UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
(Mark One) | |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016 | |
OR | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number: 814-00939
________________
HMS Income Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland (State or Other Jurisdiction of Incorporation or Organization) | 45-3999996 (I.R.S. Employer Identification No.) | |
2800 Post Oak Boulevard Suite 5000 Houston, Texas (Address of Principal Executive Offices) | 77056-6118 (Zip Code) |
(888) 220-6121
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and formal fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo þ
The issuer had 66,757,981 shares of common stock outstanding as of May 12, 2016.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item 1. | Condensed Consolidated Financial Statements: | |
Condensed Consolidated Balance Sheets | ||
Condensed Consolidated Statements of Operations | ||
Condensed Consolidated Statements of Changes in Net Assets | ||
Condensed Consolidated Statements of Cash Flows | ||
Condensed Consolidated Schedules of Investments | ||
Notes to the Condensed Consolidated Financial Statements | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
PART II — OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
Signatures | ||
Exhibit Index |
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
HMS Income Fund, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)
March 31, 2016 | December 31, 2015 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Portfolio investments at fair value: | |||||||
Non-Control/Non-Affiliate investments (amortized cost: $880,163 and $866,499 as of March 31, 2016 and December 31, 2015, respectively) | $ | 809,806 | $ | 812,205 | |||
Affiliate investments (amortized cost: $30,459 and $23,949 as of March 31, 2016 and December 31, 2015, respectively) | 32,298 | 25,303 | |||||
Control investments (amortized cost: $13,171 and $14,241 as of March 31, 2016 and December 31, 2015, respectively) | 15,728 | 15,480 | |||||
Total portfolio investments (amortized cost: $923,793 and $904,689 as of March 31, 2016 and December 31, 2015, respectively) | 857,832 | 852,988 | |||||
Cash and cash equivalents | 20,505 | 24,001 | |||||
Interest receivable | 8,248 | 7,927 | |||||
Receivable for securities sold | 11,824 | 1,995 | |||||
Prepaid and other assets | 700 | 511 | |||||
Deferred offering costs (net of accumulated amortization of $9,030 and $9,018 as of March 31, 2016 and December 31, 2015, respectively) | 296 | 1,107 | |||||
Deferred financing costs (net of accumulated amortization of $1,733 and $1,370 as of March 31, 2016 and December 31, 2015, respectively) | 4,952 | 4,883 | |||||
Total assets | $ | 904,357 | $ | 893,412 | |||
LIABILITIES | |||||||
Accounts payable and other liabilities | $ | 1,011 | $ | 624 | |||
Payable for unsettled trades | 514 | — | |||||
Stockholder distributions payable | 3,805 | 3,717 | |||||
Due to affiliates | 4,791 | 5,723 | |||||
Payable for securities purchased | 3,563 | 11,696 | |||||
Notes payable | 395,000 | 380,000 | |||||
Total liabilities | 408,684 | 401,760 | |||||
Commitments and Contingencies (Note 11) | |||||||
NET ASSETS | |||||||
Common stock, $.001 par value; 150,000,000 shares authorized, 64,661,916 and 62,382,044 issued and outstanding as of March 31, 2016 and December 31, 2015, respectively | 65 | 62 | |||||
Additional paid-in capital | 564,233 | 546,508 | |||||
Accumulated distributions in excess of net investment income | (2,662 | ) | (3,219 | ) | |||
Net unrealized (depreciation) | (65,963 | ) | (51,699 | ) | |||
Total net assets | 495,673 | 491,652 | |||||
Total liabilities and net assets | $ | 904,357 | $ | 893,412 | |||
Net asset value per share | $ | 7.67 | $ | 7.88 |
See notes to the condensed consolidated financial statements.
1
HMS Income Fund, Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended | |||||||
March 31, 2016 | March 31, 2015 | ||||||
INVESTMENT INCOME: | |||||||
Interest, fee and dividend income: | |||||||
Non-Control/Non-Affiliate investments | $ | 20,438 | $ | 11,358 | |||
Affiliate investments | 587 | 199 | |||||
Control investments | 234 | 236 | |||||
Total interest, fee and dividend income | 21,259 | 11,793 | |||||
EXPENSES: | |||||||
Interest expense | 3,710 | 1,975 | |||||
Base management and incentive fees | 4,987 | 3,365 | |||||
Administrative services expenses | 533 | 437 | |||||
Offering costs | 12 | — | |||||
Professional fees | 428 | 203 | |||||
Insurance | 47 | 49 | |||||
Other general and administrative | 328 | 232 | |||||
Expenses before fee and expense waivers | 10,045 | 6,261 | |||||
Waiver of incentive fees | (493 | ) | (358 | ) | |||
Waiver of administrative services expenses | (533 | ) | (437 | ) | |||
Total expenses, net of fee and expense waivers | 9,019 | 5,466 | |||||
NET INVESTMENT INCOME | 12,240 | 6,327 | |||||
NET REALIZED GAIN (LOSS) FROM INVESTMENTS | |||||||
Non-Control/Non-Affiliate investments | (646 | ) | 20 | ||||
Affiliate investments | — | — | |||||
Control investments | — | — | |||||
Total realized gain (loss) from investments | (646 | ) | 20 | ||||
NET REALIZED INCOME | 11,594 | 6,347 | |||||
NET UNREALIZED APPRECIATION (DEPRECIATION) | |||||||
Non-Control/Non-Affiliate investments | (16,066 | ) | 2,912 | ||||
Affiliate investments | 485 | 928 | |||||
Control investments | 1,318 | — | |||||
Total net unrealized appreciation (depreciation) | (14,263 | ) | 3,840 | ||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (2,669 | ) | $ | 10,187 | ||
PER SHARE INFORMATION - BASIC AND DILUTED | |||||||
NET INVESTMENT INCOME PER SHARE | $ | 0.19 | $ | 0.17 | |||
NET REALIZED INCOME PER SHARE | $ | 0.18 | $ | 0.18 | |||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE (EARNINGS PER SHARE) | $ | (0.04 | ) | $ | 0.28 | ||
DISTRIBUTIONS DECLARED PER SHARE | $ | 0.17 | $ | 0.17 | |||
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED | 63,230,882 | 36,265,941 |
See notes to the condensed consolidated financial statements.
2
HMS Income Fund, Inc.
Condensed Consolidated Statements of Changes in Net Assets
For the Three Months Ended March 31, 2016 and March 31, 2015
(dollars in thousands, except number of shares)
(Unaudited)
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||
Change in Net Assets from Operations: | ||||||||
Net investment income | $ | 12,240 | $ | 6,327 | ||||
Net realized gain (loss) on investments | (646 | ) | 20 | |||||
Net unrealized appreciation (depreciation) | (14,263 | ) | 3,840 | |||||
Net increase (decrease) in net assets resulting from operations | (2,669 | ) | 10,187 | |||||
Change in Net Assets from Shareholders' Distributions: | ||||||||
Distributions from net investment income | (11,037 | ) | (6,240 | ) | ||||
Distributions from net realized gain on investments | — | (20 | ) | |||||
Net decrease in net assets resulting from shareholders' distributions | (11,037 | ) | (6,260 | ) | ||||
Change in Net Assets from Capital Share Transactions: | ||||||||
Issuance of common stock, net of issuance costs | 13,461 | 87,371 | ||||||
Reinvestment of shareholder distributions | 5,794 | 2,884 | ||||||
Repurchase of common stock | (1,528 | ) | (289 | ) | ||||
Offering costs | — | (1,476 | ) | |||||
Net increase in net assets resulting from capital share transactions | 17,727 | 88,490 | ||||||
Total Increase in Net Assets | 4,021 | 92,417 | ||||||
Net Assets at beginning of period | 491,652 | 260,063 | ||||||
Net Assets at end of the period | $ | 495,673 | $ | 352,480 | ||||
NAV at end of the period | $ | 7.67 | $ | 8.57 | ||||
Common shares outstanding, beginning of period | 62,382,044 | 30,967,120 | ||||||
Issuance of common shares | 1,746,007 | 9,894,080 | ||||||
Issuance of common shares pursuant to distribution reinvestment plan | 734,373 | 325,967 | ||||||
Repurchase of common shares | (200,508 | ) | (33,842 | ) | ||||
Common shares outstanding, end of period | 64,661,916 | 41,153,325 |
See notes to the condensed consolidated financial statements.
