3,524,604		1.39
NAP Asset Holdings Ltd., Canadian Term Loan* L+ 7.00%, 1.00% L Floor, 3/22/2018		2,906,490		2,880,194		2,880,178		1.14
NAP Asset Holdings Ltd., Term Loan* L+ 7.00%, 1.00% L Floor, 3/22/2018		6,505,001		6,446,149		6,446,113		2.55
RRHC Acquisition, Inc. (Randall Reilly), Term Loan* Base Rate+ 6.50%**, 2/28/2014		10,557,648		10,557,648		10,557,648		4.17
Sprint Industrial Holdings, LLC, Term Loan L+ 5.75%, 1.25% L Floor, 5/14/2019		5,985,000		5,929,076		6,007,444		2.37
Vision Solutions, Inc., Term Loan (First Lien)* L+ 4.50%, 1.50% L Floor, 7/23/2016		5,256,172		5,229,607		5,256,172		2.08
Total Miscellaneous Services				53,749,930		54,009,846		21.33

 
 
See accompanying notes to consolidated financial statements.

5

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
National Security
Scitor Corporation, Term Loan* L+ 3.50%, 1.50% L Floor, 2/15/2017		6,639,773	$	6,631,200	$	6,540,176		2.58	%
Sirius Computer Solutions (SCS Holdings I Inc.), Term Loan* L+ 5.75%, 1.25% L Floor, 12/7/2018		3,423,077		3,393,596		3,465,865		1.37
Six3 Systems, Inc., Term Loan* L+ 5.75%, 1.25% L Floor, 10/4/2019		4,962,500		4,920,020		4,987,313		1.96
Total National Security				14,944,816		14,993,354		5.91
Oil & Gas
Anchor Drilling Fluids USA, Inc., Term Loan B L+ 9.25%, 2.00% L Floor, 3/5/2014		12,414,773		12,407,240		12,414,773		4.90
Varel International Energy Funding Corp., Term Loan* L+ 7.75%, 1.50% L Floor, 7/17/2017		7,820,000		7,688,559		7,976,400		3.14
Total Oil & Gas				20,095,799		20,391,173		8.04
Printing & Publishing
Cengage Learning, Inc., Tranche B (Extended)*(1) 0.00%**, 7/5/2017		5,934,450		5,934,450		4,342,771		1.71
Penn Foster, Inc., Term Loan* Base Rate+ 5.00%**, 3/31/2015		1,170,926		1,170,926		1,030,415		0.41
Penton Media, Inc., Revolver L+ 5.00%, 1.00% L Floor, 8/1/2014		5,758,885		5,644,975		5,781,433		2.28
Playboy Enterprises, Inc., Term Loan* L+ 6.00%, 1.25% L Floor, 3/6/2017		7,571,885		7,528,503		7,382,588		2.91
Total Printing & Publishing				20,278,854		18,537,207		7.31
Restaurants
BMP/Pennant Holdings, LLC, Term Loan A* L+ 5.00% Cash, L+1.00% PIK, 6/27/2014		2,834,059		2,715,538		2,692,356		1.06
BMP/Pennant Holdings, LLC, Term Loan B L+ 6.00% Cash, L+6.00% PIK, 6/27/2014		634,924		609,721		349,208		0.14
Total Restaurants				3,325,259		3,041,564		1.20
Specialty Services
SI Organization, Inc. (The), New Tranche B Term Loan* L+ 4.25%, 1.25% L Floor, 11/22/2016		3,890,450		3,878,928		3,832,093		1.51
Total Specialty Services				3,878,928		3,832,093		1.51
Textile Products
Universal Fiber Systems, LLC, Term Loan* L+ 5.75%, 1.75% L Floor, 6/26/2015		4,000,000		3,984,488		4,000,000		1.58
Total Textile Products				3,984,488		4,000,000		1.58

 
 
See accompanying notes to consolidated financial statements.

6

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Transportation Services
EZE Trucking, LLC, Term Loan* Base Rate+ 8.75%**, 7/31/2018		10,462,500	$	10,209,818	$	10,209,675		4.04	%
Fleetgistics Holdings, Inc., Term Loan* L+ 5.88%, 2.00% L Floor, 3/23/2015		1,759,973		1,761,508		1,717,734		0.69
MXD Group, Inc. (fka Exel Direct Inc.), Term Loan* L+ 5.50%, 5/31/2018		14,000,000		13,735,698		13,738,708		5.43
Ozburn-Hessey Holding Company LLC, Term Loan B* L+ 7.00%, 1.50% L Floor, 5/23/2019		6,483,750		6,422,789		6,475,645		2.57
Raymond Express International, LLC, Term Loan* L+ 7.75%, 1.75% L Floor, 2/28/2018		4,517,118		4,476,327		4,476,302		1.78
Stafford Logistics, Inc., Term Loan* L+ 5.50%, 1.25% L Floor, 6/26/2019		3,843,431		3,805,808		3,843,431		1.52
State Class Tankers II LLC, Term Loan L+ 5.50%, 1.25% L Floor, 6/20/2020		5,000,000		5,001,012		5,000,000		1.97
Total Transportation Services				45,412,960		45,461,495		18.00
Wholesale Durable Goods
Howard Berger Co. LLC, Term A Loan* L+ 5.75%, 1.25% L Floor, 8/3/2017		1,880,722		1,859,080		1,778,141		0.70
Total Wholesale Durable Goods				1,859,080		1,778,141		0.70
Total Bank Loans			$	396,195,302	$	394,605,196		155.81	%
Financial Assets
Consumer Finance Services
GLC Trust 2013-2(2)		9,169,826	$	9,169,826	$	9,169,826		3.62	%
Total Consumer Finance Services				9,169,826		9,169,826		3.62
Total Financial Assets			$	9,169,826	$	9,169,826		3.62	%
Total Non-Control/Non-Affiliate Investments			$	411,599,456	$	411,639,066		162.53	%

 
 
See accompanying notes to consolidated financial statements.

7

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
September 30, 2013 (unaudited)

Security Description, September 30, 2013	Par		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Unfunded Obligations
Communications
HC Cable OpCo, LLC, Revolver 0.50%, 2/28/2014		489,362	$	(8,207	)	$	(8,212	)		—	%
Total Communications				(8,207	)		(8,212	)		—
Miscellaneous Manufacturing
Valterra Products Holdings, LLC, Revolver 0.50%, 5/31/2018		1,588,437		(29,629	)		(29,646	)		(0.01	)
Total Miscellaneous Manufacturing				(29,629	)		(29,646	)		(0.01	)
Miscellaneous Services
Global Traffic Technologies, LLC, Revolver 0.50%, 6/30/2015		1,458,439		(9,738	)		(14,584	)		(0.01	)
Total Miscellaneous Services				(9,738	)		(14,584	)		(0.01	)
Printing & Publishing
Penton Media, Inc., Revolver 0.50%, 8/1/2014		694,141		(22,027	)		(22,560	)		(0.01	)
Total Printing & Publishing				(22,027	)		(22,560	)		(0.01	)
Transportation Services
EZE Trucking, LLC, CapEx A Loan 0.50%, 8/1/2014		1,400,000		(33,812	)		(33,831	)		(0.01	)
Raymond Express International, LLC, Revolver 0.50%, 2/28/2018		537,752		(4,856	)		(4,859	)		—
Total Transportation Services				(38,668	)		(38,690	)		(0.01	)
Total Unfunded Obligations			$	(108,269	)	$	(113,692	)		(0.04	)%
Total Investments – United States			$	411,491,187		$	411,525,374			162.49	%

* Denotes that all or a portion of the loan secures the loans under the CLO Facility II (see Note 7).

** Reference to an alternate base rate is commonly based on the Federal Funds Rate or the Prime Rate.

(1) Investment in default and on non-accrual status. The contractual default interest rate as of September 30, 2013 was 5.75% (LIBOR + 5.50%).

(2) GLC Trust 2013-2 includes 925 small balance consumer loans with an average par of $9,909, a weighted average adjusted rate of 16.6% and a weighted average maturity of 9/21/2017. As of September 30, 2013, the Company had an outstanding commitment to purchase an additional $341,315 of loans.

All debt and preferred equity investments were income producing as of September 30, 2013 except as noted above. Common equity investments are non-income producing unless otherwise noted.

 
 
See accompanying notes to consolidated financial statements.

8

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments
 
December 31, 2012

Security Description, December 31, 2012	Par/Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Investments – United States
Common Equity
Food Stores – Retail
Next Generation Vending, LLC, Class A-2 Units		496,979	$	496,979	$	—		—	%
Total Food Stores – Retail				496,979		—		—
Miscellaneous Retail
Provo Craft Holdings, LLC, Common		1,450		—		100		—
Total Miscellaneous Retail				—		100		—
Transportation Services
EZE Trucking, LLC, Common		2,545		254,500		254,500		0.15
Total Transportation Services				254,500		254,500		0.15
Total Common Equity			$	751,479	$	254,600		0.15	%
Bank Loans
Apparel Products
Totes Isotoner Corporation, Delayed Draw Term Loan* Libor (“L”)+ 5.75%, 1.50% L Floor, 7/7/2017		443,168	$	443,168	$	443,168		0.26	%
Totes Isotoner Corporation, Initial Term Loan (First Lien)* L+ 5.75%, 1.50% L Floor, 7/7/2017		4,274,032		4,209,699		4,274,032		2.46
Total Apparel Products				4,652,867		4,717,200		2.72
Automotive
BBB Industries LLC, Term Loan (First Lien)* L+ 4.50%, 2.00% L Floor, 6/29/2013		5,134,969		5,096,067		5,032,269		2.90
Holley Performance Products Inc., Term Loan* Base Rate+ 6.00%**, 11/30/2017		10,000,000		9,875,000		9,875,000		5.68
Total Automotive				14,971,067		14,907,269		8.58
Business Finance Services
Ocwen Financial Corporation, Initial Term Loan* L+ 5.50%, 1.50% L Floor, 9/1/2016		2,000,772		1,975,466		2,005,774		1.15
Total Business Finance Services				1,975,466		2,005,774		1.15
Chemicals
Arclin US Holdings Inc., Second Lien Term Loan* L+ 6.00%, 1.75% L Floor, 1/15/2015		2,625,596		2,559,288		2,625,596		1.50
Porex Corporation, US Term Loan A* L+ 5.25%, 1.50% L Floor, 3/31/2015		3,444,922		3,425,559		3,410,474		1.98
Total Chemicals				5,984,847		6,036,070		3.48

 
 
See accompanying notes to consolidated financial statements.

9

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
December 31, 2012

Security Description, December 31, 2012	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Communications
Aspect Software, Inc., Tranche B Term Loan* L+ 5.25%, 1.75% L Floor, 5/7/2016		4,968,421	$	4,976,199	$	4,993,263		2.88	%
ConvergeOne Holdings Corp, Term A Loan* L+ 7.00%, 1.50% L Floor, 6/8/2017		8,287,500		8,177,212		8,163,188		4.70
Einstruction Corp., Initial Term Loan*(1) 0.00%**, 7/2/2013		3,000,730		2,802,938		462,112		0.27
TeleGuam Holdings, LLC, Term Loan (First Lien)* L+ 4.00%, 1.50% L Floor, 6/9/2016		3,663,770		3,651,197		3,604,417		2.07
U.S. Telepacific Corp., Term Loan* L+ 4.50%, 1.25% L Floor, 2/23/2017		2,952,912		2,949,328		2,910,390		1.67
Total Communications				22,556,874		20,133,370		11.59
Crop Agriculture
Earthbound Holdings III, LLC, Term Loan* L+ 4.25%, 1.50% L Floor, 12/21/2016		2,940,018		2,910,705		2,938,254		1.69
Total Crop Agriculture				2,910,705		2,938,254		1.69
Educational Services
Educate, Inc., Term Loan* L+ 7.00%, 1.50% L Floor, 6/16/2014		1,819,789		1,808,588		1,819,789		1.05
Total Educational Services				1,808,588		1,819,789		1.05
Electrical Equipment
Roberts-Gordon LLC, Term Loan* L+ 10.00%, 2.00% L Floor, 4/20/2016		7,665,501		7,564,301		7,665,501		4.40
Syncsort Incorporated, Term Loan* L+ 5.50%, 2.00% L Floor, 3/31/2015		3,569,105		3,531,342		3,426,341		1.99
Total Electrical Equipment				11,095,643		11,091,842		6.39
Food Stores – Retail
Apple & Eve, LLC, Term Loan* L+ 12.50%, 1.25% L Floor, 12/11/2017		10,000,000		9,901,095		9,901,199		5.70
Fairway Group Acquisition Company, Term Loan L+ 6.75%, 1.50% L Floor, 8/17/2018		6,982,500		6,908,884		7,030,679		4.05
Next Generation Vending, LLC, Priority Revolving Loan L+ 10.00%, 1.50% L Floor, 6/28/2013		2,000,000		2,000,000		2,000,000		1.15
Next Generation Vending, LLC, Revolver L+ 10.00%, 1.50% L Floor, 8/4/2016		1,607,143		1,583,997		964,286		0.56
Next Generation Vending, LLC, Term Loan L+ 10.00%, 1.50% L Floor, 8/4/2016		11,400,000		11,235,820		6,840,000		3.94
Sqwincher Corporation, Term Loan* L+ 10.00%, 1.50% L Floor, 8/3/2016		7,900,000		7,793,666		7,793,438		4.48
Total Food Stores – Retail				39,423,462		34,529,602		19.88

 
 
See accompanying notes to consolidated financial statements.

10

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
December 31, 2012

Security Description, December 31, 2012	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Health Services
AccentCare, Inc., Term Loan L+ 5.00%, 1.50% L Floor, 12/22/2016		1,510,833	$	1,505,679	$	944,271		0.54	%
eResearchTechnology, Inc., Term Loan* L+ 6.50%, 1.50% L Floor, 5/2/2018		5,985,000		5,766,364		5,910,188		3.40
Virtual Radiologic Corporation, Term Loan B* Base Rate+ 4.50%**, 12/22/2016		4,925,000		4,889,877		4,186,250		2.41
Total Health Services				12,161,920		11,040,709		6.35
Insurance Agents
Worley Claims Services, LLC, Term Loan* L+ 11.00%, 1.50% L Floor, 7/6/2017		7,891,200		7,748,761		7,748,761		4.46
Total Insurance Agents				7,748,761		7,748,761		4.46
Metal Mining
Metal Services LLC (Phoenix), Term Loan* L+ 6.50%, 1.25% L Floor, 6/30/2017		3,000,000		2,941,182		3,015,000		1.74
Total Metal Mining				2,941,182		3,015,000		1.74
Miscellaneous Manufacturing
Alpha Packaging Holdings, Inc., Tranche B Term Loan* L+ 5.00%, 1.75% L Floor, 9/17/2016		3,176,875		3,114,921		3,018,031		1.74
Arctic Glacier USA, Inc., Term Loan* L+ 7.00%, 1.50% L Floor, 7/27/2018		4,737,500		4,606,039		4,761,188		2.74
GSE Environmental, Inc., Term Loan (First Lien)* L+ 5.50%, 1.50% L Floor, 5/27/2016		3,932,457		3,905,718		3,883,302		2.24
Kranos Acquisition Corp., Term Loan* L+ 13.00%, 1.00% L Floor, 6/15/2017		10,000,000		9,910,898		9,910,898		5.70
Total Miscellaneous Manufacturing				21,537,576		21,573,419		12.42
Miscellaneous Retail
Provo Craft & Novelty, Inc., Term Loan L+ 7.00%, 1.50% L Floor, 3/22/2016		3,975,957		3,883,751		623,032		0.36
PSP Group, LLC, Term Loan* L+ 4.75%, 1.50% L Floor, 9/13/2016		4,460,206		4,416,761		4,415,604		2.54
Total Miscellaneous Retail				8,300,512		5,038,636		2.90

 
 
See accompanying notes to consolidated financial statements.

11

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
December 31, 2012

Security Description, December 31, 2012	Par		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Miscellaneous Services
Ascensus, Inc., Initial Term Loan* L+ 6.75%, 1.25% L Floor, 12/21/2018		4,000,000	$	3,920,401	$	3,940,000		2.27	%
Centiv Holding Company, Term Loan* 14.50%, 9/6/2016		7,800,000		7,640,562		7,640,562		4.40
First Data Corporation, Non-Extended B-2 Term Loan* L+ 2.75%, 9/24/2014		88,744		84,316		88,620		0.05
First Data Corporation, Non-Extended B-3 Term Loan* L+ 2.75%, 9/24/2014		288,419		274,029		288,015		0.17
First Data Corporation, 2018B Term Loan* L+ 5.00%, 9/24/2018		2,000,000		1,966,733		1,960,400		1.13
Global Traffic Technologies, LLC, Term Loan A* L+ 6.00%, 2.00% L Floor, 6/28/2014		6,439,794		6,353,158		6,351,247		3.66
Global Traffic Technologies, LLC, Term Loan B* L+ 6.00%, 2.00% L Floor, 6/28/2014		3,560,206		3,532,364		3,511,253		2.02
Transfirst Holdings, Inc., Term B Loan (First Lien)* L+ 5.00%, 1.25% L Floor, 12/27/2017		2,000,000		1,980,120		1,966,600		1.13
United States Infrastructure Corporation, Term Loan* L+ 4.25%, 1.25% L Floor, 7/29/2017		1,924,066		1,924,066		1,924,066		1.11
Vision Solutions, Inc., Term Loan (First Lien)* L+ 4.50%, 1.50% L Floor, 7/23/2016		5,530,425		5,496,311		5,496,136		3.16
Total Miscellaneous Services				33,172,060		33,166,899		19.10
National Security
Scitor Corporation, Term Loan* L+ 3.50%, 1.50% L Floor, 2/15/2017		4,639,773		4,624,144		4,620,750		2.67
Sirius Computer Solutions (SCS Holdings I Inc.), Term Loan* Base Rate+ 4.75%**, 12/7/2018		3,923,077		3,884,399		3,947,792		2.27
Six3 Systems, Inc., Term Loan* L+ 5.75%, 1.25% L Floor, 10/4/2019		5,000,000		4,951,839		4,975,000		2.86
Total National Security				13,460,382		13,543,542		7.80
Printing & Publishing
Cengage Learning, Inc., Tranche B (Extended)* L+ 5.50%, 7/5/2017		5,965,926		5,965,926		4,706,519		2.71
Education Holdings 1, Inc., Term Loan* L+ 5.50%, 1.50% L Floor, 12/7/2014		1,187,789		1,176,110		1,069,010		0.62
Total Printing & Publishing				7,142,036		5,775,529		3.33
Restaurants
BMP/Pennant Holdings, LLC, Term Loan A* L+5.00% Cash, L+1.00% PIK, 6/27/2014		2,858,549		2,617,221		2,515,562		1.45
BMP/Pennant Holdings, LLC, Term Loan B L+6.00% Cash, L+6.00% PIK, 6/27/2014		639,847		555,029		292,410		0.17
Total Restaurants				3,172,250		2,807,972		1.62

 
 
See accompanying notes to consolidated financial statements.