3
HMS Income Fund, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net increase (decrease) in net assets resulting from operations | $ | (2,669 | ) | $ | 10,187 | ||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: | |||||||
Principal repayments received and proceeds from sales of investments in portfolio companies | 47,384 | 24,588 | |||||
Investments in portfolio companies | (83,139 | ) | (187,231 | ) | |||
Net unrealized (appreciation) depreciation of portfolio investments | 14,263 | (3,840 | ) | ||||
Net realized (gain) loss on sale of portfolio investments | 646 | (20 | ) | ||||
Amortization of deferred financing costs | 363 | 211 | |||||
Amortization of deferred offering costs | 12 | — | |||||
Accretion of unearned income | (2,267 | ) | (489 | ) | |||
Net payment-in-kind interest accrual | (8 | ) | (194 | ) | |||
Changes in other assets and liabilities: | |||||||
Interest receivable | (321 | ) | (1,678 | ) | |||
Prepaid and other assets | 125 | 178 | |||||
Due to affiliates | (79 | ) | 2,355 | ||||
Accounts payable and other liabilities | 315 | 60 | |||||
Payable for unsettled trades | 514 | (1,799 | ) | ||||
Net cash used in operating activities | (24,861 | ) | (157,672 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Proceeds from issuance of common stock | 14,760 | 94,552 | |||||
Redemption of common shares | (1,528 | ) | (289 | ) | |||
Payment of selling commissions and dealer manager fees | (1,051 | ) | (8,675 | ) | |||
Payment of offering costs | (301 | ) | (1,476 | ) | |||
Payment of stockholder distributions | (5,156 | ) | (2,783 | ) | |||
Repayments on notes payable | (106,000 | ) | (36,864 | ) | |||
Proceeds from notes payable | 121,000 | 118,000 | |||||
Payment of deferred financing costs | (359 | ) | (752 | ) | |||
Net cash provided by financing activities | 21,365 | 161,713 | |||||
Net increase (decrease) in cash and cash equivalents | (3,496 | ) | 4,041 | ||||
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD | 24,001 | 19,868 | |||||
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | $ | 20,505 | $ | 23,909 |
See notes to the condensed consolidated financial statements.
4
HMS Income Fund, Inc. Condensed Consolidated Schedule of Investments | |||||||||||||
As of March 31, 2016 | |||||||||||||
(dollars in thousands) (Unaudited) | |||||||||||||
Portfolio Company (1) (3) | Business Description | Type of Investment (2) (3) | Index Rate (22) | Principal (7) | Cost (7) | Fair Value | |||||||
Control Investments (6) | |||||||||||||
GRT Rubber Technologies, LLC (8) (10) (13) | Engineered Rubber Product Manufacturer | LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - December 19, 2019) | 1 month LIBOR | $ | 6,848 | $ | 6,736 | $ | 6,848 | ||||
Member Units (2,896 shares) | — | — | 6,435 | 8,880 | |||||||||
13,171 | 15,728 | ||||||||||||
Subtotal Control Investments (6) (2% of total investments at fair value) | $ | 13,171 | $ | 15,728 | |||||||||
Affiliate Investments (4) | |||||||||||||
AFG Capital Group, LLC (10) (13) | Provider of Rent-to-Own Financing Solutions and Services | 11.00% Secured Debt (Maturity Date - November 7, 2019) | None | $ | 3,240 | $ | 3,125 | $ | 3,201 | ||||
Member Units (46 shares) | — | — | 300 | 545 | |||||||||
Warrants (10 equivalent shares, Expiration - November 7, 2024) | — | — | 65 | 132 | |||||||||
3,490 | 3,878 | ||||||||||||
EIG Traverse Co-Investment, LP (9) (15) | Investment Partnership | LP Interests (EIG Traverse Co-Investment, LP) (Fully diluted 22.2%) (16) | — | — | 9,805 | 9,805 | |||||||
Freeport First Lien Loan Fund III, LP (9) (15) | Investment Partnership | LP Interests (Freeport First Lien Loan Fund III, LP) (Fully diluted 6.0%) (16) | — | — | 3,564 | 3,564 | |||||||
HW Temps LLC (8) (10) (13) | Temporary Staffing Solutions | LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity Date - July 2, 2020) | 1 month LIBOR | 2,494 | 2,433 | 2,433 | |||||||
Preferred Member Units (800 shares) (16) | — | — | 986 | 1,238 | |||||||||
3,419 | 3,671 | ||||||||||||
M.H. Corbin, LLC (10) (13) | Manufacturer and Distributor of Traffic Safety Products | 10.00% Secured Debt (Maturity Date -August 31, 2020) | None | 3,456 | 3,425 | 3,425 | |||||||
Preferred Member Units (1,000 shares) | — | 1,500 | 1,500 | ||||||||||
4,925 | 4,925 | ||||||||||||
Mystic Logistics, Inc. (10) (13) | Logistics and Distribution Services Provider for Large Volume Mailers | 12.00% Secured Debt (Maturity Date - August 15, 2019) | None | 2,362 | 2,302 | 2,362 | |||||||
Common Stock (1,468 shares) (16) | — | — | 680 | 1,348 | |||||||||
2,982 | 3,710 | ||||||||||||
SoftTouch Medical Holdings LLC (8) (10) (13) | Home Provider of Pediatric Durable Medical Equipment | LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity Date - October 31, 2019) | 1 month LIBOR | 1,425 | 1,404 | 1,425 | |||||||
Member Units (785 shares) (16) | — | — | 870 | 1,320 | |||||||||
2,274 | 2,745 | ||||||||||||
Subtotal Affiliate Investments (4) (4% of total investments at fair value) | $ | 30,459 | $ | 32,298 | |||||||||
Non-Control/Non-Affiliate Investments (5) | |||||||||||||
AccuMed Corporation (8) (11) | Medical Device Contract Manufacturer | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - October 29, 2020) | 3 month LIBOR | $ | 10,352 | $ | 10,204 | $ | 10,204 | ||||
Adams Publishing Group, LLC (8) (11) | Local Newspaper Operator | LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 7.75%, Secured Debt (Maturity - November 3, 2020) | 3 month LIBOR | 9,263 | 9,084 | 9,089 | |||||||
Ahead, LLC (8) (11) | IT Infrastructure Value Added Reseller | LIBOR Plus 6.50%, Current Coupon 7.14%, Secured Debt (Maturity - November 2, 2020) | 3 month LIBOR | 9,875 | 9,595 | 9,628 | |||||||
Allflex Holdings III Inc. (8) | Manufacturer of Livestock Identification Products | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - July 19, 2021) (14) | 3 month LIBOR | 14,922 | 15,013 | 14,343 | |||||||
AmeriTech College Operations, LLC (10) (13) | For-Profit Nursing and Healthcare College | 10.00% Secured Debt, (Maturity - January 31, 2020) | None | 375 | 375 | 375 | |||||||
10.00% Secured Debt, (Maturity - November 30, 2019) | None | 61 | 60 | 61 | |||||||||
10.00% Secured Debt, (Maturity - May 15, 2016) | None | 64 | 64 | 64 | |||||||||
Preferred Member Units (364 shares, 5.0% cumulative) (16) | — | — | 284 | 284 | |||||||||
783 | 784 | ||||||||||||
AMF Bowling Centers, Inc. (8) | Bowling Alley Operator | LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - September 18, 2021) | 3 month LIBOR | 13,812 | 13,744 | 13,605 | |||||||
AP Gaming I, LLC (8) (11) | Developer, Manufacturer, and Operator of Gaming Machines | LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - December 21, 2020) | 3 month LIBOR | 11,378 | 11,266 | 10,581 | |||||||
Apex Linen Service, Inc. (10) (13) | Industrial Launderers | 13.00% Secured Debt, (Maturity - October 30, 2022) | None | 3,000 | 2,945 | 2,945 | |||||||
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - October 30, 2022) | 1 month LIBOR | 400 | 400 | 400 | |||||||||
3,345 | 3,345 | ||||||||||||
Aptean, Inc. (8) | Enterprise Application Software Provider | LIBOR Plus 4.25% (Floor 1.00%), Current Coupon 5.25%, Secured Debt (Maturity - February 26, 2020) | 3 month LIBOR | 4,404 | 4,404 | 4,296 | |||||||
Arcus Hunting, LLC (8) (11) | Manufacturer of Bowhunting and Archery Products and Accessories | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - November 13, 2019) | 3 month LIBOR | 5,987 | 5,859 | 5,915 | |||||||
Artel, LLC (8) | Provider of Secure Satellite Network and IT Solutions | LIBOR Plus 7.00% (Floor 1.25%), 7.25% Current/1.0% PIK, Current Coupon 8.25%, Secured Debt (Maturity - November 27, 2017) | 3 month LIBOR | 3,259 | 3,199 | 2,786 | |||||||
ATX Networks Corp. (8) (9) | Provider of Radio Frequency Management Equipment | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - June 11, 2021) | 3 month LIBOR | 14,888 | 14,619 | 14,739 | |||||||
BarFly Ventures, LLC (11) | Casual Restaurant Group | 12.00% Secured Debt (Maturity Date - August 30, 2020) | None | 1,374 | 1,350 | 1,254 | |||||||
Warrants (.364 equivalent shares, Expiration - August 31, 2025) | — | — | 158 | 80 | |||||||||
Options (.731 equivalent shares) | — | — | 133 | 158 | |||||||||
1,641 | 1,492 | ||||||||||||
Berry Aviation, Inc. (11) | Airline Charter Service Operator | 12.00% Current / 1.75% PIK Secured Debt (Maturity Date - January 30, 2020) (14) | None | 1,407 | 1,387 | 1,395 | |||||||
Common Stock (138 shares) | — | — | 100 | 122 | |||||||||
1,487 | 1,517 | ||||||||||||
Bioventus, LLC (8) (11) | Production of Orthopedic Healing Products | LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.00%, Secured Debt (Maturity - April, 10, 2020) (14) | 1 month LIBOR | 7,000 | 6,893 | 6,895 | |||||||
Blackbrush Oil and Gas LP (8) | Oil & Gas Exploration | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - July 30, 2021) (14) | 3 month LIBOR | 12,085 | 11,669 | 9,356 | |||||||
Blackhawk Specialty Tools LLC (8) | Oilfield Equipment & Services | LIBOR Plus 5.25% (Floor 1.25%), Current Coupon 6.50%, Secured Debt (Maturity - August 1, 2019) | 3 month LIBOR | 8,380 | 7,916 | 6,914 | |||||||
Blue Bird Body Company (8) | School Bus Manufacturer | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - June 26, 2020) | 3 month LIBOR | 4,987 | 4,930 | 4,940 | |||||||
Bluestem Brands, Inc. (8) (9) | Multi-Channel Retailer of General Merchandise | LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 6, 2020) | 3 month LIBOR | 14,417 | 14,143 | 12,777 | |||||||
Brightwood Capital Fund III, LP (9) (15) | Investment Partnership | LP Interests (Brightwood Capital Fund III, LP) (Fully diluted .52%) (16) | — | — | 3,825 | 3,663 | |||||||
Brundage-Bone Concrete Pumping, Inc. | Construction Services Provider | 10.38% Secured Bond (Maturity - September 1, 2021) (14) | None | 12,000 | 12,099 | 12,000 | |||||||
Buca C, LLC (8) (10) (13) | Casual Restaurant Group | LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - June 30, 2020) | 1 month LIBOR | 17,020 | 16,722 | 17,020 | |||||||
Preferred Member Units (4 units, 6.0% cumulative) | — | — | 2,400 | 3,846 | |||||||||
19,122 | 20,866 | ||||||||||||
CAI Software, LLC (10) (13) | Provider of Specialized Enterprise Resource Planning Software | 12.00% Secured Debt (Maturity Date - October 10, 2019) | None | 1,085 | 1,061 | 1,085 | |||||||
Member Units (16,339 shares) | — | — | 163 | 325 | |||||||||
1,224 | 1,410 | ||||||||||||
CJ Holding Company (8) | Oil and Gas Equipment and Services | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - March 24, 2020) | 1 month LIBOR | 5,940 | 5,212 | 2,643 | |||||||
CapFusion Holding, LLC (9) (10) (13) | Business Lender | 13.00% Secured Debt (Maturity Date - March 25, 2021) | None | 2,400 | 2,072 | 2,073 | |||||||
Warrants (400 equivalent shares, Expiration - March 24, 2026) | — | — | 300 | 300 | |||||||||
2,372 | 2,373 | ||||||||||||
Cengage Learning Acquisitions, Inc. (8) | Provider of Educational Print and Digital Services | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - March 31, 2020) | 1 month LIBOR | 8,513 | 8,493 | 8,490 | |||||||
Cenveo Corporation | Provider of Commercial Printing, Envelopes, Labels, Printed Office Products | 6.00% Secured Bond (Maturity - August 1, 2019) | None | 10,000 | 8,486 | 7,275 | |||||||
Charlotte Russe, Inc. (8) | Fast-Fashion Retailer to Young Women | LIBOR Plus 5.50% (Floor 1.25%), Current Coupon 6.75%, Secured Debt (Maturity - May 22, 2019) | 3 month LIBOR | 15,101 | 14,868 | 8,025 | |||||||
Clarius BIGS, LLC (11) (13) (18) | Prints & Advertising Film Financing | 15.00% PIK Secured Debt (Maturity - January 5, 2015) (18) | None | 2,429 | 2,171 | 291 | |||||||
20.00% PIK Secured Debt (Maturity - January 5, 2015) (18) | None | 878 | 785 | 104 | |||||||||
2,956 | 395 | ||||||||||||
Compuware Corporation (8) | Provider of Software and Supporting Services | LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - December 15, 2019) | 3 month LIBOR | 14,803 | 14,419 | 14,335 | |||||||
Covenant Surgical Partners, Inc. | Ambulatory Surgical Centers | 8.75% Secured Debt (Maturity - August 1, 2019) | None | 9,500 | 9,500 | 9,120 | |||||||
CRGT, Inc. (8) | Provider of Custom Software Development | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - December 18, 2020) | 3 month LIBOR | 11,550 | 11,348 | 11,521 | |||||||
CST Industries, Inc. (8) | Storage Tank Manufacturer | LIBOR Plus 6.25% (Floor 1.50%), Current Coupon 7.75%, Secured Debt (Maturity - May 22, 2017) | 3 month LIBOR | 1,871 | 1,871 | 1,857 | |||||||
Datacom, LLC (10) (13) | Technology and Telecommunications Provider | 5.25%/5.25% PIK, Current Coupon 10.50% Secured Debt (Maturity - May 30, 2019) | None | 1,245 | 1,226 | 1,144 | |||||||
Class A Preferred Member Units (1,530 units, 15.0% cumulative) (16) | — | — | 131 | 136 | |||||||||
Class B Preferred Member Units (717 units) | — | — | 670 | 511 | |||||||||
2,027 | 1,791 | ||||||||||||
Digital River, Inc. (8) | Provider of Outsourced e-Commerce Solutions and Services | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - February 12, 2021) | 3 month LIBOR | 14,586 | 14,460 | 14,312 | |||||||
ECP-PF Holdings Groups, Inc. (11) | Fitness Club Operator | LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - November 26, 2019) | 3 month LIBOR | 1,875 | 1,861 | 1,832 | |||||||
East West Copolymer & Rubber, LLC (10) (13) | Manufacturer of Synthetic Rubbers | 12.00% Secured Debt (Maturity Date - October 17, 2019) | None | 2,400 | 2,339 | 2,339 | |||||||
Warrants (627,697 equivalent shares, Expiration - October 15, 2024) | — | — | 10 | 13 | |||||||||
2,349 | 2,352 | ||||||||||||
Energy & Exploration Partners, LLC (18) | Oil & Gas Exploration and Production | LIBOR plus 6.75% (Floor 1.00%), Current Coupon 7.75%, Secured Debt (Maturity - January 22, 2019) (8) (18) | 3 month LIBOR | 9,900 | 8,638 | 1,171 | |||||||
LIBOR plus 10.00% (Floor 1.00%), Current coupon 11.0% Secured Debt (Maturity - September 7, 2016) (8) | 1 month LIBOR | 609 | 596 | 607 | |||||||||
9,234 | 1,778 | ||||||||||||
Evergreen Skills Lux S.á r.l. (d/b/a Skillsoft) (8) (9) | Technology-Based Performance Support Solutions | LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - April 28, 2022) (14) | 3 month LIBOR | 10,902 | 10,396 | 5,177 | |||||||
Extreme Reach, Inc. (8) | Integrated TV and Video Advertising Platform | LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - February 7, 2020) | 3 month LIBOR | 6,587 | 6,542 | 6,576 | |||||||
Flavors Holdings, Inc. (8) | Global Provider of Flavoring and Sweetening Products and Solutions | LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - April 3, 2020) | 3 month LIBOR | 12,272 | 11,612 | 11,045 | |||||||
Fram Group Holdings, Inc. (8) | Manufacturer of Automotive Maintenance Products | LIBOR Plus 5.50% (Floor 1.50%), Current Coupon 7.00%, Secured Debt (Maturity - July 29, 2017) | 1 month LIBOR | 7,776 | 7,519 | 7,180 | |||||||
GST Autoleather, Inc. (8) | Automotive Leather Manufacturer | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - July 10, 2020) | 3 month LIBOR | 11,845 | 11,702 | 11,430 | |||||||
Guerdon Modular Holdings, Inc. (10) (13) | Multi-Family and Commercial Modular Construction Company | 13.00% Secured Debt (Maturity - August 13, 2019) | None | 2,600 | 2,549 | 2,575 | |||||||
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - August 13, 2019) (8) | 1 month LIBOR | 240 | 235 | 235 | |||||||||
Common Stock (53,008 shares) | — | — | 746 | 302 | |||||||||
3,530 | 3,112 | ||||||||||||