12

Garrison Capital Inc. and Subsidiaries
 
Consolidated Schedule of Investments – (continued)
 
December 31, 2012

Security Description, December 31, 2012	Par		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments (continued)
Investments – United States (continued)
Bank Loans (continued)
Specialty Services
SI Organization, Inc. (The), New Tranche B Term Loan* L+ 3.25%, 1.25% L Floor, 11/22/2016		3,920,000	$	3,905,620		$	3,890,600			2.24	%
Total Specialty Services				3,905,620			3,890,600			2.24
Textile Products
Universal Fiber Systems, LLC, Term Loan* L+ 5.75%, 1.75% L Floor, 6/26/2015		4,375,000		4,350,724			4,287,500			2.47
Total Textile Products				4,350,724			4,287,500			2.47
Transportation Services
Fleetgistics Holdings, Inc., Term Loan* L+ 5.88%, 2.00% L Floor, 3/23/2015		2,025,665		2,028,332			1,863,612			1.07
Ozburn-Hessey Holding Company LLC, Term Loan* L+ 6.25%, 2.00% L Floor, 4/8/2016		6,231,471		5,950,713			6,169,156			3.55
Total Transportation Services				7,979,045			8,032,768			4.62
Wholesale Durable Goods
Howard Berger Co. LLC, Term A Loan* L+ 5.75%, 1.25% L Floor, 8/3/2017		1,990,000		1,962,632			1,985,020			1.14
Total Wholesale Durable Goods				1,962,632			1,985,020			1.14
Total Bank Loans			$	233,214,219		$	220,085,525			126.72	%
Total Non-Control/Non-Affiliate Investments			$	233,965,698		$	220,340,125			126.87	%
Unfunded Obligations
Miscellaneous Services
Global Traffic Technologies, LLC, Revolver* 1.00%, 6/28/2014		1,458,439	$	(19,623	)	$	(20,054	)		(0.01	)%
Total Miscellaneous Services				(19,623	)		(20,054	)		(0.01	)
Food Stores – Retail
Next Generation Vending, LLC, Revolver 1.00%, 8/4/2016		535,714		(7,715	)		(214,286	)		(0.12	)
Total Food Stores – Retail				(7,715	)		(214,286	)		(0.12	)
Total Unfunded Obligations			$	(27,338	)	$	(234,340	)		(0.13	)%
Total Investments – United States			$	233,938,360		$	220,105,785			126.74	%

* Denotes that all or a portion of the loan secures the loans under the Credit Facility (see Note 7).

** Reference to an alternate base rate is commonly based on the Federal Funds Rate or the Prime Rate.

(1) Investment currently in default and placed on non-accrual status. The contractual default interest rate as of December 31, 2012 was 8.25% (Base Rate + 5.00%).

All debt investments were income producing as of December 31, 2012 except as noted above. Common equity investments are non-income producing unless otherwise noted.

 
 
See accompanying notes to consolidated financial statements.

13

Garrison Capital Inc. and Subsidiaries
 
Consolidated Statements of Operations (unaudited)
 
For the three and nine months ended September 30, 2013 and September 30, 2012

	Three months ended September 30, 2013			Three months ended September 30, 2012			Nine months ended September 30, 2013			Nine months ended September 30, 2012
Investment income
Interest	$	9,337,744		$	5,857,704		$	22,422,333		$	18,493,205
Total investment income		9,337,744			5,857,704			22,422,333			18,493,205
Expenses
Interest		1,898,139			1,304,782			4,900,895			4,877,904
Loss on refinancing of senior secured notes (see Note 7)		426,714			—			426,714			3,352,725
Management fees		1,863,177			619,286			4,408,507			1,627,798
Incentive fees		—			—			—			—
Professional fees		355,522			204,747			963,893			662,243
Directors' fees		100,000			74,781			268,680			222,716
Administrator expenses		217,743			50,334			587,766			150,304
Ratings fees		—			—			—			—
Other expenses		425,304			114,889			816,079			312,197
Total expenses		5,286,599			2,368,819			12,372,534			11,205,887
Base management fees waived		(1,863,177	)		—			(3,815,756	)		—
Directors' fees waived		—			—			(34,426	)		—
Administrator expenses waived		—			—			(101,197	)		—
Net expenses		3,423,422			2,368,819			8,421,155			11,205,887
Net investment income		5,914,322			3,488,885			14,001,178			7,287,318
Realized and unrealized gain/(loss) on investments
Net realized gain/(loss) from investments		(5,689,915	)		1,022,499			(11,041,153	)		2,900,617
Net change in unrealized appreciation/(depreciation) on investments		6,528,917			(1,026,186	)		13,866,761			(1,504,219	)
Net realized and unrealized gain/(loss) on investments		839,002			(3,687	)		2,825,608			1,396,398
Net increase in net assets resulting from operations	$	6,753,324		$	3,485,198		$	16,826,786		$	8,683,716
Net investment income per common share/members' capital per unit(1)	$	0.35		$	0.33		$	0.95		$	0.69
Basic earnings per common share/members' capital per unit(1)	$	0.40		$	0.33		$	1.15		$	0.83
Basic weighted average common shares/members' capital units outstanding(1)		16,758,779			10,498,544			14,672,034			10,498,544
Dividends and distributions declared per common share/members' capital per unit(2)	$	0.35		$	—		$	1.64		$	—

(1) Adjusted for Reverse Stock Split. See Note 1.

(2) Calculated using basic weighted average common shares/members’ capital units outstanding.

 
 
See accompanying notes to consolidated financial statements.

14

Garrison Capital Inc. and Subsidiaries
 
Consolidated Statements of Changes in Net Assets/Members’ Capital (unaudited)
 
For the nine months ended September 30, 2013 and September 30, 2012

	September 30, 2013			September 30, 2012
Increase in net assets/members' capital from operations:
Net investment income	$	14,001,178		$	7,287,318
Net realized gain/(loss) from investments		(11,041,153	)		2,900,617
Net change in unrealized appreciation/(depreciation) on investments		13,866,761			(1,504,219	)
Net increase in net assets/members' capital from operations:		16,826,786			8,683,716
Dividends and distributions to stockholders:
Distributions-in-kind(1)		(9,991,329	)		—
Cash distributions		(14,131,146	)		—
Total dividends and distributions to stockholders		(24,122,475	)		—
Common Share transactions
Issuance of common stock, net of underwriting costs		87,463,519			—
Offering costs		(564,140	)		—
Net increase in net assets/members' capital from common share transactions:		86,899,379			—
Total increase/(decrease) in net assets/members' capital		79,603,690			8,683,716
Net assets/members' capital at beginning of period		173,669,492			171,072,005
Net assets/members' capital at end of period	$	253,273,182		$	179,755,721
Net asset value per common share/members' capital per unit	$	15.11		$	17.12
Common shares/members' capital outstanding at end of period(2)		16,758,779			10,498,544

(1) Distributions-in-kind were made to only those investors which held shares of the Company’s common stock prior to the IPO.

(2) Adjusted for Reverse Stock Split. See Note 1.

 
 
See accompanying notes to consolidated financial statements.

15

Garrison Capital Inc. and Subsidiaries
 
  Consolidated Statements of Cash Flows (unaudited)
 
For the nine months ended September 30, 2013 and September 30, 2012

	September 30, 2013			September 30, 2012
Cash flows from operating activities
Net income	$	16,826,786		$	8,683,716
Adjustments to reconcile net income to net cash used in operating activities:
Net accretion of discounts on investments		(1,120,020	)		(1,583,561	)
Net realized (gain)/loss from investments		11,041,153			(2,900,617	)
Amortization of discount on senior secured notes payable		—			3,352,725
Loss on refinancing of senior secured notes		426,714			67,494
Amortization of deferred debt issuance costs		774,996			654,682
Net change in unrealized (appreciation)/depreciation on investments		(13,866,761	)		1,504,219
Purchases of investments		(344,138,532	)		(81,966,808	)
Paydowns of investments		100,032,951			129,156,666
Sales of investments		47,041,620			34,534,036
Changes in operating assets and liabilities:
Decrease (increase) in cash and cash equivalents, restricted		39,122,051			(30,183,899	)
(Increase) in due from counterparties		(4,761	)		—
(Increase) decrease in accrued interest receivable		(783,394	)		49,649
Decrease (increase) in deferred offering costs		—			(482,812	)
(Increase) decrease in other assets		(673,305	)		10,417
Decrease (increase) in due to counterparties		(5,452,446	)		6,915,000
Increase (decrease) in payables to affiliates		226,864			(196,811	)
Decrease in interest payable on notes payable		(423,038	)		(276,028	)
(Decrease) increase in accrued expenses and other payables		(108,288	)		386,629
Net cash (used in) provided by operating activities		(151,077,410	)		67,724,697
Cash flows from financing activities
Capital contributions		87,463,519			—
Distributions		(14,131,146	)		—
Offering costs		(564,140	)		—
Payments for financing costs		(3,008,822	)		(3,199,375	)
Repayment of senior secured notes payable		—			(219,500,000	)
Proceeds from borrowing on term loan		12,748,370			125,000,000
Proceeds from borrowing on revolving loan		50,000,000			—
Net cash provided by (used in) financing activities		132,507,781			(97,699,375	)
Net (decrease) increase in cash and cash equivalents		(18,569,629	)		(29,974,678	)
Cash and cash equivalents at beginning of period		21,680,791			47,927,874
Cash and cash equivalents at end of period	$	3,111,162		$	17,953,196
Supplemental disclosure of cash flow information
Cash paid for interest expense	$	4,549,104		$	4,431,859

Supplemental disclosure of non-cash information
On February 25, 2013, our board of directors approved a distribution-in-kind, or the Distribution-in-Kind, in the amount of $9,991,329 or $0.95 per share. Assets distributed were Next Generation Vending, LLC, Priority Revolving Loan in the amount of $2,000,000, Next Generation Vending, LLC, Revolver in the amount of $750,000, Next Generation Vending, LLC, Term Loan in the amount of $6,840,000 and $401,329 of accrued interest.

 
 
See accompanying notes to consolidated financial statements.

16

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

1. Organization

Garrison Capital Inc. (“GARS” and, collectively with its subsidiaries, the “Company”, “we” or “our”) is a Delaware corporation and is an externally managed, closed-end, non-diversified management investment company. GARS has filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, GARS has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for the period beginning October 9, 2012 and ended March 31, 2013.

Garrison Capital LLC, a Delaware limited liability company, commenced operations on December 17, 2010. On October 9, 2012, Garrison Capital LLC converted from a Delaware limited liability company to a Delaware corporation (the “Conversion”). In this Conversion, Garrison Capital Inc. succeeded to the business of Garrison Capital LLC and its subsidiaries, and the members of Garrison Capital LLC became stockholders of GARS. An aggregate of 10,707,221 shares of common stock, par value $0.001 per share, were issued to the members of GARS in this Conversion in accordance with their respective pro-rata membership interests in Garrison Capital LLC. As a result of a reverse stock split on February 25, 2013, which resulted in the conversion of one share of common stock into 0.9805106 shares of common stock (the “Reverse Stock Split), all amounts related to shares/units, share/unit prices, earnings per share/per unit and distributions per share/unit have been retroactively restated for all periods presented. As a result, the 10,707,221 shares of common shares issued in the Conversion have been retroactively restated to 10,498,544.

GARS priced its initial public offering (“IPO”) on March 26, 2013, which closed on April 2, 2013, selling 6,133,334 shares, including 800,000 shares issued pursuant to the underwriters’ over-allotment option, at a public offering price of $15.00 per share. Concurrent with the closing of the IPO, the Company’s directors, officers, employees and an affiliate of Garrison Capital Advisers LLC, a Delaware limited liability company (the “Investment Adviser”), purchased an additional 126,901 shares through a private placement transaction (the “Concurrent Private Placement”) exempt from registration under the Securities Act of 1933, as amended, at a price of $15.00 per share.

The Company invests or provides direct lending in (1) first lien senior secured loans, (2) second lien senior secured loans, (3) “one-stop” senior secured loans or “unitranche” loans, (4) subordinated or mezzanine loans and (5) to a lesser extent, selected equity co-investments in middle-market companies. The term “one-stop” or “unitranche” refers to a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans. The term “mezzanine” refers to a loan that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. The Company’s investment objective is to generate current income and capital appreciation by investing primarily in secured loans to middle-market companies and minority equity investments in middle-market companies. The Company intends to generate risk-adjusted net returns by assembling a broad portfolio of investments.

The Company’s business and affairs are managed and controlled by the Company’s board of directors (the “Board”), of which a majority of the members are independent of the Company and the Investment Adviser and its affiliates.

On December 31, 2010, Garrison Capital LLC acquired Garrison Capital CLO Ltd., a Cayman Islands exempted company (“Garrison Capital CLO”), which was created on September 20, 2010 and initially capitalized on December 31, 2010. This entity was a wholly-owned consolidated subsidiary of GARS created for the purpose of acquiring and holding an investment in Garrison Funding 2010-1 LLC (“GF 2010-1”). Garrison Capital CLO was dissolved on April 8, 2013 pursuant to a Certificate of Dissolution received from the Registrar of Companies in the Cayman Islands on January 7, 2013. GF 2010-1 was dissolved on June 6, 2013 pursuant to a Certificate of Cancellation from the State of Delaware.

17

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

1. Organization  – (continued)

On April 25, 2011, Garrison Capital Equity Holdings LLC was formed for the purpose of holding minority equity investments in middle-market companies. Garrison Capital Equity Holdings LLC is 100% owned by GARS.

On April 19, 2012, GARS formed Garrison Funding 2012-1 Manager LLC, a Delaware limited liability company (“GF 2012-1 Manager”). This entity is a wholly-owned consolidated subsidiary of GARS created for the purpose of acquiring and holding an investment in Garrison Funding 2012-1 LLC, a Delaware limited liability company (“GF 2012-1”). On September 23, 2013, in anticipation of refinancing the credit facility of GF 2012-1, GF 2012-1 Manager effected a name change to Garrison Funding 2013-2 Manager LLC (“GF 2013-2 Manager”).

On April 19, 2012, GARS formed GF 2012-1 LLC for the purpose of acquiring or participating in U.S. dollar-denominated senior secured or second lien corporate loans and to acquire up to $150 million in financing.

On May 21, 2012, GF 2012-1 entered into a $150.0 million credit facility (the “Credit Facility”), consisting of $125.0 million of term loans (“Class A-T Loans”) and $25.0 million of revolving loans (Class A-R Loans”), which was utilized to refinance the GF 2010-1 Notes (as defined in Note 7).

On July 24, 2013, GARS formed Garrison Funding 2013-2 Ltd. (“GF 2013-2”), a Cayman Islands exempted company for the purpose of refinancing the Credit Facility. On September 25, 2013 (the “Refinancing Date”), under Part XVI of the Cayman Islands Companies Law (2012 Revision), GF 2013-2 and GF 2012-1 merged with GF 2013-2 remaining as the surviving entity (the “Merger”). On the effective date of the Merger, all of the rights, the property, and the business, undertaking, goodwill, benefits, immunities and privileges of each individual company immediately vested in the surviving company.

On the Refinancing Date, GF 2013-2 completed a $350.0 million collateralized loan obligation (the “CLO Facility II”) through a private placement, the proceeds of which were utilized, along with cash on hand, to refinance the existing Credit Facility (see Note 7). Immediately following the completion of CLO Facility II, GF 2013-2 Manager owned 100% of the Subordinated Notes (as defined below). GF 2013-2 Manager serves as collateral manager to GF 2013-2, and has entered into a sub-collateral management agreement with the Investment Adviser.

On May 17, 2013, GARS formed GLC Trust 2013-2, a Delaware statutory trust (“GLC Trust 2013-2”). This entity is a wholly-owned subsidiary of GARS created for the purpose of investing in a portfolio of small balance consumer loans. GLC Trust 2013-2 is 100% owned by GARS.

On August 13, 2013, Garrison Capital Equity Holdings II LLC was formed for the purpose of holding minority equity investments in middle-market companies. Garrison Capital Equity Holdings II LLC is 100% owned by GARS.

On August 15, 2013, Walnut Hill Leasing II LLC was formed for the purpose of holding a first lien equipment loan. Walnut Hill Leasing II LLC is 100% owned by GARS.

American Stock Transfer & Trust Company, LLC (“AST”) serves as our transfer and dividend paying agent and registrar.

GARS entered into a custody agreement, which was effective as of October 9, 2012 (the “Custody Agreement”), with Deutsche Bank Trust Company Americas (the “Custodian”) to act as custodian for GARS. Deutsche Bank Trust Company Americas is also the trustee of GF 2013-2.

18

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

1. Organization  – (continued)

GARS entered into an administration agreement, which was effective as of October 9, 2012 (the “Administration Agreement”), with Garrison Capital Administrator LLC, a Delaware limited liability company (the “GARS Administrator”).

SEI Investments Global Fund Services, Inc. (the “Sub-Administrator”) is the Company’s sub-administrator. The Sub-Administrator performs certain accounting and administrative services for the Company. The Sub-Administrator receives a monthly fee from the Company equal to a percentage of the total net assets of the Company. The Sub-Administrator is also reimbursed by the Company for all reasonable out-of-pocket expenses.

2. Significant Accounting Policies

Basis of Presentation

GARS entered into an investment advisory agreement with the Investment Adviser, which was effective as of October 9, 2012 and subsequently amended and restated on March 26, 2013 (the “Investment Advisory Agreement”). The Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis subject to the supervision of the Board. The Investment Adviser was organized in November 2010 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended. The Investment Adviser is an affiliate of Garrison Investment Group LP (the “Investment Manager”). The Investment Manager is also the investment manager of various stockholders of the Company.

The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for financial information. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. The Company believes it has made all necessary adjustments so that the consolidated interim financial statements are presented fairly and that all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The accounts of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Certain reclassifications have been made for previous periods in order to conform to the current period’s presentation.

Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946,Financial Services-Investment Companies, the Company is precluded from consolidating any entity other than another investment company.

Basis for Consolidation

The Company generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units. ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

GF 2013-2 Manager owns a 100% interest in GF 2013-2, which is deemed to be an investment company, and also provides collateral management services solely to GF 2013-2. As such, GARS has consolidated the accounts of these entities into these financial statements. As a result of this consolidation, the amounts outstanding under the CLO Facility II are treated as the Company’s indebtedness.

Garrison Capital Equity Holdings LLC, Garrison Capital Equity Holdings II LLC, Walnut Hill Leasing II LLC and GLC Trust 2013-2 are 100% owned investment companies. As such, GARS has consolidated the accounts of these entities into these financial statements.

19

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Investment Classification

As required by the 1940 Act, investments are classified by level of control. “Control Investments” are investments in those companies that the Company is deemed to control as defined in the 1940 Act. “Affiliate Investments” are investments in those companies that are affiliated companies, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

Generally, under the 1940 Act, the Company is deemed to control a company in which it has invested if it owns more than 25% of the voting securities of such company. The Company is deemed to be an affiliate of a company in which it has invested if it owns 5% or more of the voting securities of such company.

As of September 30, 2013 and December 31, 2012, all of the Company’s investments were Non-Control/Non-Affiliate investments.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the consolidated financial statements, including the estimated fair values of investments and the amount of income and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company defines cash equivalents as highly liquid financial instruments with original maturities of three months or less including those held in overnight sweep bank deposit accounts. At September 30, 2013 and December 31, 2012, cash held in designated bank accounts with its custodian was $2,286,348 and $21,669,437, respectively. At September 30, 2013 and December 31, 2012, cash held in designated bank accounts with other major financial institutions was $824,814 and $11,354, respectively.

Cash and Cash Equivalents, restricted

Cash and cash equivalents, restricted at September 30, 2013 and December 31, 2012 included cash of $30,780,085 and $69,902,136, respectively, held by GF 2013-2 in designated bank accounts with its custodian. GF 2013-2 is required to use a portion of these amounts to pay interest expense, reduce borrowings at the end of the investment period and to pay other amounts in accordance with the terms of the indenture of the CLO Facility II. Funds held by GF 2013-2 are not available for general use by the Company.

There were no cash equivalents, restricted held as of September 30, 2013 and December 31, 2012.

Investment Transactions and Related Investment Income and Expense

The Company records its investment transactions on a trade date basis, which is the date when management has determined that all material legal terms have been contractually defined for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these transactions are reflected on the consolidated statements of operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded using the specific identification method.

20

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Investment Transactions and Related Investment Income and Expense – (continued)

The Company accrues interest income if it expects that ultimately it will be able to collect such income. Generally, when a payment default occurs on a loan in the portfolio, or if management otherwise believes that the issuer of the loan will not be able to make contractual interest payments or principal payments, the Investment Adviser will place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, the Company remains contractually entitled to this interest.

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected.

The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. As of September 30, 2013 and December 31, 2012, the Company had one investment that was placed on non-accrual status.

Any original issue discounts, as well as any other purchase discounts or premiums on debt investments, are accreted or amortized and included in interest income, over the maturity periods of the investments. If a loan is placed on non-accrual status, the Investment Adviser will cease recognizing amortization of purchase discount until all principal and interest is current through payment or until a restructuring occurs, such that the income is deemed to be collectible.

Interest Expense

Interest expense is recorded on an accrual basis and is adjusted for amortization of deferred debt issuance costs and any original issue discount.

Expenses

Expenses related to, but not limited to, ratings fees, due diligence, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized as incurred in the consolidated statements of operations within ratings fees and other expenses.

Loan Origination, Facility, Commitment and Amendment Fees

The Company may receive loan origination, facility, commitment, and amendment fees in addition to interest income during the life of the investment. The Company may receive origination fees upon the origination of an investment.

Origination fees received by the Company are initially deferred and reduced from the cost basis of the investment and subsequently accreted into interest income over the remaining stated term of the loan. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by the Company and are accrued over the life of the loan.

Amendment fees are paid in connection with loan amendments and waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. Any such fees are included in interest income on the consolidated statements of operations. For the three months ended September 30, 2013 and September 30, 2012, other income in the amount of $45,414 and $30,636, respectively, was included in interest income. For the nine months ended September 30, 2013 and September 30, 2012, other income in the amount of $446,744 and $301,011, respectively, was included in interest income.

21

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Valuation of Investments

The Company values its investments in accordance with FASB ASC Topic 820,Fair Value Measurements and Disclosures (formerly FASB Statement No. 157, “ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value.

ASC 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value.

The Company’s portfolio consists of primarily debt investments. The fair value of the Company’s investments is initially determined by investment professionals of the Investment Adviser and ultimately determined by the Board on a quarterly basis. The Investment Adviser generally uses various approaches, including, but not limited to, proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, other applicable factors for similar transactions, bid quotations obtained from other financial institutions that trade in similar investments or based on bid prices provided by independent third party pricing services.

The types of factors that the Board may take into account when verifying the fair value initially determined by the Investment Adviser and determining the fair value of the Company’s investments generally include, as appropriate, comparison to publicly traded securities, including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors.

The Board has retained several independent valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at least once during each 12-month period.

However, the Board does not intend to have de minimis investments of less than 0.5% of the Company’s total assets (up to an aggregate of 10.0% of the Company’s total assets) independently reviewed.

The Board is ultimately and solely responsible for determining the fair value of the Company’s assets using a documented valuation policy and consistently applied valuation process.

Due to the nature of the Company’s strategy, the Company’s portfolio is primarily comprised of relatively illiquid investments that are privately held. Inputs into the determination of fair value of the Company’s portfolio investments require significant management judgment or estimation. This means that the Company’s portfolio valuations are based on unobservable inputs and the Investment Adviser’s own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value by the Board may differ materially from the values that would have been used if a ready market for these investments existed.

The valuation process is conducted at the end of each fiscal quarter, with a portion of the Company’s valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter. When an external event with respect to one of the Company’s portfolio companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by the external event to corroborate our valuation.

22

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Valuation of Investments – (continued)

With respect to investments for which market quotations are not readily available, our Board will undertake a multi-step valuation process each quarter, as described below:

• The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Investment Adviser responsible for credit monitoring.

• Preliminary valuation conclusions are then documented and discussed with our senior management and the Investment Adviser.

• The valuation committee of the Board reviews these preliminary valuations.

• At least once annually, the valuation for each portfolio investment that does not have a readily available quotation is reviewed by an independent valuation firm, subject to the de minimis exception described above.

• The Board discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith.

Net assets/Members’ capital could be materially affected if the determinations regarding the fair value of the investments were materially higher or lower than the values that are ultimately realized upon the disposal of such investments.

Offering Costs

Deferred offering costs consist of fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of the IPO as discussed in Note 1 and are charged against proceeds from the offering when received. Total offering costs of $564,140 were charged against proceeds for the nine months ended September 30, 2013.

The Company previously expensed $1,676,117 of costs related to its delayed offering in 2012. Of those costs, $0 and $317,976 were included in accrued expenses and other payables as of September 30, 2013 and December 31, 2012, respectively.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend or distribution is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

The Company adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if the Board authorizes, and we declare, a cash dividend or other distribution, then our stockholders who have not ‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.

23

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Dividends and Distributions – (continued)

No action is required on the part of a registered stockholder to have their cash dividend or other distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying AST in writing so that such notice is received by AST no later than the record date for distributions to stockholders. AST will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, AST will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share.

Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends and other distributions in cash by notifying their broker or other financial intermediary of their election.

Earnings and net asset value per share

The earnings per share, net asset value per share and average shares outstanding calculations for the nine months ended September 30, 2012 are based on the assumption that the number of shares issued on the date of the Conversion (10,498,544 shares of common stock) had been issued on January 1, 2012, as adjusted for the Reverse Stock Split.

Income Taxes

Prior to the Conversion, Garrison Capital LLC was treated as a partnership for U.S. federal, state and local income tax purposes and, therefore, no provision has been made in the accompanying consolidated financial statements for federal, state or local income taxes. In accordance with the partnership tax law requirements, each partner would include their respective components of Garrison Capital LLC’s taxable profits or losses, as shown on their Schedule K-1s in their respective tax or information returns. GF 2013-2, GF 2013-2 Manager, Garrison Capital Equity Holdings LLC, Garrison Capital Equity Holdings II LLC and Walnut Hill Leasing II LLC are disregarded entities for tax purposes. GLC Trust 2013-2 is a grantor trust for U.S. taxable income purposes, whereby the income reverts to GARS.

As discussed in Note 1, for tax purposes, GARS elected to be treated as a RIC under Subchapter M of the Code, for the period from the date of the Conversion, beginning October 9, 2012, and for future taxable years. Such election has been made upon the filing of the Company’s first tax return for the above-mentioned period. Accordingly, no provision for federal income tax has been made in the financial statements for the nine months ended September 30, 2013. For its most recent tax year ended March 31, 2013, GARS has made certain reclassification adjustments with respect to permanent differences between book and tax in the component of net assets on the statement of financial condition discussed below.

GARS complies with all RIC qualification provisions contained in the Code including certain source-of-income and asset diversification requirements as well as distribution requirements to our stockholders equal to at least 90% of “investment company taxable income”. “Investment company taxable income” is generally defined as net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses. As a RIC, GARS generally does not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that it distributes to its stockholders in a timely manner. However, GARS is subject to U.S. federal income taxes at regular corporate tax rates on any net ordinary income or net capital gain not distributed to its stockholders assuming at least 90% of its investment company taxable income is distributed.

24

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Income Taxes – (continued)

GARS may choose to retain its net capital gains or any investment company taxable income, and pay the associated U.S. federal corporate income tax, including a 4% nondeductible U.S. federal excise tax. GARS expects to make sufficient distributions to avoid being subject to any U.S. federal excise tax.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with U.S. GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent differences have no impact on net assets. The below were reclassifications made due to permanent differences for the tax year ended March 31, 2013:

Accumulated Net Investment Income/(Loss)	$	10,117,837
Paid-In Capital	$	(15,968,373	)
Accumulated Net Realized Gain/(Loss) on Investment	$	5,850,536

The permanent book-to-tax differences arose primarily due to return of capital distributions and the Distribution-in-Kind.

The following table reconciles net decrease in net assets resulting from operations to taxable income from the date of Conversion, October 9, 2012, to tax year ended March 31, 2013:

Net increase in net assets resulting from operations	$	(1,444,744	)
Net change in unrealized appreciation on investments		(355,361	)
Permanent book-to-tax differences		5,729,784
Temporary book-to-tax differences		—
Taxable income before deductions for distribution	$	3,929,679

The tax character of distributions paid during the tax period from October 9, 2012 to March 31, 2013 was as follows:

Ordinary	$	3,929,679
Long-term Capital Gain		—
Return of Capital		10,238,589
Total	$	14,168,268

As of March 31, 2013, the federal income tax basis of investments was $286,579,737 resulting in net unrealized losses of $(7,659,908).

The Company is required to determine whether a tax position of the Company is more likely-than-not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that could negatively impact the Company’s net assets.

U.S. GAAP provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.

25

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

2. Significant Accounting Policies  – (continued)

Income Taxes – (continued)

The Company has concluded that it was not necessary to record a liability for any such tax positions as of September 30, 2013 and December 31, 2012. However, the Company’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analyses of, and changes to, tax laws, regulations and interpretations thereof.

The Company’s activities from commencement of operations remain subject to examination by U.S. federal, state, and local tax authorities. No interest expense or penalties have been assessed as of September 30, 2013 and December 31, 2012. If the Company were required to recognize interest and penalties, if any, related to unrecognized tax benefits this would be recognized as income tax expense in the consolidated statement of operations.

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was enacted, and the provisions of the Modernization Act were effective for GARS for the period from October 9, 2012 to March 31, 2013. The Modernization Act is the first major piece of tax legislation affecting RICs since 1986 and it updates several of the federal income and excise tax provisions related to RICs.

New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. Additionally, any losses incurred for tax years beginning after the Modernization Act are required to be utilized prior to the losses incurred in pre-enactment tax years. However, this ordering rule will not impact GARS.

3. Investments

The Company’s investments include bank loans (both funded and unfunded, “Bank Loans”), preferred and minority equity investments (“Equity”) of diversified companies and financial asset pools which are held directly through a corporate trust (“Financial Assets”). Financial Assets include unsecured small balance consumer loans.

These financial instruments also may be purchased indirectly through an interest in a limited partnership or a limited liability company. Certain of the risks of investing in the financial instruments of a distressed borrower or a company are discussed herein.

The Company may invest in assets for which the underlying borrower or companies are experiencing various forms of financial, operational, legal, and/or other distress or impairment, including companies involved in bankruptcy or other reorganization or liquidation proceedings, and those which might become involved in such proceedings. Through investing in these assets, the Company is exposed to credit risk relating to whether the borrower will meet its obligation to pay when it comes due until the investments are sold or mature. Any investment in a distressed company may involve special risks.

The Company’s transactions in Bank Loans are normally secured financings that are collateralized by physical assets and/or the enterprise value of the borrower. This collateral, and the Company’s rights to this collateral, are different depending on the specific transaction and are defined by the legal documents agreed to in the transaction.

The terms of the Bank Loans may require the Company to extend to a borrower additional credit or provide funding for any unfunded portion of such Bank Loans at the request of the borrower. This exposes the Company to potential liabilities that are not reflected on the consolidated statements of financial condition. As of September 30, 2013 and December 31, 2012, the Company had $6,168,131 and $1,994,153 of unfunded obligations with a fair value of $(113,692) and $(234,340), respectively. The negative fair value is the result of the unfunded commitment being valued below par.

26

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

3. Investments  – (continued)

There is no central clearinghouse for the Company’s Bank Loans or Equity, nor is there a central depository for custody of any such interests. The processes by which these interests are cleared, settled and held in custody are individually negotiated between the parties to the transaction. This subjects the Company to operational risk to the extent that there are delays and failures in these processes. The Custodian maintains records of the investments owned by the Company.

4. Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities which qualify as financial instruments approximate the carrying amounts presented in the consolidated statements of financial condition.

U.S. GAAP requires enhanced disclosures about investments that are measured and reported on a fair value basis. Under U.S. GAAP, fair value is 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.

Further, the guidance distinguishes between inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs). Various inputs are used in determining the values of the Company’s investments and these inputs are categorized as of each valuation date.

The inputs are summarized in three broad levels listed below:

• Level 1 — quoted unadjusted prices in active markets for identical investments as of the reporting date.

• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.)

• Level 3 — significant unobservable inputs (including the reporting entity’s own assumptions about the assumptions market participants would use in determining the fair values of investments or indicative bid prices from unaffiliated market makers or independent third party pricing services).

Fair value of publicly traded instruments is generally based on quoted market prices. Fair value of non-publicly traded instruments, and of publicly traded instruments for which quoted market prices are not readily available, may be determined based on other relevant factors, including without limitation, bid quotations from unaffiliated market makers or independent third party pricing services, the price activity of comparable instruments and valuation pricing models.

For those investments valued using quotations, the bid price is generally used, unless the Company determines that it is not representative of an exit price. To the extent observable market data is available, such information may be the result of consensus pricing information or broker quotes. Due to the fact that the significant inputs used by the contributors of the consensus pricing source or the broker are unobservable and evidence with respect to trading levels is not available, any investments valued using indicative bid prices from unaffiliated market makers and independent third party pricing services have been classified within Level 3.

Investments classified as Level 3 may be fair valued using the income and market approaches, using a market yield valuation methodology or enterprise value methodology.

Factors that could affect fair value measurements using the above referenced approaches include assumed growth rates, capitalization rates, discount rates, loan-to-value ratios, liquidation value, relative capital structure priority, market comparables, compliance with applicable loan, covenant and interest coverage

27

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

4. Fair Value of Financial Instruments  – (continued)

performance, book value, market derived multiples, reserve valuation, assessment of credit ratings of an underlying borrower, review of ongoing performance, review of financial projections as compared to actual performance, review of interest rate and yield risk.

Such factors may be given different weighting depending on management’s assessment of the underlying investment, and management may analyze apparently comparable investments in different ways. The Company has used, and intends to continue to use, independent valuation firms to provide additional corroboration for estimating the fair values of investments. Valuations performed by the independent valuation firms may utilize proprietary models and inputs. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

All of the Company’s investments (other than cash and cash equivalents) are classified as Level 3 under ASC 820.

The following table summarizes the valuation of the Company’s investments measured at fair value based on the fair value hierarchy detailed above as of September 30, 2013 and December 31, 2012:

	As of September 30, 2013
	Level 1		Level 2		Level 3		Total
Senior Secured	$	—	$	—	$	373,702,258	$	373,702,258
Second Lien		—		—		13,756,388		13,756,388
Mezzanine		—		—		7,032,858		7,032,858
Preferred Equity Investments		—		—		4,453,182		4,453,182
Common Equity Investments		—		—		3,410,862		3,410,862
Financial Assets		—		—		9,169,826		9,169,826
	$	—	$	—	$	411,525,374	$	411,525,374

	As of December 31, 2012						Total
	Level 1		Level 2		Level 3
Senior Secured	$	—	$	—	$	217,225,589	$	217,225,589
Second Lien		—		—		2,625,596		2,625,596
Common Equity Investments		—		—		254,600		254,600
	$	—	$	—	$	220,105,785	$	220,105,785

The net change in unrealized appreciation/(depreciation) for the nine months ended September 30, 2013 and September 30, 2012 reported within the net change in unrealized appreciation/(depreciation) on investments in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets was $13,866,763 and $(1,504,222), respectively.

28

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

4. Fair Value of Financial Instruments  – (continued)

The following table is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value for the nine months ended September 30, 2013:

	Nine Months Ended September 30, 2013
	Senior Secured Investments			Second Lien Investments			Mezzanine Investments			Preferred Equity Investments		Common Equity Investments			Financial Assets		Total
Fair value, beginning of period	$	217,225,589		$	2,625,596		$	—		$	—	$	254,600		$	—	$	220,105,785
Transfers into Level 3(1)		—			—			—			—		—			—		—
Transfers out of Level 3(1)		—			—			—			—		—			—		—
Total net realized and unrealized gain/(loss) on investments		1,372,228			(158,583	)		(579	)		1,731,608		(101,992	)		—		2,842,682
Total net accretion of discounts on investments		1,074,793			28,154			—			—		—			—		1,102,947
Purchases/Issuances		310,048,792			11,416,249			7,033,437			2,721,574		3,748,653			9,169,826		344,138,531
Sales(2)		(56,141,221	)		—			—			—		(490,399	)		—		(56,631,620	)
Paydowns		(99,877,923	)		(155,028	)		—			—		—			—		(100,032,951	)
Fair value, end of period	$	373,702,258		$	13,756,388		$	7,032,858		$	4,453,182	$	3,410,862		$	9,169,826	$	411,525,374
Net change in unrealized appreciation/(depreciation) included in earnings related to investments still held at reporting date	$	805,792		$	(157,318	)	$	(580	)	$	—	$	1,629,639		$	—	$	2,277,533

(1) Transfers into or out of Level 1, 2 or 3 are recognized at the reporting date. There were no transfers of investments between levels by the Company for the nine months ended September 30, 2013.

(2) Includes $9,991,329 Distribution-in-Kind.