Guitar Center, Inc. | Musical Instruments Retailer | 6.50% Secured Bond (Maturity - April 15, 2019) | None | 15,015 | 13,879 | 13,514 | |||||||
Halcon Resources Corporation | Oil & Gas Exploration & Production | 9.75% Unsecured Bond (Maturity - July 15, 2020) (17) | None | 3,000 | 2,645 | 533 | |||||||
Hojeij Branded Foods, Inc. (8) (11) | Multi-Airport, Multi-Concept Restaurant Operator | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity Date - July 28, 2021) | 3 month LIBOR | 5,473 | 5,425 | 5,408 | |||||||
Horizon Global Corporation (8) | Auto Parts Manufacturer | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity Date - June 30, 2021) | 1 month LIBOR | 12,513 | 12,309 | 12,043 | |||||||
Hunter Defense Technologies, Inc. (8) | Provider of Military and Commercial Shelters and Systems | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity Date - August 5, 2019) | 1 month LIBOR | 10,495 | 10,400 | 8,658 | |||||||
Hygea Holdings Corp. (8) (11) | Provider of Physician Services | LIBOR Plus 9.25%, Current Coupon 9.87% Secured Debt (Maturity Date - February 24, 2019) | 3 Month LIBOR | 8,000 | 7,342 | 7,342 | |||||||
Warrants (4,880,735 equivalent shares, Expiration - February 24, 2023) | — | — | 369 | 369 | |||||||||
7,711 | 7,711 | ||||||||||||
ICON Health and Fitness, Inc. | Producer of Fitness Products | 11.88% Secured Bond (Maturity - October 15, 2016) | None | 14,337 | 14,203 | 12,975 | |||||||
iEnergizer Limited (8) (9) | Provider of Business Outsourcing Solutions | LIBOR 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - May 1, 2019) | 1 month LIBOR | 4,155 | 4,150 | 3,635 | |||||||
Indivior Finance, LLC (8) (9) | Specialty Pharmaceutical Company Treating Opioid Dependence | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 19, 2019) | 3 month LIBOR | 9,375 | 8,907 | 8,938 | |||||||
Industrial Container Services, LLC (8) (11) | Steel Drum Reconditioner | LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - December 31, 2018) | 3 month LIBOR | 4,974 | 4,920 | 4,920 | |||||||
Inn of the Mountain Gods Resort and Casino | Hotel & Casino Owner & Operator | 9.25% Secured Bond (Maturity - November 30, 2020) | None | 10,749 | 10,558 | 9,943 | |||||||
Intertain Group Limited (8) (9) | Business-to-Consumer Online Gaming Operator | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - April 8, 2022) | 1 month LIBOR | 9,677 | 9,530 | 9,653 | |||||||
iPayment, Inc. (8) | Provider of Merchant Acquisition | LIBOR Plus 5.25% (Floor 1.50%), Current Coupon 6.75%, Secured Debt (Maturity - May 8, 2017) | 3 month LIBOR | 15,115 | 14,989 | 14,445 | |||||||
iQor US Inc. (8) | Business Process Outsourcing Services Provider | LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - April 1, 2021) | 3 month LIBOR | 7,817 | 7,330 | 6,410 | |||||||
IronGate Energy Services, LLC | Oil and Gas Services | 11.00% Secured Bond (Maturity - July 1, 2018) | None | 5,825 | 5,828 | 1,398 | |||||||
Jackmont Hospitality, Inc. (8) (11) | Franchisee of Casual Dining Restaurants | LIBOR Plus 4.25% (Floor 1.00%)/ 2.50% PIK , Current Coupon 7.75%, Secured Debt (Maturity Date - May 26, 2021) | 1 month LIBOR | 8,904 | 8,869 | 8,520 | |||||||
Joerns Healthcare, LLC (8) | Manufacturer and Distributor of Health Care Equipment & Supplies | LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - May 9, 2020) | 3 month LIBOR | 4,401 | 4,382 | 4,362 | |||||||
JSS Holdings, Inc. (8) | Aircraft Maintenance Program Provider | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity Date - August 31, 2021) | 3 month LIBOR | 14,381 | 14,060 | 13,662 | |||||||
Kellermeyer Bergensons Services, LLC (8) | Outsourced Janitorial Services to Retail/Grocery Customers | LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - April 29, 2022) (14) | 3 month LIBOR | 14,700 | 14,594 | 13,965 | |||||||
Kendra Scott, LLC (8) | Jewelry Retail Stores | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity Date - July 17, 2020) | 3 month LIBOR | 9,750 | 9,664 | 9,726 | |||||||
Keypoint Government Solutions, Inc. (8) | Provider of Pre-Employment Screening Services | LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity - November 13, 2017) | 3 month LIBOR | 1,965 | 1,958 | 1,955 | |||||||
LaMi Products, LLC (8) (11) | General Merchandise Distribution | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - September 16, 2020) | 3 month LIBOR | 10,735 | 10,534 | 10,735 | |||||||
Larchmont Resources, LLC (8) | Oil & Gas Exploration & Production | LIBOR Plus 8.75% (Floor 1.00%), Current Coupon 9.75%, Secured Debt (Maturity - August 7, 2019) | 3 month LIBOR | 13,230 | 11,956 | 6,086 | |||||||
Legendary Pictures Funding, LLC (8) (11) | Producer of TV, Film, and Comic Content | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 22, 2020) | 3 month LIBOR | 7,500 | 7,374 | 7,369 | |||||||
LJ Host Merger Sub, Inc. (8) | Managed Services and Hosting Provider | LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - December 13, 2019) | 3 month LIBOR | 5,053 | 5,041 | 5,003 | |||||||
MediMedia USA, Inc. (8) | Provider of Healthcare Media and Marketing | LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - November 20, 2018) | 3 month LIBOR | 11,904 | 11,829 | 11,636 | |||||||
Milk Specialties Company (8) | Processor of Nutrition Products | LIBOR Plus 7.00% (Floor 1.25%), Current Coupon 8.25%, Secured Debt (Maturity - November 9, 2018) | 3 month LIBOR | 4,303 | 4,267 | 4,311 | |||||||
Minute Key, Inc. (10) (13) | Operator of Automated Key Duplication Kiosk | 10.00% Current / 2.00% PIK Secured Debt (Maturity Date - September 19, 2019) (14) | None | 3,846 | 3,743 | 3,743 | |||||||
Warrants (359,352 equivalent shares, Expiration - May 20, 2025) | — | — | 70 | 70 | |||||||||
3,813 | 3,813 | ||||||||||||
Mood Media Corporation (8) (9) | Provider of Electronic Equipment | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - May 1, 2019) | 3 month LIBOR | 14,937 | 14,918 | 13,987 | |||||||
New Media Holdings II LLC (8) (9) | Local Newspaper Operator | LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - June 4, 2020) | 3 month LIBOR | 14,819 | 14,666 | 14,494 | |||||||
North American Lifting Holdings, Inc. (8) | Crane Service Provider | LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 5.50%, Secured Debt (Maturity - November 27, 2020) | 3 month LIBOR | 1,091 | 818 | 815 | |||||||
North Atlantic Trading Company, Inc. (8) | Marketer/Distributor of Tobacco | LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity -January 13, 2020) | 1 month LIBOR | 10,989 | 10,993 | 10,879 | |||||||
Novitex Acquisition, LLC (8) | Provider of Document Management Services | LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.50%, Secured Debt (Maturity - July 7, 2020) | 3 month LIBOR | 11,558 | 11,324 | 10,518 | |||||||
Panolam Industries International, Inc. (8) | Decorative Laminate Manufacturer | LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.50%, Secured Debt (Maturity - August 23, 2017) | 1 month LIBOR | 7,291 | 7,238 | 7,219 | |||||||
Paris Presents, Inc. (8) | Branded Cosmetic and Bath Accessories | LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - December 31, 2021) (14) | 1 month LIBOR | 7,500 | 7,369 | 7,350 | |||||||
Parq Holdings, LP (8) (9) (12) | Hotel and Casino Operator | LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - December 17, 2020) | 1 month LIBOR | 12,500 | 12,359 | 11,719 | |||||||
Permian Holdings, Inc. | Storage Tank Manufacturer | 10.50% Secured Bond (Maturity - January 15, 2018) | None | 6,885 | 5,917 | 2,410 | |||||||
Pernix Therapeutics Holdings, Inc. (11) | Pharmaceutical Royalty - Anti-Migraine | 12.00% Secured Bond (Maturity - August 1, 2020) | None | 3,104 | 3,073 | 2,906 | |||||||