The following table is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value for the nine months ended September 30, 2012:

	Nine Months ended September 30, 2012
	Senior Secured Investments			Second Lien Investments			Equity Investments			Total
Fair value, beginning of period	$	315,424,066		$	4,376,068		$	978,491		$	320,778,625
Transfers into Level 3(1)		—			—			—			—
Transfers out of Level 3(1)		—			—			—			—
Total net realized and unrealized gain/(loss) on investments		1,680,186			201,553			(485,341	)		1,396,398
Total net accretion of discounts on investments		1,508,588			74,973			—			1,583,561
Purchases		81,966,808			—			—			81,966,808
Issuances		—			—			—			—
Sales		(34,534,036	)		—			—			(34,534,036	)
Paydowns		(127,136,417	)		(2,020,249	)		—			(129,156,666	)
Fair value, end of period	$	238,909,195		$	2,632,345		$	493,150		$	242,034,690
Net change in unrealized appreciation/(depreciation) included in earnings related to investments still held at reporting date	$	(2,911,636	)	$	1,314		$	(485,341	)	$	(3,395,663	)

29

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

4. Fair Value of Financial Instruments  – (continued)

(1) Transfers into or out of Level 1, 2 or 3 are recognized at the reporting date. There were no transfers of investments between levels by the Company for the nine months ended September 30, 2012.

The following table is a quantitative disclosure about significant unobservable inputs (Level 3) that were used in determining fair value at September 30, 2013:

	Fair Value at September 30, 2013		Valuation Technique		Unobservable Input			Range						Weighted Average
								Low			High
Senior Secured Investments(1)	$	373,702,258		Comparable yield approach		Market rate	(2)		3.2	%		24.1	%		9.4	%
				Market comparable companies		EBITDA multiple			4.2x			23.4x			7.0x
Second Lien Investments		13,756,388		Comparable yield approach		Market rate	(2)		7.8	%		11.5	%		9.8	%
				Market comparable companies		EBITDA multiple			5.0x			10.6x			8.0x
Mezzanine Investments		7,032,858		Comparable yield approach		Market rate	(2)		14.5	%		14.5	%		14.5	%
				Market comparable companies		EBITDA multiple			7.6x			7.6x			7.6x
Equity Investments		6,864,044		Market comparable companies		EBITDA multiple			5.0x			7.0x			5.0x
Financial Assets		9,169,826		Discounted cash flows		Interest rate			11.4	%		30.8	%		16.9	%
						Prepayment rate			50.0	%		80.0	%		67.1	%
						Unit loss rate			3.7	%		27.9	%		10.6	%
						Discount rate			10.0	%		10.0	%		10.0	%
Total(3)	$	410,525,374

(1) Includes total unfunded obligations of $(113,692).

(2) Market rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.

(3) Fair value for purposes of this table excludes an equity investment in a consumer lending platform, which is valued at recent transaction price of $1.0 million and for which the cost basis approximates fair value.

The following table is a quantitative disclosure about significant unobservable inputs (Level 3) that were used in determining fair value at December 31, 2012:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at December 31, 2012

Valuation Technique

Unobservable Input

Range

Weighted Average

Low

High

Senior Secured Investments(1)

$

217,225,589

Comparable yield approach

Market rate

(2)

3.0

%

15.4

%

9.5

%

Market comparable companies

EBITDA multiple

4.5x

11.5x

6.9x

Second Lien Investments

2,625,596

Comparable yield approach

Market rate

(2)

7.8

%

7.8

%

7.8

%

Market comparable companies

EBITDA multiple

5.0x

5.0x

5.0x

Equity Investments

254,600

Market comparable companies

EBITDA multiple

5.3x

7.0x

5.7x

Total

$

220,105,785

(1) Includes total unfunded obligations of ($234,340).

(2) Market rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.

30

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

4. Fair Value of Financial Instruments  – (continued)

Significant unobservable inputs used in the fair value measurement of the reporting entity’s Bank Loans include indicative bid quotations obtained from independent third party pricing services (“consensus pricing”), multiples of market comparable companies, and relative comparable yields.

Significant decreases (increases) in consensus pricing or market comparables could result in significantly lower (higher) fair value measurements. Significant increases (decreases) in comparable yields could result in significantly lower (higher) fair value measurements. Generally, a change in the assumption used for relative comparable yields is accompanied by a directionally opposite change in the assumptions used for pricing.

Significant unobservable inputs used in the fair value measurement of the reporting entity’s Financial Assets include interest rate, prepayment rate, unit loss rate and discount rate.

Significant decreases (increases) in interest rates or prepayment rates could result in significantly lower (higher) fair value measurements. Significant increases (decreases) in unit loss rates or discount rates could result in significantly lower (higher) fair value measurements.

The composition of the Company’s portfolio by industry at cost and fair value as of September 30, 2013 was as follows:

Industry	Cost of Investments					Fair Value of Investment
Miscellaneous Services	$	53,740,192		13.0	%	$	53,995,262		13.3	%
Miscellaneous Manufacturing		54,370,433		13.2			54,936,654		13.3
Transportation Services		45,642,093		11.1			45,588,633		11.1
Broadcasting & Entertainment		14,767,068		3.6			14,763,721		3.6
Food Stores - Retail		24,934,142		6.1			25,117,332		6.1
Communications		40,942,792		9.9			41,160,439		10.0
Oil & Gas		24,855,829		6.0			26,882,815		6.5
Automotive		21,612,961		5.3			21,747,710		5.3
Health Services		18,463,464		4.5			16,656,902		4.0
Electrical Equipment		13,106,410		3.2			13,215,168		3.2
National Security		14,944,816		3.6			14,993,354		3.6
Printing & Publishing		20,256,827		4.9			18,514,647		4.5
Consumer Finance Services		11,133,289		2.7			11,133,276		2.7
Insurance Agents		6,540,648		1.6			6,824,170		1.7
Chemicals		5,652,369		1.4			5,706,430		1.4
Apparel Products		15,767,935		3.8			15,821,773		3.8
Miscellaneous Retail		4,388,357		1.1			4,400,669		1.1
Textile Products		3,984,488		1.0			4,000,000		1.0
Specialty Services		3,878,928		0.9			3,832,093		0.9
Metal Mining		3,201,684		0.8			3,264,423		0.8
Crop Agriculture		2,893,940		0.7			2,913,159		0.7
Restaurants		3,325,259		0.8			3,041,564		0.7
Hotels and Motels		1,228,183		0.3			1,237,039		0.3
Wholesale Durable Goods		1,859,080		0.5			1,778,141		0.4
Total	$	411,491,187		100.0%		$	411,525,374		100.0%

Refer to the consolidated schedules of investments for detailed disaggregation of the Company’s investments.

31

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

4. Fair Value of Financial Instruments  – (continued)

The composition of the Company’s portfolio by industry at cost and fair value as of December 31, 2012 was as follows:

Industry	Cost of Investments					Fair Value of Investment
Food Stores – Retail	$	39,912,726		17.1	%	$	34,315,316		15.6	%
Miscellaneous Services		33,152,437		14.2			33,146,845		15.1
Miscellaneous Manufacturing		21,537,576		9.2			21,573,419		9.8
Communications		22,556,874		9.6			20,133,370		9.1
Automotive		14,971,067		6.4			14,907,269		6.8
National Security		13,460,382		5.8			13,543,542		6.2
Electrical Equipment		11,095,643		4.7			11,091,842		5.0
Health Services		12,161,920		5.2			11,040,709		5.0
Transportation Services		8,233,545		3.5			8,287,268		3.8
Insurance Agents		7,748,761		3.3			7,748,761		3.5
Chemicals		5,984,847		2.6			6,036,070		2.7
Printing & Publishing		7,142,036		3.1			5,775,529		2.6
Miscellaneous Retail		8,300,512		3.5			5,038,736		2.3
Apparel Products		4,652,867		2.0			4,717,200		2.1
Textile Products		4,350,724		1.9			4,287,500		1.9
Specialty Services		3,905,620		1.7			3,890,600		1.8
Metal Mining		2,941,182		1.3			3,015,000		1.4
Crop Agriculture		2,910,705		1.2			2,938,254		1.3
Restaurants		3,172,250		1.4			2,807,972		1.3
Business Finance Services		1,975,466		0.8			2,005,774		0.9
Wholesale Durable Goods		1,962,632		0.8			1,985,020		0.9
Educational Services		1,808,588		0.8			1,819,789		0.8
Total	$	233,938,360		100.0	%	$	220,105,785		100.0	%

Refer to the consolidated schedules of investments for detailed disaggregation of the Company’s investments.

5. Indemnifications

In the normal course of business, the Company enters into certain contracts that provide a variety of indemnifications. The Company’s maximum exposure under these indemnifications is unknown. However, no liabilities have arisen under these indemnifications in the past and, while there can be no assurances in this regard, there is no expectation that any will occur in the future. Therefore, the Company does not consider it necessary to record a liability for any indemnifications under U.S. GAAP.

6. Due To and Due From Counterparties

The Company executes investment transactions with agents, brokers, investment companies, agent banks and other financial institutions. Due to and due from counterparties include amounts related to unsettled purchase and sale transactions of investments and principal paydowns receivable from the borrowers.

Amounts due to counterparties were $10,290,000 and $15,742,446 as of September 30, 2013 and December 31, 2012, respectively. Amounts due from counterparties as of September 30, 2013 and December 31, 2012 were $4,761 and $0, respectively.

32

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

7. Financing

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. As of September 30, 2013 and December 31, 2012, the Company’s asset coverage for borrowed amounts was 235.0% and 238.9%, respectively.

On November 5, 2010, GF 2010-1 completed a $300,000,000 collateralized loan securitization. GF 2010-1 was the borrower under a collateralized loan obligation facility (the “CLO Facility”) which was refinanced, as further described below. The CLO Facility consisted of senior secured notes (collectively, the “GF 2010-1 Notes”).

On May 21, 2012, GF 2012-1, the Company’s wholly-owned indirect subsidiary, entered into the Credit Facility in an aggregate principal amount of $150,000,000, consisting of $125,000,000 of term loans Class A-T Loans and $25,000,000 of revolving loans Class A-R Loans (collectively, the “GF 2012-1 Loans”) which was utilized, along with cash on hand of GF 2010-1 and Garrison Capital LLC, to redeem the existing GF 2010-1 Notes. On June 5, 2013, GF 2012-1 entered into an agreement to increase the size of the Credit Facility from $150,000,000 to $175,000,000, consisting of $125,000,000 of Class A-T loans and $50,000,000 of Class A-R loans. All other terms of the Credit Facility remained unchanged.

In connection with the execution of the Credit Facility and the redemption of the GF 2010-1 Notes in accordance with the indenture governing such notes, a majority of the loans and other assets owned or financed under such indenture were sold or contributed to GF 2012-1 as collateral for the Credit Facility.

The redemption of the GF 2010-1 Notes resulted in a $3,352,725 loss for the three and nine months ended September 30, 2012 due to the write off of deferred debt issuance costs in the amount of $2,397,825 and the recognition of $954,900 of unamortized original issue discount on the GF 2010-1 Notes, which are included in loss on refinancing of senior secured notes on the consolidated statements of operations. For purposes of the Company’s consolidated financial statements, there were no gains or losses recognized as part of the sale from GF 2010-1 to GF 2012-1.

GARS had the ability to refinance the Credit Facility through a collateralized loan obligation as provided by certain provisions of the Credit Facility agreement.

On the Refinancing Date, GF 2013-2 completed the CLO Facility II through a private placement of (1) $50.0 million of AAA(sf) rated Class A-1R revolving notes (“Class A-1R Notes”), which bear interest at either the CP Rate (as defined in the indenture governing the CLO Facility II) or the London Interbank Offered Rate (“LIBOR”) plus 1.90%; (2) $111.2 million of AAA(sf) rated Class A-1T notes (“Class A-1T Notes”), which bear interest at three-month LIBOR plus 1.80%; (3) $24.2 million of AA(sf) rated Class A-2 notes (“Class A-2 Notes” and collectively with the Class A-1R Notes and the Class A-1T Notes, the “Class A Notes”), which bear interest at three-month LIBOR plus 3.40%; (4) $25.0 million of A(sf) rated Class B notes (“Class B Notes”), which bear interest at three-month LIBOR plus 4.65%; (5) $13.7 million of Class C notes (not rated) (“Class C Notes” and collectively with the Class A Notes and Class B Notes, the “Secured Notes”), which bear interest at three-month LIBOR plus 5.50%; and (6) $126.0 million of subordinated notes (“Subordinated Notes” and collectively with the Class A Notes, Class B Notes and Class C Notes, the “GF 2013-2 Notes”), which do not have a stated interest rate, the proceeds of which were utilized, along with cash on hand, to refinance the existing Credit Facility. All of the GF 2013-2 Notes are scheduled to mature on September 25, 2023. As of September 30, 2013, GARS had retained $22.0 million of the Class A-1T Notes and 100% of the Class C Notes. The Subordinated Notes represent the residual interest in GF 2013-2. Immediately following the completion of CLO Facility II, GF 2013-2 Manager owned 100% of the Subordinated Notes.

33

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

7. Financing  – (continued)

The refinance of the Credit Facility resulted in a $426,714 loss for the three and nine months ended September 30, 2013 due to the third party expenses incurred to effect the refinancing in the amount of $426,714, which is included in loss on refinancing of senior secured notes on the consolidated statements of operations.

Fees paid as part of the execution of the Credit Facility, the refinance of the Credit Facility and the execution of the CLO Facility II in the amount of $6,197,695 consisted of facility fees of $3,950,250 and other costs of $2,247,445, which included rating agency fees and legal fees. These costs are included in deferred debt issuance costs on the consolidated statements of financial condition and will be amortized over the stated maturity of the respective loans, with $4,582,313 of deferred debt issuance costs remaining as of September 30, 2013.

The table below shows the notes outstanding under the CLO Facility II as of September 30, 2013:

September 30, 2013	Amortized Carrying Value		Outstanding Principal at Par		Interest Rate			Stated Maturity
Class A-1R Notes:
Class A-1R Notes	$	50,000,000	$	50,000,000		CP Rate or LIBOR + 1.90	%		9/25/2013
Class A-1T Notes:
Class A-1T Notes		88,818,908		89,175,000		LIBOR + 1.80	%		9/25/2013
Class A-2 Notes:
Class A-2 Notes		24,029,415		24,150,000		LIBOR + 3.40	%		9/25/2013
Class B Notes:
Class B Notes		24,900,047		25,025,000		LIBOR + 4.65	%		9/25/2013
	$	187,748,370	$	188,350,000

The table below shows the loans outstanding under the Credit Facility as of December 31, 2012:

December 31, 2012	Amortized Carrying Value		Outstanding Principal at Par		Interest Rate			Stated Maturity
Class A-T Loans:
Class A-T Loans	$	125,000,000	$	125,000,000		COF(1)+2.75	%		2/21/2020
Class A-R Loans:
Class A-R Loans		—		—		COF(1)+1.25	%		2/21/2020
	$	125,000,000	$	125,000,000

(1) COF rate. See below for further information.

At September 30, 2013 and December 31, 2012, $0 and $25,000,000, respectively, of the Class A-1R Notes and Class A-R Loans remained undrawn. The Class A-1R Notes and the Class A-R Loans bore a 1.00% and 1.25% annual fee on undrawn amounts, respectively.

The fair value of the GF 2013-2 Notes and the GF 2013-2 Loans approximated the carrying value on the consolidated statements of financial condition at September 30, 2013 and December 31, 2012, respectively.

Through September 25, 2013, the Class A-T Loans and the Class A-R Loans under the Credit Facility bore interest at an annual rate equal to a cost of funds (“COF”) rate plus 3.25%. The COF rate was capped at

34

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

7. Financing  – (continued)

LIBOR plus 0.50%. From September 25, 2013 to September 25, 2023, the Class A-1R Notes bear interest at an annual rate equal to the CP Rate or LIBOR plus 1.90%, the Class A-1T Notes bear interest at an annual rate equal to LIBOR plus 1.80%, the Class A-2 Notes bear interest at an annual rate equal to LIBOR plus 3.40% and the Class B Notes bear interest at an annual rate equal to LIBOR plus 4.65%.

The ability of GF 2013-2 to draw under the Class A-1R Notes terminates on September 25, 2016, which is also the end of the extended reinvestment period, and the CLO Facility II matures on September 25, 2023. The CLO Facility II is secured by all of the assets held by GF 2013-2.

The indenture governing the CLO Facility II provides that, to the extent cash is available from cash collections, the holders of the GF 2013-2 Notes are to receive quarterly interest payments on the 20^th business day of February, May, August and November of each year, commencing in February 2014, until the stated maturity.

Under the documents governing the CLO Facility II, there are two coverage tests applicable to the Secured Notes. The first test compares the amount of interest received on the collateral loans held by GF 2013-2 to the amount of interest payable on the Secured Notes under the CLO Facility II in respect of the amounts drawn. To meet this first test, at any time, the aggregate amount of interest received on the collateral loans must equal, after the payment of certain fees and expenses, at least 135.0% of the aggregate amount of interest payable on the Class A Notes, 125.0% of the interest payable on the Class A Notes and Class B Notes, taken together, and 115% of the interest payable on the Class A Notes, Class B Notes and Class C Notes, taken together.

The second test compares the aggregate principal amount of the collateral loans to the aggregate outstanding principal amount of the Secured Notes in respect of the amounts drawn. To meet this second test at any time, the aggregate principal amount of the collateral loans must equal at least 173.4% of the aggregate outstanding principal amount of the Class A Notes, 156.1% of the aggregate principal amount of the Class A Notes and Class B Notes, taken together, and 148.1% of the aggregate outstanding principal amount of the Class A Notes, Class B Notes and Class C Notes, taken together.

If the coverage tests are not satisfied on any date on which compliance is measured, GF 2013-2 will be required to apply available amounts to the repayment of interest on and principal of the GF 2013-2 Notes to the extent necessary to satisfy the applicable coverage tests and, as a result, there may be reduced funds available for GF 2013-2 to make additional investments or to make distributions on the Company’s equity interests in GF 2013-2. Dates on which compliance is measured include each day collateral loans are purchased, originated or sold and the last day of each calendar month. Furthermore, if under the second coverage test the aggregate principal amount of the collateral loans equals 125.0% or less of the aggregate outstanding principal amount on the GF 2013-2 Loans and remains so for ten business days, an event of default will be deemed to have occurred. As of September 30, 2013 and December 31, 2012, the Trustee has asserted that all of the coverage tests were met.

At September 30, 2013 and December 31, 2012, the weighted average interest rate of the Secured Notes and the Class A-T Loans was 2.81% and 3.25%, respectively, and the weighted average effective interest rate, including the effects of deferred debt issuance costs, was 3.20% and 3.53%, respectively. At September 30, 2013 and December 31, 2012, the weighted average interest rate of the Class A-IR Notes and the Class A-R Loans was 2.23% and 1.25%, respectively, and the weighted average effective interest rate, including the effects of deferred debt issuance costs, was 2.37% and 2.50%, respectively.

35

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

8. Related Party Transactions

Investment Advisory Agreement

GARS entered into the Investment Advisory Agreement with the Investment Adviser, which was effective as of October 9, 2012 and subsequently amended and restated on March 26, 2013. The Investment Adviser agreed to waive its base management fee and incentive fee commencing from the pricing of the IPO through September 30, 2013.

Prior to the Conversion, GARS paid a management fee to the Investment Adviser in arrears for the preceding fiscal quarter equal to 0.375% (1.50% per annum) of the value of the Company’s consolidated members’ capital (excluding the average amount of cash held during the period).

Under the Amended and Restated Investment Advisory Agreement, the Investment Adviser is entitled to a base management fee for its services calculated at an annual rate of 1.75% of gross assets, excluding cash and cash equivalents and cash and cash equivalents, restricted, but including assets purchased with borrowed funds. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial paper maturing within 270 days of purchase.

From the date of Conversion through the pricing of the IPO, the Investment Adviser waived that portion of the management fee due under the Investment Advisory Agreement in excess of a base management fee equal to an annual rate of 1.50% of the average of the value of the Company’s net assets (including cash and cash equivalents) calculated at the end of the two most recently completed calendar quarters, payable in arrears. Under no circumstances would the Investment Adviser have received a base management fee greater than 1.75% of gross assets, excluding cash and cash equivalents but including assets purchased with borrowed funds calculated based on the average carrying value of the gross assets of the Company at the end of the two most recently completed calendar quarters.

For the three and nine months ended September 30, 2013, the Investment Adviser earned management fees under the Investment Advisory Agreement in the amount of $1,863,177 and $4,408,507, respectively, of which $1,863,177 and $3,815,756, respectively, was waived. For the three and nine months ended September 30, 2012, the Investment Adviser earned management fees of $619,286 and $1,627,798, respectively, none of which was waived.

Management fees in the amount of $0 and $112,411 were payable as of September 30, 2013 and December 31, 2012, respectively, and are included in payables to affiliates on the Consolidated Statements of Financial Position.

Under the Investment Advisory Agreement, the Investment Adviser is entitled to an incentive fee consisting of two components that are independent of each other, with the result that one component may be payable even if the other is not.

The first component, which is income-based and payable quarterly in arrears, will equal 20% of the amount, if any, that the Company’s pre-incentive fee net investment income exceeds a 2.00% quarterly (8.00% annualized) hurdle rate (the “Hurdle Rate”), subject to a “catch-up” provision measured at the end of each calendar quarter. The operation of the first component of the incentive fee for each quarter is as follows:

• no incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the Hurdle Rate;

36

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

8. Related Party Transactions  – (continued)

Investment Advisory Agreement – (continued)

• 100% of the Company’s pre-incentive fee net investment income with respect to that portion of such the Company’s pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate but is less than 2.50% in any calendar quarter (10.00% annualized). We refer to this portion of the Company’s pre-incentive fee net investment income (which exceeds the Hurdle Rate but is less than 2.50%) as the “catch-up”. The effect of the “catch-up” provision is that, if the Company’s pre-incentive fee net investment income exceeds 2.50% in any calendar quarter, the Investment Adviser will receive 20% of such pre-incentive fee net investment income as if the Hurdle Rate did not apply; and

• 20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.50% in any calendar quarter (10.00% annualized) (once the Hurdle Rate is reached and the catch-up is achieved).

The portion of such incentive fee that is attributable to deferred interest (such as payment-in-kind interest or original issue discount) will be paid to the Investment Adviser, together with any other interest accrued on the loan from the date of deferral to the date of payment, only if and to the extent the Company actually receives such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possibly elimination of the incentive fees for such quarter. For the avoidance of doubt, no incentive will be paid to the Investment Adviser on amounts accrued and not paid in respect of deferred interest.

The second component, which is capital gains-based, 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% of the Company’s cumulative aggregate realized capital gains from January 1 through the end of such year, computed net of the Company’s aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees and subject to the Incentive Fee Cap and Deferral Mechanism described below. The capital gains component of the incentive fee is not subject to any minimum return to stockholders.

Incentive Fee Cap and Deferral Mechanism

We have structured the calculation of these incentive fees to include a fee limitation such that no incentive fee will be paid to our Investment Adviser for any fiscal quarter if, after such payment, the cumulative incentive fees paid to our Investment Adviser for the period that includes such fiscal quarter and the 11 full preceding fiscal quarters (the “Incentive Fee Look-back Period”), would exceed 20.0% of our cumulative pre-incentive fee net return during the applicable Incentive Fee Look-back Period. The Incentive Fee Look-back Period commenced on April 1, 2013. Prior to April 1, 2016, the Incentive Fee Look-back Period will consist of fewer than 12 full fiscal quarters.

No incentive fees were earned for the three and nine months ended September 30, 2013 or September 30, 2012.

37

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

8. Related Party Transactions  – (continued)

Administration Agreement

As discussed in Note 1, GARS entered into the Administration Agreement with GARS Administrator. Under the Administration Agreement, the GARS Administrator provides the Company with office facilities, equipment, clerical, bookkeeping and record keeping services at such facilities and such other services as the GARS Administrator, subject to review by the Board, from time to time determines to be necessary or useful to perform its obligations under the Administration Agreement. The GARS Administrator is responsible for the financial and other records that the Company is required to maintain and prepare reports to stockholders, and reports and other materials filed with the Securities and Exchange Commission (the “SEC”). The GARS Administrator provides on the Company’s behalf significant managerial assistance to those portfolio companies to which the Company is required to provide such assistance. No managerial assistance was provided to any portfolio companies for the nine months ended September 30, 2013.

In addition, the GARS Administrator assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns, and the printing and dissemination of reports to stockholders of the Company, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company reimburses the GARS Administrator for the costs and expenses incurred by the GARS Administrator in performing its obligations and providing personnel and facilities as described.

The GARS Administrator agreed to waive any amounts due to it under the Administration Agreement from the date of the Conversion through the quarter in which the Company executed the IPO. Gross Administrator charges for the three and nine months ended September 30, 2013, including amounts payable to the Sub-Administrator as discussed in Note 1, were $217,743 and $587,766, respectively. The amount of these charges waived by the GARS Administrator for the three and nine months ended September 30, 2013 was $0 and $101,197, respectively. Administration fees payable to the GARS Administrator in the amount of $299,017 and $0 were payable as of September 30, 2013 and December 31, 2012, respectively, and are included in payables to affiliates on the consolidated statements of financial position.

Directors’ Fees

The Company’s independent directors each receive an annual fee of $70,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each in-person Board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting.

In addition, the chairman of the audit committee receives an annual fee of $12,500 and each chairman of any other committee receives an annual fee of $5,000 for their additional services in these capacities (all such fees and reimbursements collectively, “Directors’ Fees”). No compensation is paid to directors who are not independent of the Company and the Investment Adviser.

Our independent directors agreed to waive a portion of their fees from the date of the Conversion through the quarter in which the Company executed the IPO.

For the three and nine months ended September 30, 2013, independent directors earned Directors’ Fees of $100,000 and $234,254, respectively (net of fee waivers of $0 and $34,426, respectively). For the three and nine months ended September 30, 2012, independent directors earned Directors’ Fees of $74,781 and $222,716, respectively. Directors’ fees in the amount of $0 and $0 were payable as of September 30, 2013 and December 31, 2012, respectively, and are included in payables to affiliates on the Consolidated Statements of Financial Position.

38

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

8. Related Party Transactions  – (continued)

Affiliated Stockholders

GSOF LLC, GSOF-SP LLC, GSOF-SP II LLC, GSOF-SP DB LLC (subsidiaries of Garrison Special Opportunities Fund LP), GSOIF Corporate Loan Pools Ltd. (a subsidiary of Garrison Special Opportunities Institutional Fund LP), Garrison Capital Offshore Ltd. (a subsidiary of Garrison Credit Opportunities Holdings L.P.), Garrison Capital Fairchild I Ltd. (a subsidiary of Fairchild Offshore Fund L.P.), and Garrison Capital Fairchild II Ltd. (a subsidiary of Fairchild Offshore Fund II L.P.) (collectively, the “Garrison Funds”) are all entities that are owned by funds that are managed by the Investment Manager.

At September 30, 2013 and December 31, 2012, the Garrison Funds owned an aggregate of 5,377,364 and 5,334,521, respectively, or 32.1% and 50.8%, respectively, of the total outstanding common shares of GARS. In addition, as of September 30, 2013, officers and directors of the Company directly owned an aggregate of 34,143, or 0.2%, of the total outstanding common shares of GARS. No shares were directly held by officers and directors of the Company as of December 31, 2012.

Other

Garrison Loan Agency Services LLC acts as the administrative and collateral agent for certain loans held by the Company.

The Company may invest alongside other clients of the Investment Manager and their affiliates in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations.

9. Financial Highlights

The following table represents financial highlights for the Company for the nine months ended September 30, 2013 and September 30, 2012.

	September 30, 2013			September 30, 2012
Per share data
Net asset value per common share/members' capital per unit at beginning of period		16.54			16.29
Increase in net assets/members' capital from operations:
Net investment income		0.95			0.69
Net realized gain/(loss) on investments		(0.75	)		0.28
Net unrealized appreciation on investments		0.95			(0.14	)
Net increase in net assets from operations		1.15			0.83
Stockholder transactions
Return of capital		—			—
Distributions-in-kind(1)		(0.95	)		—
Cash distributions		(0.94	)		—
Dilutive impact of share issuance(2)		(0.69	)		—
Total additions from and dividends and distributions to stockholders		(2.58	)		—
Net asset value per common share/members' capital per unit at end of period		15.11			17.12
Total book return(3)		6.95	%		5.08	%
Total market return(4)		-1.47	%		N/A
Common shares/members' capital units outstanding at beginning of period		10,498,544			10,498,544
Common shares/members' capital units outstanding at end of period		16,758,779			10,498,544
Weighted average common shares/members' capital units outstanding		14,672,034			10,498,544
Net assets/members' capital at beginning of period	$	173,669,492		$	171,072,005
Net assets/members' capital at end of period	$	253,273,182		$	179,755,721

39

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

9. Financial Highlights  – (continued)

	September 30, 2013			September 30, 2012
Average net assets/members' capital(5)	$	221,560,995		$	177,047,097
Ratio of net investment income to average net assets/members' capital(5)(7)		6.32	%		4.12	%
Ratio of total expenses to average net assets/members' capital(5)(7)		3.80	%		6.33	%
Ratio of portfolio turnover to average investments at fair value(8)		43.43	%		29.92	%
Average outstanding debt(6)	$	151,774,837		$	166,700,677
Average debt per common share/members' capital per unit	$	9.06		$	15.88

(1) Distributions in kind were made to only those investors which held shares of the Company’s common stock prior to the IPO.

(2) Dilution due to the issuance of shares at IPO at $15.00 per share, which was below net asset value.

(3) Total return equals the net increase of ending net asset value from operations over the net asset value per common share/members’ capital per unit at beginning of the period.

(4) Total market return calculated as the change in market price per share based on the initial public offering price per share as of March 27, 2013 and the closing price per share on June 28, 2013.

(5) Calculated utilizing monthly net assets/members’ capital.

(6) Calculated based on monthly debt outstanding.

(7) During the nine months ended September 30, 2013, the Investment Adviser waived $3,815,756 of management fees, the independent directors waived $34,426 of Directors’ fees and the GARS Administrator waived $101,197 of Administrator expenses. Had these expenses not been waived, the ratio of net investment income to average net assets/members’ capital and the ratio of total expenses to average net assets/members’ capital would have been 4.56% and 5.62% respectively.

(8) Calculated based on monthly average investments at fair value.

10. Net Assets/Members’ Capital

The Company’s authorized stock consists of 100,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share.

As discussed in Note 1, on the date of the Conversion, the members of Garrison Capital LLC became stockholders of GARS. An aggregate of 16,758,779 shares of common stock, par value $0.001 per share, were issued and outstanding as of September 30, 2013.

As discussed in Note 1, GARS priced its IPO on March 26, 2013, selling 6,133,334 shares at a public offering price of $15.00 per share. The closing of the IPO took place on April 2, 2013 and all shares were issued as of that date. Concurrent with the IPO, the Company’s directors, officers, employees and an affiliate of the Investment Adviser purchased an additional 126,901 shares through the Concurrent Private Placement at a price of $15.00 per share.

For the nine months ended September 30, 2013, there were no shares of preferred stock issued.

Prior to the Conversion, the Company issued limited liability interests (“Units”), as approved by the Board. The Units issued by the Company were not certificated.

For the nine months ended September 30, 2012, the Company did not issue any new Units, although certain Units were transferred between members or their affiliates.

40

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

11. Allocation of Profits and Losses

Prior to the Conversion, the Company’s members were issued Units of the Company that represented their limited liability company interests in Garrison Capital LLC. Profits and losses were allocated on a pro-rata basis to all members based on the number of Units held by each member in proportion to the aggregate number of all outstanding Units of the Company.

12. Earnings per share

The following table sets forth the computation of the net increase in net assets per share resulting from operations, pursuant to FASB ASC 260,Earnings per Share (“ASU 260”), for the nine months ended September 30, 2013 and September 30, 2012:

	Nine Months September 30, 2013		Nine Months September 30, 2012
Net increase in net asset resulting from operations	$	16,826,786	$	8,683,716
Basic weighted average shares outstanding		14,672,034		10,498,544
Basic earnings per share	$	1.15	$	0.83

As a result of the Reverse Stock Split, which resulted in the conversion of one share of common stock into 0.9805106 shares of common stock, all amounts related to shares/units, share/unit prices, earnings per share/per unit and dividends per share/unit have been retroactively restated for the nine months ending September 30, 2012.

13. Dividends and Distributions

The Company’s dividends and distributions are recorded on the ex-dividend date.

On February 25, 2013, the Company declared a distribution in the amount of $2,400,000, or $0.23 a share, which was paid on March 13, 2013 to stockholders of record as of February 25, 2013.

On February 25, 2013, the Company declared a distribution-in-kind in the amount of $9,991,329 or $0.95 a share. Investments distributed were Next Generation Vending, LLC, Priority Revolving Loan in the amount of $2,000,000, Next Generation Vending, LLC, Revolver in the amount of $750,000, Next Generation Vending, LLC, Term Loan in the amount of $6,840,000, and $401,329 of accrued interest.

On May 9, 2013, the Board approved a distribution in the amount of $5,865,573, or $0.35 a share, which was paid on June 27, 2013 to stockholders of record as of June 13, 2013.

On August 6, 2013, the Board approved a distribution in the amount of $5,865,573, or $0.35 a share, which was paid on September 26, 2013 to stockholders of record as of September 12, 2013.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. Federal Income Tax regulations, which may differ from those amounts determined in accordance with U.S. GAAP. We expect that a portion of distributions will result in a return of capital for the nine months ended September 30, 2013.

14. Contingencies

In the ordinary course of business, the Company may be named as a defendant or a plaintiff in various lawsuits and other legal proceedings. Such proceedings include actions brought against the Company and others with respect to transactions to which the Company may have been a party. The outcomes of such lawsuits are uncertain and, based on these lawsuits, the values of the investments to which they relate could decrease. Management does not believe that as a result of litigation there would be any material impact on the consolidated financial condition of the Company. The Company has had no outstanding litigation proceedings brought against it since the commencement of operations on December 17, 2010.

41

Garrison Capital Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements (unaudited)
 
September 30, 2013

15. Subsequent Events

On November 5, 2013, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which will be paid on December 27, 2013 to stockholders of record as of December 13, 2013.

On October 1, 2013, GARS sold $10.0 million of the $22.0 million Class A-1T Notes that it retained in the CLO Facility II on September 25, 2013. On October 7, 2013, GARS sold $7.0 million of the retained Class A-1T Notes and on October 8, 2013, GARS sold the remaining $5.0 million of the retained Class A-1T Notes.

On November 4, 2013, the Board established a valuation committee. The members of the valuation committee are Roy Guthrie, Cecil Martin, Bruce Shewmaker and Matthew Westwood, each of whom meets the independence standards established by the SEC and the Nasdaq Listing Rules. The valuation committee is responsible for assisting the Board in determining whether market quotations are readily available for securities held by us, the fair value of securities held by us for which market quotations are not readily available and the fair value of our assets which are not held in the form of securities. The valuation committee charter is available on our website athttp://www.garrisoncapitalbdc.com. In connection with the establishment of the valuation committee, the chairman of the valuation committee will receive an annual fee of $10,000 and the chairman of the audit committee will receive an annual fee of $10,000 (reduced from $12,500).

For the three months ending December 31, 2013, our Investment Adviser has agreed to waive that portion of its income-based incentive fee, if any, necessary for the Company’s net investment income per share plus net realized gain (loss) per share (excluding any portion of realized gains (losses) that are associated with the reversal of any portion of unrealized appreciation/depreciation attributable to periods prior to April 1, 2013) for the three months ending December 31, 2013 to equal $0.35 per share, net of fee waivers.

For the three months ending June 30, 2014, our Investment Adviser has agreed to waive that portion of its income-based incentive fee, if any, necessary for the Company’s net investment income per share plus net realized gain (loss) per share (excluding any portion of realized gains (losses) that are associated with the reversal of any portion of unrealized appreciation/depreciation attributable to periods prior to April 1, 2013) for the six months ending June 30, 2014 to equal $0.70 per share, net of fee waivers.

These consolidated interim financial statements were approved by the Board and were available for issuance on November 5, 2013. Subsequent events have been evaluated through this date. No material subsequent events other than as disclosed above have occurred through this date.

42

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q.

On October 9, 2012, Garrison Capital LLC, a Delaware limited liability company, converted into a corporation. In this conversion, Garrison Capital Inc. succeeded to the business of Garrison Capital LLC and its consolidated subsidiaries, and the members of Garrison Capital LLC became stockholders of Garrison Capital Inc. In this quarterly report on Form 10-Q, we refer to these transactions as the “BDC Conversion.” References to “we,” “us,” “our” and “Garrison Capital” refer to Garrison Capital LLC and its consolidated subsidiaries for the periods prior to the consummation of the BDC Conversion and refer to Garrison Capital Inc. and its consolidated subsidiaries for the periods after the consummation of the BDC Conversion.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitutes forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

• our future operating results;

• changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets;

• our business prospects and the prospects of our prospective portfolio companies;

• the impact of investments that we expect to make;

• the impact of increased competition;

• our contractual arrangements and relationships with third parties;

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

• the ability of our prospective portfolio companies to achieve their objectives;

• the relative and absolute performance of our investment adviser;

• our expected financings and investments;

• the adequacy of our cash resources and working capital;

• our ability to make distributions to our stockholders;

• the timing of cash flows, if any, from the operations of our prospective portfolio companies; and

• the impact of future acquisitions and divestitures.