Pike Corporation (8) | Construction and Maintenance Services for Electric Transmission and Distribution Infrastructure | LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - June 22, 2022) (14) | 3 month LIBOR | 13,334 | 13,045 | 13,223 | |||||||
Polyconcept Financial B.V. (8) | Promotional Products to Corporations and Consumers | LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - June 28, 2019) | 1 month LIBOR | 5,312 | 5,304 | 5,246 | |||||||
Premier Dental Services, Inc. (8) | Dental Care Services | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - November 1, 2018) | 3 month LIBOR | 4,511 | 4,492 | 4,082 | |||||||
Prowler Acquisition Corporation (8) | Specialty Distributor to the Energy Sector | LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 5.50%, Secured Debt (Maturity - January 28, 2020) | 3 month LIBOR | 9,407 | 8,182 | 6,585 | |||||||
Raley's, Inc. (8) | Family-Owned Supermarket Chain in California | LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - May 18, 2022) | 3 month LIBOR | 5,029 | 4,937 | 5,016 | |||||||
RCHP, Inc. (8) | Region Non-Urban Hospital Owner/Operator | LIBOR Plus 10.25% (Floor 1.00%), Current Coupon 11.25%, Secured Debt (Maturity - October 23, 2019) (14) | 2 month LIBOR | 15,072 | 14,700 | 15,223 | |||||||
Renaissance Learning, Inc. (8) | Technology-based K-12 Learning Solutions | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - April 11, 2022) (14) | 3 month LIBOR | 12,950 | 12,506 | 11,558 | |||||||
RGL Reservoir Operations, Inc. (8) (9) | Oil & Gas Equipment & Services | LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - August 13, 2021) | 3 month LIBOR | 3,940 | 3,844 | 1,005 | |||||||
RLJ Entertainment, Inc. (8) (11) | Movie and TV Programming Licensee and Distributor | LIBOR Plus 8.75% (Floor .25%), Current Coupon 9.37%, Secured Debt (Maturity - September 11, 2019) | 3 month LIBOR | 8,046 | 7,791 | 7,916 | |||||||
RM Bidder, LLC (11) | Acquisition Vehicle | Common Stock (1,854 shares) | — | — | 31 | 29 | |||||||
Series A Warrants (124,915 equivalent shares, Expiration - October 20, 2025) | — | — | 284 | 200 | |||||||||
Series B Warrants (93,686 equivalent shares, Expiration - October 20, 2025) | — | — | — | — | |||||||||
315 | 229 | ||||||||||||
Sage Automotive Interiors, Inc (8) | Automotive Textiles Manufacturer | LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 8, 2021) (14) | 3 month LIBOR | 5,000 | 4,958 | 4,950 | |||||||
Salient Partners, LP (8) | Provider of Asset Management Services | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - June 9, 2021) | 1 month LIBOR | 7,369 | 7,237 | 7,148 | |||||||
Sorenson Communications, Inc. | Manufacturer of Communication Products for Hearing Impaired | 9.00% Secured Bond (Maturity - October 31, 2020) (14) | None | 11,710 | 11,246 | 10,656 | |||||||
Sotera Defense Solutions, Inc. (8) | Defense Industry Intelligence Services | LIBOR Plus 7.50% (Floor 1.50%), Current Coupon 9.00%, Secured Debt (Maturity - April 21, 2017) | 3 month LIBOR | 3,440 | 3,350 | 3,182 | |||||||
Stardust Finance Holdings, Inc. (8) | Manufacturer of Diversified Building Products | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - March 13, 2022) | 3 month LIBOR | 2,475 | 2,420 | 2,456 | |||||||
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity - March 13, 2023) (14) | 3 month LIBOR | 5,000 | 4,412 | 4,875 | |||||||||
6,832 | 7,331 | ||||||||||||
Synagro Infrastructure Company, Inc. (8) | Waste Management Services | LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - August 22, 2020) | 3 month LIBOR | 2,704 | 2,684 | 2,298 | |||||||
TaxAct, Inc. (8) | Provider of Tax Preparation Solutions | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - January 3, 2023) | 1 month LIBOR | 9,000 | 8,798 | 8,775 | |||||||
Teleguam Holdings, LLC (8) | Cable and Telecom Services Provider | LIBOR Plus 7.50% (Floor 1.25%), Current Coupon 8.75%, Secured Debt (Maturity - June 10, 2019) (14) | 1 month LIBOR | 3,000 | 3,016 | 2,978 | |||||||
Templar Energy, LLC (8) | Oil & Gas Exploration & Production | LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 25, 2020) (14) | 3 month LIBOR | 3,000 | 2,983 | 338 | |||||||
Tervita Corporation (8) (9) | Oil and Gas Environmental Services | LIBOR Plus 5.00% (Floor 1.25%), Current Coupon 6.25%, Secured Debt (Maturity - May 15, 2018) | 3 month LIBOR | 1,003 | 1,008 | 847 | |||||||
The Topps Company, Inc. (8) | Trading Cards & Confectionary | LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - October 2, 2018) | 3 month LIBOR | 978 | 972 | 960 | |||||||
TOMS Shoes, LLC (8) | Global Designer, Distributor, and Retailer of Casual Footwear | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - October 30, 2020) | 3 month LIBOR | 4,950 | 4,553 | 3,261 | |||||||
Travel Leaders Group, LLC (8) (12) | Travel Agency Network Provider | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 7, 2020) | 3 month LIBOR | 16,693 | 16,594 | 16,631 | |||||||
Unirush LLC (10) (13) | Provider of Prepaid Debt Card Solutions | 12.00 Secured Debt (Maturity Date - February 1, 2019) | None | 3,000 | 2,647 | 2,647 | |||||||
Warrants (111,181 equivalent shares, Expiration - February 2, 2026) | — | — | 313 | 313 | |||||||||
2,960 | 2,960 | ||||||||||||
USJ-IMECO Holding Company, LLC (8) | Marine Interior Design and Installation | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 16, 2020) | 3 month LIBOR | 7,847 | 7,829 | 7,730 | |||||||
Valley Healthcare Group, LLC (8) (10) (13) | Provider of Durable Medical Equipment | LIBOR Plus 12.50% (Floor .50%), Current Coupon 13.00%, Secured Debt (Maturity - December 29, 2020) | 1 month LIBOR | 2,600 | 2,550 | 2,550 | |||||||
Vision Solutions, Inc. (8) | Provider of Information Availability Software | LIBOR Plus 6.00% (Floor 1.50%), Current Coupon 7.00%, Secured Debt (Maturity - July 23, 2016) | 1 month LIBOR | 1,185 | 1,186 | 1,144 | |||||||
LIBOR Plus 8.00% (Floor 1.50%), Current Coupon 9.50%, Secured Debt (Maturity - July 23, 2017) (14) | 1 month LIBOR | 875 | 872 | 809 | |||||||||
2,058 | 1,953 | ||||||||||||
Vivid Seats, LLC (8) | Provider of Online Secondary Ticket Marketplace | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - March 1, 2022) | 1 month LIBOR | 5,000 | 4,654 | 4,681 | |||||||
Volusion, LLC (10) | Provider of Online Software-as-a-Service eCommerce Solutions | 10.50% Secured Debt (Maturity Date - January 24, 2020) | None | 7,500 | 6,895 | 6,895 | |||||||
Preferred Member Units (2,090,001 shares) | — | — | 6,000 | 6,000 | |||||||||
Warrants (407,408 equivalent shares, Expiration - January 26, 2025) | — | — | 600 | 600 | |||||||||
13,495 | 13,495 | ||||||||||||
Worley Claims Services, LLC (8) (11) | Insurance Adjustment Management and Services Provider | LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 31, 2020) | 1 month LIBOR | 6,419 | 6,368 | 6,196 | |||||||
YP Holdings LLC (8) | Online and Offline Advertising Operator | LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - June 4, 2018) | 1 month LIBOR | 12,347 | 14,281 | 13,415 | |||||||
Subtotal Non-Control/Non-Affiliate Investments (5) (94% of total portfolio investments at fair value) | $ | 880,163 | $ | 809,806 | |||||||||
Total Portfolio Investments | $ | 923,793 | $ | 857,832 | |||||||||
Short Term Investments (20) | |||||||||||||
Fidelity Institutional Money Market Funds | — | Prime Money Market Portfolio, Class II Shares (21) | — | — | $ | 4,615 | $ | 4,615 | |||||
US Bank Money Market Account (21) | — | — | — | — | 5,284 | 5,284 | |||||||
UMB Bank Money Market Account (21) | — | — | — | — | 4,334 | 4,334 | |||||||
Total Short Term Investments | $ | 14,233 | $ | 14,233 |
(1) All investments are Middle Market portfolio investments, unless otherwise noted. All of the Company's assets are encumbered as security for the Company's credit agreements. See Note 4 - Borrowings.