We use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this quarterly report on Form 10-Q.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

The “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this quarterly report on Form 10-Q or any periodic reports we file under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

43

Overview

We are a recently-organized, externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for tax purposes, we intend to elect to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, beginning October 9, 2012 and ended March 31, 2013. We intend to qualify for future taxable years thereafter. Our shares are currently listed on The NASDAQ Global Select Market under the symbol “GARS”.

On March 26, 2013, we priced our initial public offering, or IPO, selling 6,133,334 shares, including 800,000 shares pursuant to the underwriters’ exercise of the over-allotment option, at a public offering price of $15.00 per share. On March 27, 2013, our common stock began trading on The NASDAQ Global Select Market under the symbol “GARS”.

On April 2, 2013, we closed our IPO, raising approximately $92.0 million in gross proceeds. Total proceeds received net of sales load was approximately $85.6 million and net of offering expenses was approximately $84.9 million. Concurrent with the IPO, our directors, officers, employees and an affiliate of our investment adviser, Garrison Capital Advisers LLC, or the Investment Adviser, purchased an additional 126,901 shares through a private placement transaction, or the Concurrent Private Placement, exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, at a price of $15.00 per share, raising approximately $1.9 million of proceeds.

On July 24, 2013, we formed Garrison Funding 2013-2 Ltd., or GF 2013-2, a Cayman Islands exempted company for the purpose of refinancing the Credit Facility, as defined below. On September 25, 2013, under Part XVI of the Cayman Islands Companies Law (2012 Revision), GF 2013-2 and GF 2012-1 merged with GF 2013-2 remaining as the surviving entity, or the Merger. On the effective date of the Merger, all of the rights, the property, and the business, undertaking, goodwill, benefits, immunities and privileges of each individual company immediately vested in the surviving company.

On September 25, 2013, we completed a $350.0 million collateralized loan obligation, or the CLO Facility II, through a private placement of (1) $50.0 million of AAA(sf) rated Class A-1R revolving notes, or Class A-1R Notes, which bear interest at either the CP Rate, as defined in the indenture governing the CLO Facility II, or the London Interbank Offered Rate, or LIBOR, plus 1.90%; (2) $111.2 million of AAA(sf) rated Class A-1T notes, or Class A-1T Notes, which bear interest at three-month LIBOR plus 1.80%; (3) $24.2 million of AA(sf) rated Class A-2 notes, or Class A-2 Notes, and collectively with the Class A-1R Notes and the Class A-1T Notes, the Class A Notes, which bear interest at three-month LIBOR plus 3.40%; (4) $25.0 million of A(sf) rated Class B notes, or Class B Notes, which bear interest at three-month LIBOR plus 4.65%; (5) $13.7 million of Class C notes (not rated, or Class C Notes, and collectively with the Class A Notes and Class B Notes, the Secured Notes, which bear interest at three-month LIBOR plus 5.50%; and (6) $126.0 million of subordinated notes, or Subordinated Notes and collectively with the Class A Notes, Class B Notes and Class C Notes, the GF 2013-2 Notes, which do not have a stated interest rate, the proceeds of which were utilized, along with cash on hand, to refinance the existing Credit Facility. All of the GF 2013-2 Notes are scheduled to mature on September 25, 2023. As of September 30, 2013 we had retained $22.0 million of the Class A-1T Notes and 100% of the Class C Notes and Subordinated Notes. On October 1, 2013, we sold $10.0 million of the $22.0 million Class A-1T Notes that were retained in the CLO Facility II on September 25, 2013. On October 7, 2013, we sold $7.0 million of the retained Class A-1T Notes and on October 8, 2013, we sold the remaining $5.0 million of the retained Class A-1T Notes. As of September 30, 2013 and December 31, 2012, we had approximately $0 and $25.0 million available for additional borrowings under the CLO Facility II and Credit Facility, respectively.

Our investment objective is to generate current income and capital appreciation by making investments generally in the range of $10 million to $25 million primarily in debt securities and loans of U.S. based middle-market companies, which we define as those having annual earnings before interest, taxes and depreciation, or EBITDA, of between $5 million and $30 million. Our goal is to generate attractive risk-adjusted returns by assembling a broad portfolio of investments.

We invest primarily in (1) first lien senior secured loans, (2) second lien senior secured loans, (3) “one-stop” senior secured or “unitranche” loans, (4) subordinated or mezzanine loans and (5) to a lesser extent, selected

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equity co-investments in middle-market companies. We use the term “one-stop” or “unitranche” to refer to a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans. We use the term “mezzanine” to refer to a loan that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness.

We believe that the middle market offers attractive risk-adjusted returns for debt investors. Historically, we believe there has been a persistent scarcity of available capital relative to demand, which, from a lender’s perspective, has generally resulted in more favorable transaction structures, including enhanced covenant protection and increased pricing relative to larger companies. We further believe that the turmoil in the markets has exacerbated this scarcity of capital, as many traditional lenders to middle-market companies have exited the business or focused their attention on larger borrowers. In addition, middle-market companies traditionally have exhibited lower default rates and improved recoveries compared to larger borrowers and typically offer greater access to key senior managers, which we believe further enhances the attractiveness of lending to this market segment and facilitates due diligence investigations and regular monitoring.

Our investment activities are managed by our Investment Adviser. Our Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis. Under an investment advisory agreement, or the Investment Advisory Agreement, with the Investment Adviser, we pay the Investment Adviser a base management fee and an incentive fee for its services. Garrison Capital Administrator LLC, or the Administrator, provides certain administrative services and facilities necessary for us to operate, including office facilities and equipment and clerical, bookkeeping and record-keeping services, pursuant to an administration agreement, or the Administration Agreement. The Administrator oversees our financial reporting and prepares our reports to stockholders and reports required to be filed with the SEC. The Administrator also manages the determination and publication of our net asset value and the preparation and filing of our tax returns and generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others. The Administrator may retain third parties to assist in providing administrative services to us. To the extent that the Administrator outsources any of its functions, we pay the fees associated with such functions on a direct basis without any profit to the Administrator. The Administrator has retained SEI Investments Global Fund Services, Inc. to provide certain accounting and administrative services to it.

As of September 30, 2013, we held investments in 71 portfolio companies with a fair value of $411.5 million, including investments in 59 portfolio companies held through GF 2013-2. The investments held by GF 2013-2 as of September 30, 2013 consisted of senior secured loans fair valued at $328.5 million. As of that date, the loans held by GF 2013-2 (held at fair value), together with cash and other assets held by GF 2013-2, equaled approximately $365.7 million. As of September 30, 2013, our portfolio had an average investment size of approximately $5.1 million, a weighted average yield of 9.5% and a weighted average contractual maturity of 46 months.

As of December 31, 2012, we held investments in 49 portfolio companies with a fair value of $220.1 million, including investments in 45 portfolio companies held through Garrison Funding 2012-1 LLC, or GF 2012-1. The investments held by GF 2012-1 as of December 31, 2012 consisted of senior secured loans fair valued at $202.5 million and related indebtedness of $125.0 million. As of that date, the loans held by GF 2012-1 (held at fair value), together with cash and other assets held by GF 2012-1, equaled approximately $276.2 million. As of December 31, 2012, our portfolio had an average investment size of approximately $4.3 million, a weighted average yield of 9.6% and a weighted average contractual maturity of 46 months.

Revenues.  We generate revenue in the form of interest earned on the securities that we hold and capital gains and distributions, if any, on the warrants or other equity interests that we may acquire in portfolio companies. Our debt investments, whether in the form of senior secured, unitranche or mezzanine loans, typically have a term of one to seven years and bear interest at a fixed or floating rate. Interest is generally payable quarterly or semiannually, with the amortization of principal generally being deferred for several years from the date of the initial investment. In some cases, loans may have a payment-in-kind feature. The principal amount of the debt securities and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for

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providing managerial assistance and possibly consulting fees. Loan origination fees, original issue discount and market discount are recorded as a reduction of par value, and we then accrete such amounts into interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts.

Expenses.  Our primary operating expenses include the payment of (1) the base management fee and incentive fee to the Investment Adviser under the Investment Advisory Agreement; (2) the allocable portion of overhead to the Administrator under the Administration Agreement; (3) the interest expense on our outstanding debt, if any; and (4) our other operating costs, as detailed below. We bear all other costs and expenses of our operations and transactions, including:

• our organization;

• calculating our net asset value and net asset value per share (including the cost and expenses of any independent valuation firm);

• fees and expenses, including travel expenses, incurred by the Investment Adviser or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

• offerings of our common stock and other securities;

• distributions on our shares;

• transfer agent and custody fees and expenses;

• amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

• brokerage fees and commissions;

• registration fees;

• listing fees;

• taxes;

• independent director fees and expenses;

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

• the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

• costs of holding stockholder meetings;

• our fidelity bond;

• directors and officers/errors and omissions liability insurance and any other insurance premiums;

• litigation, indemnification and other non-recurring or extraordinary expenses;

• direct costs and expenses of administration and operation, including audit and legal costs;

• fees and expenses associated with marketing efforts;

• dues, fees and charges of any trade association of which we are a member; and

• all other expenses reasonably incurred by us or the Administrator in connection with administering our business, such as the allocable portion of overhead under the Administration Agreement, including rent and our allocable portion of the costs and expenses of our chief compliance officer, chief financial officer and their respective staffs.

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During periods of asset growth, we expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets and increase during periods of asset declines. Incentive fees, interest expenses and costs relating to future offerings of securities would be additive to the expenses described above.

Recent Developments

On November 5, 2013, the Board approved a distribution in the amount of $5.9 million, or $0.35 a share, which will be paid on December 27, 2013 to stockholders of record as of December 13, 2013.

From October 1, 2013 through November 5, 2013 we originated one new investment, two club deals, upsized one of our existing originated investments and closed additional consumer loan purchases for a total increase to par in our core portfolio of $43.8 million with a weighted average yield of 12.5%. From October 1, 2013 through November 5, 2013 repayments in our core portfolio consisted of the early full repayment of one investment and partial repayments for a total of $10.2 million of par with a weighted average yield of 9.6%.

From October 1, 2013 through November 5, 2013 repayments in our transitory portfolio consisted of the early full repayment of two investments and partial repayments for a total of $16.8 million of par with a weighted average yield of 8.2%.

On October 1, 2013, we sold $10.0 million of the $22.0 million Class A-1T Notes that we retained in the CLO Facility II on September 25, 2013. On October 7, 2013, we sold $7.0 million of the retained Class A-1T Notes and on October 8, 2013, we sold the remaining $5.0 million of the retained Class A-1T Notes.

On November 4, 2013, the Board established a valuation committee. The members of the valuation committee are Roy Guthrie, Cecil Martin, Bruce Shewmaker and Matthew Westwood, each of whom meets the independence standards established by the SEC and the Nasdaq Listing Rules. The valuation committee is responsible for assisting the Board in determining whether market quotations are readily available for securities held by us, the fair value of securities held by us for which market quotations are not readily available and the fair value of our assets which are not held in the form of securities. The valuation committee charter is available on our website athttp://www.garrisoncapitalbdc.com. In connection with the establishment of the valuation committee, the chairman of the valuation committee will receive an annual fee of $10,000 and the chairman of the audit committee will receive an annual fee of $10,000 (reduced from $12,500).

For the three months ending December 31, 2013, our Investment Adviser has agreed to waive that portion of its income-based incentive fee, if any, necessary for the Company’s net investment income per share plus net realized gain (loss) per share (excluding any portion of realized gains (losses) that are associated with the reversal of any portion of unrealized appreciation/depreciation attributable to periods prior to April 1, 2013) for the three months ending December 31, 2013 to equal $0.35 per share, net of fee waivers.

For the three months ending June 30, 2014, our Investment Adviser has agreed to waive that portion of its income-based incentive fee, if any, necessary for the Company’s net investment income per share plus net realized gain (loss) per share (excluding any portion of realized gains (losses) that are associated with the reversal of any portion of unrealized appreciation/depreciation attributable to periods prior to April 1, 2013) for the six months ending June 30, 2014 to equal $0.70 per share, net of fee waivers.

Market Trends

For the three months ended September 30, 2013 leveraged loan volume eased but year to date remain at record levels. Volume was driven by refinancing and recapitalization activity in the first half of the year and increased M&A activity during the three months ended September 30, 2013. Spreads in the liquid credit markets tightened at the onset of the quarter as news that the Federal Reserve’s tapering of its bond buyback program would be postponed but finished the quarter relatively flat due to the increased loan supply from M&A activity. Liquid credit markets have shown an increase in leverage and some spread compression year-over-year due to the increase of available capital.

We do not believe that the overall trends in the liquid credit markets have had a significant impact on the lower middle-market which has seen more modest pressure on spreads and is less susceptible to leverage increases. We believe that there continues to be a scarcity of capital in the lower middle-market as many traditional lenders to these companies have exited the business due to regulatory restrictions or focused their attention on larger borrowers. Sponsor business currently represents the bulk of direct lending opportunities

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which we anticipate will change if and when the economy improves. The lower middle-market continues to command significant pricing premiums and better structures than the broadly syndicated market.

Consolidated Results of Operations

The consolidated results of operations set forth below also includes historical financial information prior to our election, as of October 9, 2012, to be treated as a business development company. As a business development company and a RIC, we are subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code. In addition, our portfolio of investments consists primarily of syndicated secured loans, and, over time, we expect that such loans will represent a smaller percentage of our investment portfolio as we grow our business, these investments are repaid and we invest in a different mix of assets.

The results of operations described below may not be indicative of the results we report in future periods. Net income 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, quarterly comparisons of net income may not be meaningful.

Consolidated operating results for the three and nine months ended September 30, 2013 and September 30, 2012 are as follows:

(in thousands)	Three Months Ended September 30, 2013			Three Months Ended September 30, 2012			Three Months Variance			Nine Months Ended September 30, 2013			Nine Months Ended September 30, 2012			Nine Months Variance
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net investment income	$	5,914		$	3,489		$	2,425		$	14,001		$	7,287		$	6,714
Total investment income		9,338			5,858			3,480			22,422			18,493			3,929
Expenses		3,423			2,369			1,055			8,421			11,206			(2,785	)
Net realized gain/(loss) on investments		(5,690	)		1,022			(6,712	)		(11,041	)		2,901			(13,942	)
Net change in unrealized appreciation on investments		6,529			(1,026	)		7,555			13,867			(1,504	)		15,371

Net Investment Income

Net investment income for the three and nine months ended September 30, 2013 was $5.9 million and $14.0 million, respectively. Net investment income for the three and nine months ended September 30, 2012 was $3.5 million and $7.3 million, respectively.

Net investment income increased by $2.4 million for the three months ended September 30, 2013 from the three months ended September 30, 2012 and increased $6.7 million for the nine months ended September 30, 2013 from the nine months ended September 30, 2012 as described below under “Investment Income” and “Expenses.”

Investment Income

Investment income for the three and nine months ended September 30, 2013 was $9.3 million and $22.4 million, respectively. Investment income for the three and nine months ended September 30, 2012 was $5.9 million and $18.5 million, respectively.

Investment income increased by $3.5 million for the three months ended September 30, 2013 from the three months ended September 30, 2012 due to an increase in interest income in the amount of $3.5 million. The increase in interest income was largely driven by the increase in the average portfolio investment balance during the three months ended September 30, 2013 as compared to September 30, 2012.

Investment income increased by $4.0 million for the nine months ended September 30, 2013 from the nine months ended September 30, 2012 due to an increase in interest income in the amount of $4.3 million and an increase in other income of $0.2 million offset by a decrease in the net accretion from the amortization of discounts in the amount of $0.5 million.

The increase in interest income was largely driven by the increase in the average portfolio investment balance during the nine months ended September 30, 2013 as compared to September 30, 2012.

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Expenses

Total expenses for the three and nine months ended September 30, 2013 were $3.4 million and $8.4 million, respectively. Total expenses for the three and nine months ended September 30, 2012 were $2.4 million and $11.2 million, respectively.

Total expenses for the three months and nine months ended September 30, 2013 included total fee and expense waivers of $1.8 million and $4.0 million, respectively. Fee waivers for the three months ended September 30, 2013 were comprised of $1.9 million of management fees waived by the Investment Adviser. Fee waivers for the nine months ended September 30, 2013 were comprised of $3.8 million of management fees waived by the Investment Adviser and an aggregate $0.1 million of directors’ fees waived by the independent directors and administration expenses waived by the Administrator.

Total expenses for the three and nine months ended September 30, 2013 included $0.4 million of loss on the refinancing of senior secured notes, which consisted of debt issuance costs that were written off in connection with the execution of the CLO Facility II and the refinancing of the Credit Facility (as defined below).

Total expenses for the three and nine months ended September 30, 2012 included a $3.4 million loss on the refinancing of senior secured notes. In connection with the execution of the Credit Facility and the refinancing of Garrison Funding 2010-1 LLC, or GF 2010-1, the senior secured notes, or GF 2010-1 Notes, that comprised the collateralized loan obligation facility for which GF 2010-1 was the borrower were redeemed in accordance with the indenture governing such notes, which resulted in a loss due to the write off of deferred debt issuance costs in the amount of $2.4 million and the recognition of $1.0 million of unamortized original issue discount.

The following tables summarize our expenses, net of fee waivers and excluding the loss on refinancing of senior secured notes for the three and nine months ended September 30, 2013 and September 30, 2012:

(in thousands)	Three Months Ended September 30, 2013		Three Months Ended September 30, 2012		Three Months Variance			Nine Months Ended September 30, 2013		Nine Months Ended September 30, 2012		Nine Months Variance
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)
Interest	$	1,898	$	1,305	$	593		$	4,901	$	4,878	$	23
Management fees		—		619		(619	)		593		1,628		(1,035	)
Professional fees		356		205		151			964		662		302
Directors fees		100		75		25			234		223		11
Administrator expenses		218		50		168			487		150		337
Other expenses		425		115		310			815		312		503
	$	2,997	$	2,369	$	628		$	7,994	$	7,853	$	141

Interest expense increased $0.6 million for the three months ended September 30, 2013 from the three months ended September 30, 2012 primarily due to an increase in average debt outstanding. As of September 30, 2013 and 2012, we had $187.7 million and $125.0 million of debt outstanding, respectively.

Management fees decreased $0.6 million and $1.0 million for the three and nine months ended September 30, 2013, respectively, from the three and nine months ended September 30, 2012 as the result of the waiver of management fees for the three and nine months September 30, 2013 as discussed above. Management fees are calculated as 1.75% of gross assets, excluding cash and cash equivalents but including assets purchased with borrowed funds (as defined in the financial statements). For the three months ended March 30, 2013, the Investment Adviser waived that portion of the management fee due under the Investment Advisory Agreement in excess of a management fee equal to an annual rate of 1.50% of the average of the value of our net assets, including cash and cash equivalents (as defined in the financial statements), calculated at the end of the two most recently completed calendar quarters. For the three months ended September 30, 2013 the Investment Adviser waived all management fees.

Professional fees for the three months and nine months ended September 30, 2013 increased by $0.2 million and $0.3 million, respectively, from the three and nine months ended September 30, 2012 as a result of an increase in legal fees related to increased regulatory compliance requirements, as well as an increase in audit fees.

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Administrator expenses for the three and nine months ended September 30, 2013 increased by $0.2 million and $0.3 million, respectively, from the three and nine months ended September 30, 2012 due to the services provided by the Administrator under the Administration Agreement.

Other expenses for the three and nine months ended September 30, 2013 increased by $0.3 million and $0.5 million, respectively, from the three and nine months ended September 30, 2012 primarily as a result of premiums related to insurance policies entered into as a result of the Company executing its IPO, as well as ratings fees.

Net Realized Gain (Loss) and Unrealized Gain (Loss) on Investments

For the three and nine months ended September 30, 2013, we realized net loss on investments of $5.7 million and net loss on investments of $11.0 million, respectively.

Net realized losses for the three months ended September 30, 2013 were driven primarily by $6.0 million of realized losses incurred as a result of the early full repayment of two portfolio investments. The remaining net realized gain of $0.3 million resulted from the sale of thirteen portfolio investments, the early full repayment of four portfolio investments, one refinance and other partial repayments.

Net realized losses for the nine months ended September 30, 2013 were driven primarily by $5.7 million of realized losses incurred as a result of the distribution-in-kind of the assets of Next Generation Vending, LLC and $6.0 million of realized losses incurred as a result of the early full repayment of two portfolio investments. The remaining net realized gain of $0.7 million resulted from the early full repayment of twenty one portfolio investments, the sale of seventeen portfolio investments, one refinance and other partial repayments.

For the three and nine months ended September 30, 2012, we realized net gains on investments of $1.0 million and $2.9 million, respectively.

Net realized gains for the three months ended September 30, 2012 primarily resulted from the early full repayment of five portfolio investments and the sale of two portfolio investments. Net realized gains for the nine months ended September 30, 2012 primarily resulted from the early full repayment of twenty six portfolio investments and the sale of eight portfolio investments.

For the three and nine months ended September 30, 2013, the net change in unrealized appreciation on investments was $6.5 million and $13.9 million, respectively.

The net change in unrealized appreciation for the three months ended September 30, 2013 was driven primarily by the reversal of prior period unrealized depreciation in the amount of $6.0 million as a result of the full repayment of two portfolio investments.

The remaining net change in unrealized appreciation on investments was due to the increase in the market value of the remaining portfolio in the amount of $0.6 million offset by the reversal of prior period unrealized appreciation of $(0.1) million.

The net change in unrealized appreciation for the nine months ended September 30, 2013 was driven primarily by the $5.7 million reversal of unrealized depreciation as a result of the distribution-in-kind of the investment in Next Generation Vending, LLC, the increase in the value of one portfolio company in the amount of $1.7 million and the reversal of prior period unrealized depreciation in the amount of $5.6 million as a result of the full repayment of two portfolio investments. The remaining net change in unrealized depreciation on investments is due to the increase in the market value of the remaining portfolio in the amount of $2.0 million and the reversal of prior period unrealized depreciation of $0.3 million offset by negative credit related adjustment of two portfolio companies in the amount of $(1.4) million.

For the three and nine months ended September 30, 2012, net unrealized depreciation on investments was $(1.0) million and $(1.5) million, respectively.

The net change in unrealized depreciation for the three months ended September 30, 2012 was primarily driven by negative credit related adjustments of two portfolio investments in the amount of $(2.0) million, offset by positive market related adjustments of the remaining portfolio of investments in the amount of $1.0 million. The net change in unrealized depreciation for the nine months ended September 30, 2012 was

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primarily driven by negative credit related adjustments of four portfolio investments in the amount of $(4.9) million, offset by $1.9 million due to the reversal of prior period unrealized depreciation due to the early repayments and sales of portfolio investments, and $1.5 million as a result of the increase in the fair value of the remaining portfolio of investments primarily due to a rise in market prices for loan assets as a result of the general improvement in the credit markets.

Net Increase in Net Assets from Operations

We had a net asset value per common share outstanding on September 30, 2013 of $15.11. We had a net asset value per common share outstanding on December 31, 2012 of $16.54.

Based on 14,672,034 basic weighted average shares outstanding, the net increase in net assets from operations per share for the nine months ended September 30, 2013 was $1.15. We declared and paid a cash distribution on June 27, 2013 in the amount of $5.9 million, or $0.35 a share, and declared and paid a cash distribution on September 26, 2013 in the amount of $5.9 million, or $0.35 a share. Additionally, we declared and paid a cash distribution in the amount of $2.4 million, or $0.23 a share, and a distribution-in-kind of the investment in Next Generation Vending, LLC in the amount of $10.0 million, or $0.95 a share, on March 13, 2013.

Based on 10,498,544 units outstanding, the net increase in members’ capital from operations per unit for the nine months ended September 30, 2012 was $0.83.

Liquidity and Capital Resources

As a business development company, we distribute substantially all of our net income to our stockholders and will have an ongoing need to raise additional capital for investment purposes. We generate cash primarily from offerings of our securities, the CLO Facility II, as described below, other borrowings we may incur and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less.

In addition to proceeds from public and private offerings of securities and our CLO Facility II as of September 30, 2013 we have identified approximately forty portfolio companies with a total par value of $180.0 million and a fair value of $176.0 million which we have defined as transitory and consist of investments below the low end of our portfolio yield target of 9.0%. We intend to migrate out of these assets over time into those meeting our core portfolio yield which we define as those investments that generally yield 9.0% or greater. We view these investments as an additional source of liquidity to meet our investment objectives. For the three months ended September 30, 2013 we transitioned out of eighteen transitory assets with a total par value of $53.4 million (including partial principal repayments) and one core asset which was refinanced with a total par value of $7.1 million (HC Cable Opco, LLC) and other partial repayments totaling par of $4.4 million. Total additions to our core portfolio totaled $38.8 million of par. Total additions included six new portfolio company investments consisting of five originations totaling $30.2 million of par, a $1.0 million equity investment in a consumer lending platform, $2.5 million related to an upsize of one of our existing originated investments, $4.7 million of additional consumer loan purchases, and $0.4 million of additional fundings on outstanding revolvers.

Our primary use of funds from operations includes investments in portfolio companies, cash distributions to holders of our common stock, payments of interest on our debt, and payments of fees and other operating expenses we incur. We believe that our existing cash and cash equivalents, available borrowings and our transitory portfolio as of September 30, 2013 will be sufficient to fund our anticipated funding requirements through at least September 30, 2014. We do not expect additional equity offerings until we meet shelf eligibility requirements at the end of the first quarter of 2014.

On May 21, 2012, GF 2012-1 entered into a $150.0 million credit facility, which was amended on June 18, 2012, August 6, 2012 and June 5, 2013, with the lenders party thereto, Natixis, New York Branch, as administrative agent, and Deutsche Bank Trust Company Americas, as collateral agent and custodian. In this quarterly report on Form 10-Q, we refer to this credit facility as the “Credit Facility”. On June 5, 2013, the Company entered into an agreement to increase the size of its credit facility from $150.0 million to $175.0 million, consisting of $125.0 million of Class A-T loans and $50.0 million of Class A-R loans.

On September 25, 2013, we completed the CLO Facility II through a private placement of (1) $50.0 million of AAA(sf) rated Class A-1R Notes, which bear interest at the CP Rate or LIBOR plus 1.90%; (2)

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$111.2 million of AAA(sf) rated Class A-1T Notes, which bear interest at three-month LIBOR plus 1.80%; (3) $24.2 million of AA(sf) rated Class A-2 Notes, which bear interest at three-month LIBOR plus 3.40%; (4) $25.0 million of A(sf) rated Class B Notes, which bear interest at three-month LIBOR plus 4.65%; (5) $13.7 million of Class C Notes, which bear interest at three-month LIBOR plus 5.50%; and (6) $126.0 million Subordinated Notes, which do not have a stated interest rate, the proceeds of which were utilized, along with cash on hand, to refinance the existing Credit Facility. All of the GF 2013-2 Notes are scheduled to mature on September 25, 2023. As of September 30, 2013 we had retained $22.0 million of the Class A-1T Notes and 100% of the Class C Notes and Subordinated Notes. On October 1, 2013, we sold $10.0 million of the $22.0 million Class A-1T Notes that were retained in the CLO Facility II on September 25, 2013. On October 7, 2013, we sold $7.0 million of the retained Class A-1T Notes and on October 8, 2013, we sold the remaining $5.0 million of the retained Class A-1T Notes. As of September 30, 2013 and December 31, 2012, we had approximately $0 and $25.0 million, respectively, available for additional borrowings under the CLO Facility II and Credit Facility, respectively.

On April 2, 2013, we closed our IPO, which included the sale of 6,133,334 shares of common stock, including 800,000 shares issued pursuant to the underwriters’ exercise of the over-allotment option, at a public offering price of $15.00 per share, raising approximately $92.0 million in gross proceeds. The total proceeds that we received net of sales load were approximately $85.6 million and were approximately $84.9 million, net of offering expenses of approximately $0.6 million. Concurrent with the IPO, the Company’s directors, officers, employees and an affiliate of the Investment Adviser purchased an additional 126,901 shares through the Concurrent Private Placement at $15.00 per share, raising $1.9 million.

On May 9, 2013, our board of directors approved a distribution in the amount of approximately $5.9 million, or $0.35 a share, which was paid on June 27, 2013 to stockholders of record as of June 13, 2013.

On August 6, 2013, our board of directors approved a distribution in the amount of approximately $5.9 million, or $0.35 a share, which was paid on September 26, 2013 to stockholders of record as of September 12, 2013.

As of September 30, 2013 and December 31, 2012, we had cash and cash equivalents of $3.1 million and $21.7 million, respectively. Also, as of September 30, 2013 and December 31, 2012, we had cash and cash equivalents, restricted of $30.8 million ($44.7 million net of unsettled trades and sale of the Class A-1T Notes) and $69.9 million, respectively, held by GF 2013-2. For purposes of U.S. generally accepted accounting principles, or U.S. GAAP, we consider cash equivalents to be highly liquid financial instruments with original maturities of three months or less and cash held in overnight sweep deposit accounts.

During the nine months ended September 30, 2013, cash and cash equivalents decreased by $18.6 million as a result of net cash used in operating activities of $151.1 million offset by cash provided by financing activities in the amount of $132.5 million.

During the nine months ended September 30, 2013, cash used in operating activities resulted from purchases of investments in the amount of $344.1 million offset by repayments and sales of investments in the amount of $100.0 million and $47.0 million, respectively, a decrease in cash and cash equivalents restricted accounts in the amount of $39.1 million, an increase in due to counterparties of $5.5 million and net investment income in the amount of $14.0 million. Net cash provided by financing activities resulted from proceeds received from net capital contributions from the sale of common shares of $86.9 million and borrowings in the amount of $50.0 million on the Class A-1R Notes and $12.7 million on the Class A-1T Notes under the CLO Facility II offset by cash distributions in the amount of $14.1 million and debt issuance costs of $3.0 million.

As of December 31, 2012, we had cash and cash equivalents of $21.7 million and cash and cash equivalents, securitization accounts of $69.9 million held by GF 2012-1.

As of September 30, 2013 and December 31, 2012, we had $6.5 million and $2.0 million, respectively, of unfunded obligations with a fair value of $(0.1) million and $(0.2) million, respectively. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to

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loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of September 30, 2013 and December 31, 2012, respectively, subject to the terms of each loan’s respective credit agreement.

Portfolio Composition and Select Portfolio Information

As of September 30, 2013, we held investments in 71 portfolio companies with a fair value of $411.5 million. As of September 30, 2013, our portfolio had an average investment size of approximately $5.1 million, a weighted average yield of 9.5% and a weighted average contractual maturity of 46 months.

The following table shows select information of our portfolio for the periods from September 30, 2012 to September 30, 2013.

Summary of Portfolio characteristics ($ in millions)	September 30, 2013		June 30, 2013		March 31, 2013			December 31, 2012			September 30, 2012
Total Market Value	$	411.5	$	418.1	$	278.9		$	220.1		$	242.0
Number of portfolio companies		71.0		83		63			49			53
Average investment size(1)	$	5.1	$	4.7	$	4.4		$	4.3		$	4.3
Weighted average yield(2)(3)		9.5 %		8.8 %		8.9	%		9.6	%		9.4	%
Weighted average price(1)	$	98.6	$	97.1	$	96.4		$	93.0		$	95.6
First lien		90.8 %		93.8 %		95.2	%		98.7	%		98.7	%
Second lien		3.3 %		3.3 %		4.7	%		1.2	%		1.1	%
Consumer loans		2.2 %		1.2 %		0	%		0	%		0	%
Mezzanine		1.7 %		0 %		0	%		0	%		0	%
Equity		1.9 %		1.7 %		0.1	%		0.1	%		0.2	%
Core		57.2 %		48.3 %		36.7	%		N/A			N/A
Transitory		42.8 %		51.7 %		63.3	%		N/A			N/A
Originated(4)		26.3 %		16.0 %		17.1	%		19.5	%		20.6	%
Club(5)		15.0 %		12.8 %		6.2	%		7.8	%		8.0	%
Purchased		58.7 %		71.2 %		76.7	%		72.6	%		71.4	%
Fixed(1)		4.1 %		1.7 %		2.6	%		3.3	%		3.2	%
Floating(1)		95.9 %		98.3 %		97.4	%		96.7	%		96.8	%
Performing(1)		98.9 %		98.8 %		99.7	%		99.0	%		99.3	%
Non-performing(1)		1.1 %		1.2 %		0.3	%		1.0	%		0.7	%
Weighted average debt/EBITDA(1)(2)		3.7x		3.8x		3.6x			3.5x			3.5x
Weighted average risk rating		2.21		2.17		2.18			2.26			2.36

(1) Excludes consumer loans and equity investments.

(2) Excludes investments with a risk rating of 4, unfunded revolvers and equity investments.

(3) Excludes the impact of HC Cable Opco, LLC at Q2 2013.

(4) Originated positions include investments where we have sourced and led the execution of the deal and typically funded the entire loan.

(5) Club positions include investments where we provide direct lending to a borrower with one or two other lenders but did not source or lead the deal.

Ongoing Monitoring

We view active portfolio monitoring as a vital part of the investment process. Our Investment Adviser monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company.

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Our Investment Adviser uses several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

• assessment of success in adhering to portfolio company’s business plan and compliance with covenants;

• periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

• comparisons to other portfolio companies in the industry, if any;

• attendance at and participation in board meetings; and

• review of monthly and quarterly financial statements and financial projections for portfolio companies.

Our Investment Adviser assigns an internal rating for each of our portfolio companies. The rating scale is a numeric scale of 1 to 4 based on the credit attributes and prospects of the portfolio company’s business. In general, we use the ratings as follows:

• a rating of 1 denotes a high quality investment with no loss of principal expected;

• a rating of 2 denotes a moderate to high quality investment with no loss of principal expected;

• a rating of 3 denotes a moderate quality investment with market rates of expected loss of principal and potential non-compliance with financial covenants; and

• a rating of 4 denotes a low quality investment with an expected loss of principal. In case of risk grade 4 loans, our Investment Adviser will assign a recovery value to the loan.

The following table shows the distribution of our investments on the 1 to 4 investment performance rating scale at fair value as of September 30, 2013 and December 31, 2012.

($ in millions)	As of September 30, 2013 (unaudited)					As of December 31, 2012
	Investments at Fair Value		Percentage of Total Investments			Investments at Fair Value		Percentage of Total Investments
Risk Rating 1	$	3.8		1.0	%	$	2.6		1.2	%
Risk Rating 2		326.9		79.4			175.5		79.7
Risk Rating 3		76.1		18.5			39.7		18.0
Risk Rating 4		4.7		1.1			2.3		1.1
	$	411.5		100.0	%	$	220.1		100.0	%

Inflation

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our financial statements. However, our portfolio companies may, from time to time, experience the impact of inflation on their operating results.

Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our 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. As of September 30, 2013 and December 31, 2012, we had $6.5 million and $2.0 million of outstanding commitments to fund such investments, respectively.

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Contractual Obligations

A summary of our significant contractual payment obligations as of September 30, 2013 is as follows:

	Payments Due by Period (in millions)
	Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years		Total
CLO Facility II	$	—	$	—	$	—	$	188.4	$	188.4
Unfunded commitments(1)		6.2		—		—		—		6.2
Commitments to purchase loans		0.3		—		—		—		0.3
Total contractual obligations	$	6.5	$	—	$	—	$	188.4	$	194.9

(1) Unfunded commitments represent all amounts unfunded as of September 30, 2013. These amounts may or may not be funded to the borrowing party in the future. The unfunded commitments are related to senior secured revolving loans. We reflect this amount in the less than one-year category because the entire amount was eligible for funding as of September 30, 2013.

We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, the Investment Adviser provides us with investment advisory and management services. We have agreed to pay for these services (1) a base management fee equal to a percentage of the average adjusted value of our gross assets and (2) an incentive fee based on our performance.

We entered into the Administration Agreement on October 9, 2012 with the Administrator as our administrator. Under the Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services and provides us with other administrative services necessary to conduct our day-to-day operations.

If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

Both the Investment Advisory Agreement and the Administration Agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other.

Critical Accounting Policies

The preparation of our financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. We have identified the following as critical accounting policies.

Basis for Consolidation

Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, codified in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 946, Financial Services-Investment Companies, or ASC 946, we are precluded from consolidating any entity other than another investment company. We generally consolidate any investment company when we own 100% of its partners’ or members’ capital or equity units. ASC 946 also provides an exception to the aforementioned if the investment company has an investment in a controlled operating company that provides substantially all of its services to the investment company. Garrison Funding 2013-2 Manager LLC, or GF 2013-2 Manager, owns a 100% equity interest in GF 2013-2, which is deemed to be an investment company, and also provides collateral management services solely to GF 2013-2. As such, we have consolidated the accounts of these entities into our financial statements. As a result of this consolidation, the amounts outstanding under the CLO Facility II are treated as our indebtedness. Garrison Capital Equity Holdings LLC, Garrison Capital Equity Holdings II LLC, Walnut Hill Leasing II LLC and GLC Trust 2013-2 are 100% owned investment companies. As such, we have consolidated the accounts of these entities into our financial statements. We dissolved Garrison Capital CLO Ltd. as of April 8, 2013 and GF 2010-1 was dissolved on June 5, 2013.

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Valuation of Portfolio Investments

We value our investments in accordance with ASC, Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value. ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1 —  quoted unadjusted prices in active markets for identical investments as of the reporting date

Level 2 —  other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.)

Level 3 —  significant unobservable inputs (including the Investment Adviser’s own assumptions about the assumptions market participants would use in determining the fair values of investments)

The valuation process is conducted at the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter.