(2) Debt investments are income producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.
(3) See Note 3 - Fair Value Hierarchy for Investments for summary geographic location of portfolio companies.
(4) Affiliate investments are generally defined by the 1940 Investment Company Act of 1940, as amended (the “1940 Act”), as investments in which between 5% and 25% of the voting securities are owned, or an investment in an investment company’s investment adviser, and the investments are not classified as Control investments.
(5) Non-Control/Non-Affiliate investments are generally defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments.
(6) Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
(7) Principal is net of repayments. Cost represents amortized cost which is net of repayments and adjusted for the amortization of premiums and/or accretion of discounts, as applicable.
(8) Index based floating interest rate is subject to contractual minimum interest rates.
(9) The investment is not a qualifying asset in an eligible portfolio company under the 1940 Act. A business development company (“BDC”) may not acquire any asset other than qualifying assets in eligible portfolio companies unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC's total assets. As of March 31, 2016, approximately 12.9% of the Company's investments were considered non-qualifying.
(10) Investment is classified as a Lower Middle Market investment.
(11) Investment is classified as a Private Loan portfolio investment.
(12) Investment or portion of investment is under contract to purchase and met trade date accounting criteria as of March 31, 2016. Settlement occurred or is scheduled to occur after March 31, 2016.
(13) Investment serviced by Main Street pursuant to servicing arrangements with the Company.
(14) Second lien secured debt investment.
(15) Investment is classified as an Other Portfolio investment.
(16) Income producing through dividends or distributions.
(17) Unsecured debt investment.
(18) Investment is on non-accrual status as of March 31, 2016.
(19) Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.
(20) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less.
(21) Effective yield as of March 31, 2016 was approximately 0.01%.
(22) The 1, 2, 3, and 6-month London Interbank Offered Rate ("LIBOR") rates were 0.44%, 0.52%, 0.63% and 0.90%, respectively, as of March 31, 2016. The actual LIBOR rate for each loan listed may not be the applicable LIBOR rate as of March 31, 2016, as the loan may have been priced or repriced based on a LIBOR rate prior to or subsequent to March 31, 2016. The prime rate was 3.50% as of March 31, 2016.
See notes to the condensed consolidated financial statements.
5
HMS Income Fund, Inc. Condensed Consolidated Schedule of Investments | |||||||||||||
As of December 31, 2015 | |||||||||||||
(dollars in thousands) | |||||||||||||
Portfolio Company (1) (3) | Business Description | Type of Investment (2) (3) | Index Rate (22) | Principal (7) | Cost (7) | Fair Value | |||||||
Control Investments (6) | |||||||||||||
GRT Rubber Technologies, LLC (8) (10) (13) | Engineered Rubber Product Manufacturer | LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - December 19, 2019) | 1 month LIBOR | $ | 7,941 | $ | 7,806 | $ | 7,806 | ||||
Member Units (2,896 shares) | — | — | 6,435 | 7,674 | |||||||||
14,241 | 15,480 | ||||||||||||
Subtotal Control Investments (6) (2% of total portfolio investments at fair value) | $ | 14,241 | $ | 15,480 | |||||||||
Affiliate Investments (4) | |||||||||||||
AFG Capital Group, LLC (10) (13) | Provider of Rent-to-Own Financing Solutions and Services | 11.00% Secured Debt (Maturity Date - November 7, 2019) | None | $ | 3,240 | $ | 3,118 | $ | 3,198 | ||||
Member Units (46 shares) | — | — | 300 | 505 | |||||||||
Warrants (10 equivalent shares, Expiration - November 7, 2024) | — | — | 65 | 122 | |||||||||
3,483 | 3,825 | ||||||||||||
EIG Traverse Co-Investment, LP (9) (15) | Investment Partnership | LP Interests (EIG Traverse Co-Investment, LP) (Fully diluted 6.6%) (16) | — | — | 4,755 | 4,755 | |||||||
Freeport First Lien Loan Fund III, LP (9) (15) | Investment Partnership | LP Interests (Freeport First Lien Loan Fund III, LP) (Fully diluted 6.4%) (16) | — | — | 2,077 | 2,077 | |||||||
HW Temps LLC (8) (10) (13) | Temporary Staffing Solutions | LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity Date - July 2, 2020) | 1 month LIBOR | 2,494 | 2,430 | 2,430 | |||||||
Member Units (800 shares) | — | — | 986 | 986 | |||||||||
3,416 | 3,416 | ||||||||||||
M.H. Corbin LLC (10) (13) | Manufacturer and Distributor of Traffic Safety Products | 10.00% Secured Debt (Maturity Date - August 31, 2021) | None | 3,500 | 3,467 | 3,467 | |||||||
Member Units (1,000 shares) | — | — | 1,500 | 1,500 | |||||||||
4,967 | 4,967 | ||||||||||||
Mystic Logistics, Inc. (10) (13) | Logistics and Distribution Services Provider for Large Volume Mailers | 12.00% Secured Debt (Maturity Date - August 15, 2019) | None | 2,362 | 2,299 | 2,361 | |||||||
Common Stock (1,468 shares) (16) | — | — | 680 | 1,492 | |||||||||
2,979 | 3,853 | ||||||||||||
SoftTouch Medical Holdings LLC (8) (10) (13) | Home Provider of Pediatric Durable Medical Equipment | LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity Date - October 31, 2019) | 1 month LIBOR | 1,425 | 1,402 | 1,402 | |||||||
Member Units (785 shares) (16) | — | — | 870 | 1,008 | |||||||||
2,272 | 2,410 | ||||||||||||
Subtotal Affiliate Investments (4) (3% of total portfolio investments at fair value) | $ | 23,949 | $ | 25,303 | |||||||||
Non-Control/Non-Affiliate Investments (5) | |||||||||||||
AccuMed Corporation (8) (11) | Medical Device Contract Manufacturer | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - October 29, 2020) | 2 month LIBOR | 9,750 | 9,595 | 9,595 | |||||||
Adams Publishing Group, LLC (8) (11) | Local Newspaper Operator | LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 7.75%, Secured Debt (Maturity - November 3, 2020) | 2 month LIBOR | 9,506 | 9,317 | 9,328 | |||||||
Ahead, LLC (8) (11) | IT Infrastructure Value Added Reseller | LIBOR Plus 6.50%, Current Coupon 6.76%, Secured Debt (Maturity - November 2, 2020) | 1 month LIBOR | 10,000 | 9,708 | 9,750 | |||||||
Allflex Holdings III Inc. (8) | Manufacturer of Livestock Identification Products | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - July 19, 2021) (14) | 3 month LIBOR | 14,922 | 15,013 | 14,713 | |||||||
AmeriTech College Operations, LLC (10) (13) | For-Profit Nursing and Healthcare College | 10.00% Secured Debt, (Maturity - January 31, 2020) | None | 375 | 375 | 375 | |||||||
10.00% Secured Debt, (Maturity - November 30, 2019) | None | 61 | 60 | 60 | |||||||||
10.00% Secured Debt, (Maturity - May 15, 2016) | None | 64 | 64 | 64 | |||||||||
Preferred Member Units (364 shares) (16) | — | — | 284 | 284 | |||||||||
783 | 783 | ||||||||||||
AMF Bowling Centers, Inc. (8) | Bowling Alley Operator | LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - September 18, 2021) | 3 month LIBOR | 13,847 | 13,777 | 13,720 | |||||||
AP Gaming I, LLC (8) (11) | Developer, Manufacturer, and Operator of Gaming Machines | LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - December 21, 2020) | 3 month LIBOR | 11,407 | 11,290 | 11,036 | |||||||
Apex Linen Service, Inc. (10) (13) | Industrial Launderers | 13.00% Secured Debt, (Maturity - October 30, 2022) | None | 3,000 | 2,944 | 2,944 | |||||||
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - October 30, 2022) | 1 month LIBOR | 400 | 400 | 400 | |||||||||
3,344 | 3,344 | ||||||||||||