Our portfolio consists of primarily debt investments. The fair value of our investments is initially determined by investment professionals of our Investment Adviser and ultimately determined by our board of directors on a quarterly basis. Our Investment Adviser generally uses various approaches, including proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, other applicable factors for similar transactions, bid quotations obtained from other financial institutions that trade in similar investments or based on prices provided by independent third party pricing services.

The types of factors that our board of directors may take into account when verifying the price initially determined by our Investment Adviser and determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities, including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors.

Our board of directors has retained several independent valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at least once during each 12-month period. However, our board of directors does not intend to have de minimis investments of less than 0.5% of our total assets (up to an aggregate of 10% of our total assets) independently reviewed. Our board of directors is ultimately and solely responsible for determining the fair value of our assets using a documented valuation policy and consistently applied valuation process.

Due to the nature of our strategy, our portfolio includes relatively illiquid investments that are privately held. Inputs into the determination of fair value of our portfolio investments require significant management judgment or estimation. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value by our board of directors may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realized upon the disposal of such investments.

The valuation process is conducted at the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter. When an external event with respect to one of our portfolio companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by the external event to corroborate our valuation.

With respect to investments for which market quotations are not readily available, our board of directors will undertake a multi-step valuation process each quarter, as described below:

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• Our quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of our Investment Adviser responsible for credit monitoring.

• Preliminary valuation conclusions are then documented and discussed with our senior management and our Investment Adviser.

• The valuation committee of the board of directors reviews these preliminary valuations.

• At least once annually, the valuation for each portfolio investment that does not have a readily available quotation is reviewed by an independent valuation firm, subject to the de minimis exception above.

• The board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

Net assets could be materially affected if the determinations regarding the fair value of the investments were materially higher or lower than the values that are ultimately realized upon the disposal of such investments.

Investment Transactions and Related Investment Income and Expense

We record our investment transactions on a trade date basis, which is the date when we have determined that all material terms have been defined for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these transactions are reflected on the consolidated statement of operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded on the specific identification method.

We accrue interest income if we expect that ultimately we will be able to collect it. Generally, when an interest default occurs on a loan in our portfolio, or if our management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we will place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this interest. We may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. As of September 30, 2013, there was one investment in default, which was placed on non-accrual status.

Any original issue discounts, as well as any other purchase discounts or premiums on debt investments, are accreted or amortized and included in interest income over the maturity periods of the investments.

Interest Expense

Interest expense is recorded on an accrual basis and is adjusted for amortization of deferred debt issuance costs.

Other Expenses

Certain expenses related to, but not limited to, rating fees, due diligence, valuation expenses and independent collateral appraisals may arise when we make certain investments. These expenses are recognized in the consolidated statement of operations within ratings fees and other expenses as they are incurred.

Loan Origination, Facility, Commitment and Amendment Fees

We may receive loan origination, facility, commitment and amendment fees in addition to interest income from the loans during the life of the investment. We may receive origination fees upon the origination of an investment. Origination fees are initially deferred and reduced from the cost basis of the investment and subsequently accreted into interest income over the remaining stated term of the loan. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by us and are recorded on an accrual basis. Amendment fees are paid in connection with loan amendments and waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. Any such fees are included in interest income on the consolidated statement of

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operations. For the three months ended September 30, 2013 and September 30, 2012, other income in the amount of $45,414 and $30,636, respectively, was included in interest income. For the nine months ended September 30, 2013 and September 30, 2012, other income in the amount of $446,744 and $301,011, respectively, was included in interest income.

Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by our board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although we may decide to retain such capital gains for investment.

We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our board of directors authorizes, and we declare, a cash dividend or other distribution, then our stockholders who have not ‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.

No action is required on the part of a registered stockholder to have their cash dividend or other distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying American Stock Transfer & Trust Company, LLC, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share. The plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds of the sale of any fractional share of common stock.

Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends and other distributions in cash by notifying their broker or other financial intermediary of their election.

Income Tax

As a business development company, we elected to be treated as a RIC under Subchapter M of the Code for the period beginning October 9, 2012 and ending March 31, 2013. We intend to qualify for future tax years thereafter.

We comply with all RIC qualification provisions contained in the Code including certain source-of-income and asset diversification requirements as well as distribution requirements to our stockholders equal to at least 90% of “investment company taxable income.” “Investment company taxable income” is generally defined as net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses. As a RIC, we do not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we distribute to our stockholders in a timely manner. However, we are subject to U.S. federal income taxes at regular corporate tax rates on any net ordinary income or net capital gain not distributed to our stockholders assuming at least 90% of our investment company taxable income is distributed.

We may choose to retain net capital gains or any investment company taxable income, and pay the associated U.S. federal corporate income tax, including a 4% nondeductible U.S. federal excise tax. We expect to make sufficient distributions to avoid being subject to any U.S. federal excise tax.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. During the period covered by our financial statements, all of the loans in our portfolio had floating interest rates, and we expect that our loans in the future will also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate re-set provisions that adjust applicable LIBOR under such loans to current market

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rates on a quarterly basis. In addition, the CLO Facility II has a floating interest rate provision based on a cost of funds that approximates LIBOR and we expect that any other credit facilities into which we enter in the future may have floating interest rate provisions.

Assuming that the balance sheet as of September 30, 2013 covered by this analysis was to remain constant and that no actions are taken to alter our existing interest rate sensitivity, a hypothetical immediate 1% change in interest rates may affect net income by more than 1% over a one-year horizon. Although management believes that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets, the size, credit quality or composition of the assets in our portfolio and other business developments, including indebtedness under the CLO Facility II or other borrowings, that could affect net increase in net assets resulting from operations, or net income. Accordingly, we cannot assure you that actual results would not differ materially from the statement above.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts, and the collateral manager may engage in similar hedging activities with respect to the obligations of GF 2013-2, to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates. We, our Investment Adviser and the collateral manager have not hedged any of the obligations of GF 2013-2.

Item 4: Controls and Procedures.

As of the period covered by this report, we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Part II — Other Information

Item 1: Legal Proceedings.

Garrison Capital, the Investment Adviser and the Administrator are not currently subject to any material legal proceedings.

Item 1A: Risk Factors.

Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this report, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and/or operating results. In such case, our net asset value and the trading price of our common stock, or any securities we may issue, could decline, and you may lose all or part of your investment.

We are subject to risks associated with the CLO Facility II.

As a result of the CLO Facility II, we are subject to a variety of risks, including those set forth below.

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The Retained Notes are subordinated obligations of GF 2013-2.

We indirectly own all of the Subordinated Notes. We refer to the Subordinated Notes and the Class C Notes collectively as the “Retained Notes.” We consolidate the financial statements of GF 2013-2 in our consolidated financial statements and treat the Class A Notes and Class B Notes as leverage.

The Retained Notes are the most junior classes of securities issued by GF 2013-2. They are subordinated in priority of payment to every other class of notes issued by GF 2013-2 and are subject to certain payment restrictions set forth in the indenture governing the notes issued by GF 2013-2. In accordance with the priority of payment provisions of the indenture of GF 2013-2, all principal proceeds are generally required to be used to pay down every other class of notes issued by GF 2013-2 prior to the Retained Notes. In addition, the Retained Notes generally have only limited voting rights and generally do not benefit from any creditors’ rights or ability to exercise remedies under the indenture governing the notes issued by GF 2013-2. The Retained Notes are not guaranteed by another party.

The Subordinated Notes do not bear a stated rate of interest, and the Class C Notes bear interest at LIBOR plus 5.5%. We receive cash distributions on the Retained Notes only if GF 2013-2 has made all required cash interest payments on all of the Class A Notes and Class B Notes it has issued. We view the Subordinated Notes as an equity investment in the CLO Facility II and the Class C Notes as additional funding and cannot assure you that distributions on the assets held by GF 2013-2 will be sufficient to make any distributions to us or that the yield on the Retained Notes will meet our expectations.

The Subordinated Notes are unsecured and rank behind all of the secured creditors, known or unknown, of GF 2013-2, including the holders of the Class A Notes, Class B Notes and Class C Notes it has issued. Consequently, to the extent that the value of GF 2013-2’s portfolio of loan investments has been reduced as a result of conditions in the credit markets, defaulted loans, capital gains and losses on the underlying assets, prepayment or changes in interest rates, the value of the Subordinated Notes realized at their redemption could be reduced. Accordingly, the Subordinated Notes may not be paid in full and may be subject to up to 100% loss.

The Retained Notes are a highly leveraged investment.

As of September 30, 2013, GF 2013-2 owed approximately $188.4 million under the Class A Notes and Class B Notes, and the fair value of the investments held by GF 2013-2 was $328.5 million. The leveraged nature of the Retained Notes may magnify the adverse impact on the Retained Notes of changes in the market value of the investments held by GF 2013-2, changes in the distributions on those investments, defaults and recoveries on those investments, capital gains and losses on those investments, prepayments on those investments and availability, prices and interest rates of those investments. We are prepared to hold the Retained Notes for an indefinite period of time or until their stated maturity.

The interests of investors in certain of the Class A Notes and Class B Notes may not be aligned with our interests, and we may have no control over remedies.

The Class A Notes and Class B Notes rank senior in right of payment to the Retained Notes. As a result, there are circumstances in which the interests of investors in a class of notes may not be aligned with the interests of holders of the other classes of notes issued by GF 2013-2. For example, under the terms of the indenture, investors in the Class A-1R Notes and Class A-1T Notes, or together, the Class A-1 Notes, have the right to receive payments of principal and interest prior to investors in all other classes of notes.

As the holder of the Retained Notes, we are generally not entitled to exercise remedies under the indenture governing the notes issued by GF 2013-2. For as long as the Class A-1 Notes, remain outstanding, investors in the Class A-1 Notes comprise the most senior class of notes of GF 2013-2 then outstanding, or the Controlling Class, under the CLO Facility II. Upon repayment of the Class A-1 Notes, investors in the Class A-2 Notes will become the Controlling Class. Upon repayment of the Class A Notes, investors in the Class B Notes will become the Controlling Class. Upon repayment of the Class A Notes and Class B Notes, investors in the Class C Notes will become the Controlling Class. The Controlling Class has the right to act in certain circumstances with respect to the portfolio loans in ways that may benefit their interests but not in the interests of other investors in more junior classes of notes, including by exercising remedies, waiving events of default or rescinding declaration of acceleration of the notes under the indenture governing the notes issued by GF 2013-2. The Controlling Class has no obligation to consider any possible adverse effect on any other class of notes. For example, upon the occurrence and during the continuance of an event of default with

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respect to the notes issued by GF 2013-2, the trustee, Deutsche Bank Trust Company Americas, or holders of a majority of the Controlling Class may declare the principal of all the Secured Notes and all other amounts payable by GF 2013-2 to be immediately due and payable. This would have the effect of accelerating the principal on such notes and triggering a repayment obligation on the part of GF 2013-2. GF 2013-2 may not have sufficient proceeds available to enable the trustee under the indenture to repay the obligations of holders of the Retained Notes.

We cannot assure you that any remedies pursued by the Controlling Class will be in our best interests or that we will receive any payments or distributions upon an acceleration of the notes. Any failure of GF 2013-2 to make distributions on the Retained Notes, whether as a result of an event of default or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result our inability to make distributions sufficient to allow our qualification as a RIC.

GF 2013-2 may fail to meet certain asset coverage tests, which would have an adverse effect on the time of payments to us.

Under the documents governing the CLO Facility II, there are two coverage tests applicable to the Secured Notes. The first such test compares the amount of interest received on the portfolio loans held by GF 2013-2 to the amount of interest payable in respect of the Secured Notes. To meet this first test, the aggregate amount of interest received on the portfolio loans must equal, after the payment of certain fees and expenses, at least 135% of the interest payable in respect of the Class A Notes, 125% of the interest payable on the Class A Notes and the Class B Notes, taken together, and 115% of the interest payable on the Class A Notes, Class B Notes and Class C Notes, taken together. The second such test compares the aggregate principal amount of the portfolio loans to the aggregate outstanding principal amount of the Secured Notes. To meet this second test at any time, the aggregate principal amount of the portfolio loans must equal at least 173.4% of the aggregate outstanding principal amount of the Class A Notes, 156.1% of the aggregate outstanding principal amount of the Class A Notes and the Class B Notes, taken together, and 148.1% of the aggregate outstanding principal amount of the Class A Notes, Class B Notes and Class C Notes, taken together. If any coverage test is not satisfied with respect to a quarterly payment date, GF 2013-2 is required to apply available amounts to the repayment of interest on and principal of the Class A Notes, then the Class B Notes and then the Class C Notes to the extent necessary to satisfy the applicable coverage tests.

Restructurings of investments held by GF 2013-2 may decrease their value and reduce amounts payable on the Retained Notes.

GF 2013-2 Manager, as collateral manager, on behalf of GF 2013-2, has broad authority to direct and supervise the investment and reinvestment of the investments held by GF 2013-2, which may include exercising or enforcing, or refraining from exercising or enforcing, any or all of GF 2013-2’s rights in connection with the execution of amendments, waivers, modifications and other changes to the investment documentation in accordance with the collateral management agreement, and subject to the right of the Controlling Class to consent to certain amendments. During periods of economic uncertainty and recession, the incidence of amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers, modifications and other restructurings will change the terms of the investments and in some cases may result in GF 2013-2 holding assets not meeting its criteria for investments. This could adversely impact the coverage tests under the indenture governing the notes issued by GF 2013-2. Any amendment, waiver, modification or other restructuring that reduces GF 2013-2’s compliance with certain financial tests will make it more likely that GF 2013-2 will need to utilize cash to pay down the unpaid principal amount of the Secured Notes to cure any breach in such test instead of making payments on the Retained Notes. Any such use of cash would reduce distributions available and delay the timing of payments to us.

We cannot assure you that any particular restructuring strategy pursued by GF 2013-2 Manager or any successor collateral manager will maximize the value of or recovery on any investment. Any restructuring can fundamentally alter the nature of the related investment, and restructurings are not subject to the same underwriting standards that are employed in connection with the origination or acquisition of investments. Any restructuring could alter, reduce or delay the payment of interest or principal on any investment, which could delay the timing and reduce the amount of payments made to us. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments made to us.

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We may not receive cash from GF 2013-2.

We receive cash from GF 2013-2 only to the extent that we receive payments on the Retained Notes. GF 2013-2 may make payments on such notes only to the extent permitted by the payment priority provisions of the indenture governing the notes issued by GF 2013-2. This indenture generally provides that principal payments on the Retained Notes may not be made on any payment date unless all amounts owing under the Class A Notes and Class B Notes are paid in full. In addition, if GF 2013-2 does not meet the asset coverage tests or the interest coverage test set forth in the documents governing the CLO Facility II, cash would be diverted from the ordinary priority of payments to first make payments on the Secured Notes in amounts sufficient to cause such tests to be satisfied. In the event that we fail to receive cash from GF 2013-2, we could be unable to make distributions to our stockholders in amounts sufficient to maintain our status as a RIC, or at all. We also could be forced to sell investments in portfolio companies or the notes that we own at less than their fair value in order to continue making such distributions.

GF 2013-2 depends on the managerial expertise available to the collateral manager and its key personnel.

GF 2013-2’s activities are directed by GF 2013-2 Manager or any successor collateral manager. GF 2013-2 Manager has retained the Investment Adviser to furnish collateral management sub-advisory services. In our capacity as holder of the Retained Notes, we are generally not able to make decisions with respect to the management, disposition or other realization of any investment, or other decisions regarding the business and affairs of GF 2013-2. Consequently, the success of GF 2013-2 will depend, in large part, on the financial and managerial expertise of the collateral manager’s investment professionals. There can be no assurance that such investment professionals will continue to serve in their current positions or continue to be authorized persons of the collateral manager. Although such investment professionals will devote such time as they determine in their discretion is reasonably necessary to fulfill the collateral manager’s obligations to GF 2013-2 effectively, they will not devote all of their professional time to the affairs of the GF 2013-2.

Our ability to transfer the Retained Notes is limited.

The notes issued by GF 2013-2 are illiquid investments and subject to extensive transfer restrictions, and no party is under any obligation to make a market for the notes. There is no market for the notes, and we may not be able to sell or otherwise transfer the Retained Notes at their fair value, or at all, in the event that we determine to sell them. During economic downturns, notes issued in securitization transactions may experience high volatility and significant fluctuations in market value. Additionally, some potential buyers of such notes now view securitization products as an inappropriate investment, thereby reducing the number of potential buyers and/or potentially affecting liquidity in the secondary market.

In addition to the risk factors above and other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our amended registration statement on Form N-2 filed with the SEC on March 19, 2013, which could materially affect our business, financial condition and/or operating results.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.

Concurrent with the closing of the IPO, certain of our directors, officers, employees and an affiliate of the Investment Adviser purchased an additional 126,901 shares through the Concurrent Private Placement at a price of $15.00 per share, raising approximately $1.9 million of proceeds. The Concurrent Private Placement was conducted in reliance on Rule 506 under Regulation D of the Securities Act.

Item 3: Defaults Upon Senior Securities.

None.

Item 4: Mine Safety Disclosures.

Not applicable.

Item 5: Other Information.

None.

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Item 6: Exhibits.

EXHIBIT INDEX

Number	Description
10.1	Indenture dated as of September 25, 2013, among Garrison Funding 2013-2 Ltd., Garrison Funding 2013-2 LLC and Deutsche Bank Trust Company Americas (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K (File No. 814-00878), filed on September 30, 2013)
10.2	Class A-1R Note Purchase Agreement dated as of September 25, 2013, among Garrison Funding 2013-2 Ltd., Garrison Funding 2013-2 LLC, each of the Class A-1R Noteholders party thereto and Natixis, New York Branch (Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K (File No. 814-00878), filed on September 30, 2013)
10.3	Class A-1T Note Purchase Agreement dated as of September 25, 2013, among Garrison Funding 2013-2 Ltd., Garrison Funding 2013-2 LLC and Capital One, National Association (Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K (File No. 814-00878), filed on September 30, 2013)
10.4	Collateral Management Agreement dated as of September 25, 2013, by and between Garrison Funding 2013-2 Ltd. and Garrison Funding 2013-2 Manager LLC (Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K (File No. 814-00878), filed on September 30, 2013)
10.5	Sub-Collateral Management Agreement dated as of September 25, 2013, by and between Garrison Funding 2013-2 Manager LLC and Garrison Capital Advisers LLC (Incorporated by reference to Exhibit 10.5 to the registrant’s current report on Form 8-K (File No. 814-00878), filed on September 30, 2013)
31.1*	Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

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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.

	Garrison Capital Inc.
Dated: November 6, 2013	By /s/ Joseph Tansey Joseph Tansey Chief Executive Officer (Principal Executive Officer)
Dated: November 6, 2013	By /s/ Brian Chase Brian Chase Chief Financial Officer (Principal Accounting and Financial Officer)

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