Aptean, Inc. (8) | Enterprise Application Software Provider | LIBOR Plus 4.25% (Floor 1.00%), Current Coupon 5.25%, Secured Debt (Maturity - February 26, 2020) | 3 month LIBOR | 4,415 | 4,415 | 4,323 | |||||||
Arcus Hunting, LLC (8) (11) | Manufacturer of Bowhunting and Archery Products and Accessories | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - November 13, 2019) | 3 month LIBOR | 4,770 | 4,665 | 4,665 | |||||||
Artel, LLC (8) | Land-Based and Commercial Satellite Provider | LIBOR Plus 7.00% (Floor 1.25%), Current Coupon 8.25%, Secured Debt (Maturity - November 27, 2017) | 3 month LIBOR | 3,344 | 3,274 | 2,859 | |||||||
ATX Networks Corp. (8) (9) | Provider of Radio Frequency Management Equipment | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - June 11, 2021) | 3 month LIBOR | 14,925 | 14,645 | 14,701 | |||||||
BarFly Ventures, LLC (11) | Casual Restaurant Group | 12.00% Secured Debt (Maturity Date - August 30, 2020) | None | 1,374 | 1,348 | 1,348 | |||||||
Warrants (.364 equivalent shares, Expiration - August 31, 2025) | — | — | 158 | 158 | |||||||||
1,506 | 1,506 | ||||||||||||
Berry Aviation, Inc. (11) | Airline Charter Service Operator | 12.00% Current / 1.75% PIK Secured Debt (Maturity Date - January 30, 2020) (14) | None | 1,407 | 1,386 | 1,386 | |||||||
Common Stock (138 shares) | — | — | 100 | 100 | |||||||||
1,486 | 1,486 | ||||||||||||
Bioventus, LLC (8) (11) | Production of Orthopedic Healing Products | LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.00%, Secured Debt (Maturity - April, 10, 2020) (14) | 1 month LIBOR | 7,000 | 6,888 | 6,895 | |||||||
Blackbrush Oil and Gas LP (8) | Oil & Gas Exploration | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - July 30, 2021) (14) | 3 month LIBOR | 12,085 | 11,655 | 9,758 | |||||||
Blackhawk Specialty Tools LLC (8) | Oilfield Equipment & Services | LIBOR Plus 5.25% (Floor 1.25%), Current Coupon 6.50%, Secured Debt (Maturity - August 1, 2019) | 3 month LIBOR | 8,500 | 8,047 | 7,862 | |||||||
Blue Bird Body Company (8) | School Bus Manufacturer | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - June 26, 2020) | 3 month LIBOR | 5,062 | 5,002 | 5,027 | |||||||
Bluestem Brands, Inc. (8) (9) | Multi-Channel Retailer of General Merchandise | LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 6, 2020) | 3 month LIBOR | 14,619 | 14,330 | 13,705 | |||||||
Brightwood Capital Fund III, LP (9) (15) | Investment Partnership | LP Interests (Brightwood Capital Fund III, LP) (Fully diluted .52%) (16) | — | — | 3,825 | 3,695 | |||||||
Brundage-Bone Concrete Pumping, Inc. | Construction Services Provider | 10.38% Secured Bond (Maturity - September 1, 2021) (14) | None | 10,000 | 10,173 | 9,750 | |||||||
Buca C, LLC (8) (10) (13) | Casual Restaurant Group | LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - June 30, 2020) | 1 month LIBOR | 17,020 | 16,708 | 16,708 | |||||||
Preferred Member Units (4 units) | — | — | 2,472 | 2,472 | |||||||||
19,180 | 19,180 | ||||||||||||
CAI Software, LLC (10) (13) | Provider of Specialized Enterprise Resource Planning Software | 12.00% Secured Debt (Maturity Date - October 10, 2019) | None | 1,165 | 1,138 | 1,165 | |||||||
Member Units (16,339 shares) | — | — | 163 | 250 | |||||||||
1,301 | 1,415 | ||||||||||||
CJ Holding Company (8) | Oil and Gas Equipment and Services | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - March 24, 2020) | 1 month LIBOR | 5,955 | 5,189 | 3,710 | |||||||
Cengage Learning Acquisitions, Inc. (8) | Provider of Educational Print and Digital Services | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - March 31, 2020) | 1 month LIBOR | 15,018 | 15,024 | 14,680 | |||||||
Cenveo Corporation | Provider of Commercial Printing, Envelopes, Labels, Printed Office Products | 6.00% Secured Bond (Maturity - August 1, 2019) | None | 10,000 | 8,719 | 7,050 | |||||||
Charlotte Russe, Inc. (8) | Fast-Fashion Retailer to Young Women | LIBOR Plus 5.50% (Floor 1.25%), Current Coupon 6.75%, Secured Debt (Maturity - May 22, 2019) | 3 month LIBOR | 15,101 | 14,853 | 10,541 | |||||||
Clarius BIGS, LLC (11) (13) (18) | Prints & Advertising Film Financing | 15.00% PIK Secured Debt (Maturity - January 5, 2015) (18) | None | 2,480 | 2,222 | 412 | |||||||
20.00% PIK Secured Debt (Maturity - January 5, 2015) (18) | None | 896 | 803 | 149 | |||||||||
3,025 | 561 | ||||||||||||
Compuware Corporation (8) | Provider of Software and Supporting Services | LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - December 15, 2019) | 3 month LIBOR | 14,250 | 13,893 | 13,523 | |||||||
Covenant Surgical Partners, Inc. | Ambulatory Surgical Centers | 8.75% Secured Debt (Maturity - August 1, 2019) | None | 9,500 | 9,500 | 9,263 | |||||||
CRGT, Inc. (8) | Provider of Custom Software Development | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - December 18, 2020) | 3 month LIBOR | 14,168 | 13,918 | 14,098 | |||||||
CST Industries, Inc. (8) | Storage Tank Manufacturer | LIBOR Plus 6.25% (Floor 1.50%), Current Coupon 7.75%, Secured Debt (Maturity - May 22, 2017) | 3 month LIBOR | 1,978 | 1,975 | 1,958 | |||||||
Datacom, LLC (10) (13) | Technology and Telecommunications Provider | 10.50% Secured Debt (Maturity - May 30, 2019) | None | 1,245 | 1,226 | 1,192 | |||||||
Preferred Member Units (1,530 units) (16) | — | — | 131 | 131 | |||||||||
Preferred Member Units (717 units) | — | — | 670 | 564 | |||||||||
2,027 | 1,887 | ||||||||||||
Digital River, Inc. (8) (12) | Provider of Outsourced e-Commerce Solutions and Services | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - February 12, 2021) | 3 month LIBOR | 9,786 | 9,691 | 9,688 | |||||||
ECP-PF: CT Operations, Inc. (8) (11) | Fitness Club Operator | LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.00%, Secured Debt (Maturity - November 26, 2019) | 3 month LIBOR | 1,875 | 1,860 | 1,831 | |||||||
East West Copolymer & Rubber, LLC (10) (13) | Manufacturer of Synthetic Rubbers | 12.00% Secured Debt (Maturity Date - October 17, 2019) | None | 2,400 | 2,336 | 2,336 | |||||||
Warrants (627,697 equivalent shares, Expiration - October 15, 2024) | — | — | 10 | 10 | |||||||||
2,346 | 2,346 | ||||||||||||
Energy & Exploration Partners, LLC (18) | Oil & Gas Exploration and Production | LIBOR plus 6.75% (Floor 1.00%), Current Coupon 7.75%, Secured Debt (Maturity - January 22, 2019) (8) (18) | 3 month LIBOR | 9,900 | 8,638 | 2,500 | |||||||
8.75% Secured Debt (Maturity - January 21, 2016) | None | 233 | 233 | 233 | |||||||||
8,871 | 2,733 | ||||||||||||
Evergreen Skills Lux S.á r.l. (d/b/a Skillsoft) (8) (9) | Technology-Based Performance Support Solutions | LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - April 28, 2022) (14) | 3 month LIBOR | 10,902 | 10,382 | 7,277 | |||||||
Extreme Reach, Inc. (8) | Integrated TV and Video Advertising Platform | LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - February 7, 2020) | 3 month LIBOR | 6,853 | 6,822 | 6,742 | |||||||
Flavors Holdings, Inc. (8) | Global Provider of Flavoring and Sweetening Products and Solutions | LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - April 3, 2020) | 3 month LIBOR | 8,438 | 8,135 | 7,509 | |||||||
Fram Group Holdings, Inc. (8) | Manufacturer of Automotive Maintenance Products | LIBOR Plus 5.50% (Floor 1.50%), Current Coupon 7.00%, Secured Debt (Maturity - July 29, 2017) | 1 month LIBOR | 8,099 | 7,782 | 6,105 | |||||||
GST Autoleather, Inc. (8) | Automotive Leather Manufacturer | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - July 10, 2020) | 3 month LIBOR | 9,875 | 9,796 | 9,529 | |||||||
Guerdon Modular Holdings, Inc. (10) (13) | Multi-Family and Commercial Modular Construction Company | 11.00% Secured Debt (Maturity - August 13, 2019) | None | 2,600 | 2,542 | 2,547 | |||||||
Common Stock (53,008 shares) | — | — | 746 | 497 | |||||||||
3,288 | 3,044 | ||||||||||||
Guitar Center, Inc. | Musical Instruments Retailer | 6.50% Secured Bond (Maturity - April 15, 2019) | None | 13,015 | 12,135 | 10,933 | |||||||
Halcon Resources Corporation | Oil & Gas Exploration & Production | 9.75% Unsecured Bond (Maturity - July 15, 2020) (17) | None | 3,000 | 2,630 | 870 | |||||||
Hojeij Branded Foods, Inc. (8) (11) | Multi-Airport, Multi-Concept Restaurant Operator | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity Date - July 28, 2021) | 3 month LIBOR | 5,330 | 5,280 | 5,280 | |||||||
Horizon Global Corporation (8) | Auto Parts Manufacturer | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity Date - June 30, 2021) | 1 month LIBOR | 12,675 | 12,462 | 12,580 | |||||||
Hunter Defense Technologies, Inc. (8) | Provider of Military and Commercial Shelters and Systems | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity Date - August 5, 2019) | 3 month LIBOR | 10,495 | 10,420 | 10,390 | |||||||
ICON Health and Fitness, Inc. | Producer of Fitness Products | 11.88% Secured Bond (Maturity - October 15, 2016) | None | 13,337 | 13,252 | 12,670 | |||||||
iEnergizer Limited (8) (9) | Provider of Business Outsourcing Solutions | LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - May 1, 2019) | 1 month LIBOR | 4,312 | 4,305 | 3,988 | |||||||
Indivior Finance, LLC (8) (9) | Specialty Pharmaceutical Company Treating Opioid Dependence | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 19, 2019) | 3 month LIBOR | 9,500 | 9,003 | 8,930 | |||||||
Industrial Container Services, LLC (8) (11) | Steel Drum Reconditioner | LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 6.75%, Secured Debt (Maturity - December 31, 2018) | 3 month LIBOR | 4,987 | 4,930 | 4,930 | |||||||
Inn of the Mountain Gods Resort and Casino | Hotel & Casino Owner & Operator | 9.25% Secured Bond (Maturity - November 30, 2020) | None | 10,749 | 10,551 | 9,943 | |||||||
Intertain Group Limited (8) (9) | Business-to-Consumer Online Gaming Operator | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - April 8, 2022) | 3 month LIBOR | 9,938 | 9,783 | 9,914 | |||||||
Invenergy Thermal Operating I, LLC (8) | Power Generation | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - October 19, 2022) | 3 month LIBOR | 9,975 | 9,775 | 9,676 | |||||||
iPayment, Inc. (8) (12) | Provider of Merchant Acquisition | LIBOR Plus 5.25% (Floor 1.50%), Current Coupon 6.75%, Secured Debt (Maturity - May 8, 2017) | 3 month LIBOR | 15,115 | 14,954 | 14,532 | |||||||
iQor US Inc. (8) | Business Process Outsourcing Services Provider | LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - April 1, 2021) | 3 month LIBOR | 7,837 | 7,320 | 6,295 | |||||||
IronGate Energy Services, LLC | Oil and Gas Services | 11.00% Secured Bond (Maturity - July 1, 2018) | None | 5,825 | 5,828 | 3,204 | |||||||
Jackmont Hospitality, Inc. (8) (11) | Franchisee of Casual Dining Restaurants | LIBOR Plus 4.25% (Floor 1.00%)/ 2.50% PIK , Current Coupon 7.75%, Secured Debt (Maturity Date - May 26, 2021) | 1 month LIBOR | 8,715 | 8,678 | 8,325 | |||||||
Joerns Healthcare, LLC (8) | Manufacturer and Distributor of Health Care Equipment & Supplies | LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - May 9, 2020) | 3 month LIBOR | 4,412 | 4,392 | 4,381 | |||||||
JSS Holdings, Inc. (8) | Aircraft Maintenance Program Provider | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity Date - August 31, 2021) | 3 month LIBOR | 14,566 | 14,230 | 13,765 | |||||||
Kellermeyer Bergensons Services, LLC (8) | Outsourced Janitorial Services to Retail/Grocery Customers | LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - April 29, 2022) (14) | 3 month LIBOR | 14,700 | 14,591 | 14,553 | |||||||
Kendra Scott, LLC (8) | Jewelry Retail Stores | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity Date - July 17, 2020) | 3 month LIBOR | 9,875 | 9,784 | 9,801 | |||||||
Keypoint Government Solutions, Inc. (8) | Provider of Pre-Employment Screening Services | LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity - November 13, 2017) | 3 month LIBOR | 2,033 | 2,025 | 2,023 | |||||||
LaMi Products, LLC (8) (11) | General Merchandise Distribution | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - September 16, 2020) | 3 month LIBOR | 4,729 | 4,640 | 4,640 | |||||||
Larchmont Resources, LLC (8) | Oil & Gas Exploration & Production | LIBOR Plus 8.75% (Floor 1.00%), Current Coupon 9.75%, Secured Debt (Maturity - August 7, 2019) | 3 month LIBOR | 13,268 | 11,918 | 9,420 | |||||||
Legendary Pictures Funding, LLC (8) (11) | Producer of TV, Film, and Comic Content | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 22, 2020) | 3 month LIBOR | 7,500 | 7,367 | 7,425 | |||||||
LJ Host Merger Sub, Inc. (8) | Managed Services and Hosting Provider | LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - December 13, 2019) | 3 month LIBOR | 5,122 | 5,109 | 5,071 | |||||||
MAH Merger Corporation (8) | Sports-Themed Casual Dining Chain | LIBOR Plus 4.50% (Floor 1.25%), Current Coupon 5.75%, Secured Debt (Maturity - July 19, 2019) | 1 month LIBOR | 1,373 | 1,373 | 1,370 | |||||||
MediMedia USA, Inc. (8) | Provider of Healthcare Media and Marketing | LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - November 20, 2018) | 3 month LIBOR | 11,904 | 11,826 | 11,369 | |||||||
Milk Specialties Company (8) | Processor of Nutrition Products | LIBOR Plus 7.00% (Floor 1.25%), Current Coupon 8.25%, Secured Debt (Maturity - November 9, 2018) | 3 month LIBOR | 4,669 | 4,630 | 4,673 | |||||||
Minute Key, Inc. (10) (13) | Operator of Automated Key Duplication Kiosk | 10.00% Current / 2.00% PIK Secured Debt (Maturity Date - September 19, 2019) (14) | None | 3,530 | 3,426 | 3,426 | |||||||
Warrants (359,352 equivalent shares, Expiration - May 20, 2025) | — | — | 70 | 70 | |||||||||
3,496 | 3,496 | ||||||||||||
Mood Media Corporation (8) (9) | Provider of Electronic Equipment | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - May 1, 2019) | 3 month LIBOR | 14,975 | 14,953 | 14,282 | |||||||
New Media Holdings II LLC (8) (9) | Local Newspaper Operator | LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - June 4, 2020) | 3 month LIBOR | 14,856 | 14,696 | 14,726 | |||||||
North Atlantic Trading Company, Inc. (8) | Marketer/Distributor of Tobacco | LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity -January 13, 2020) | 3 month LIBOR | 11,222 | 11,222 | 11,138 | |||||||
Novitex Acquisition, LLC (8) | Provider of Document Management Services | LIBOR Plus 6.25% (Floor 1.25%), Current Coupon 7.50%, Secured Debt (Maturity - July 7, 2020) | 3 month LIBOR | 11,632 | 11,387 | 10,963 | |||||||
Panolam Industries International, Inc. (8) | Decorative Laminate Manufacturer | LIBOR Plus 6.50% (Floor 1.25%), Current Coupon 7.75%, Secured Debt (Maturity - August 23, 2017) | 1 month LIBOR | 7,402 | 7,342 | 7,365 | |||||||
Paris Presents, Inc. (8) | Branded Cosmetic and Bath Accessories | LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.25%, Secured Debt (Maturity - December 31, 2021) (14) | 1 month LIBOR | 7,500 | 7,364 | 7,350 | |||||||
Parq Holdings, LP (8) (9) (12) | Hotel and Casino Operator | LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - December 17, 2020) | 1 month LIBOR | 12,500 | 12,354 | 12,000 | |||||||
Permian Holdings, Inc. | Storage Tank Manufacturer | 10.50% Secured Bond (Maturity - January 15, 2018) | None | 6,885 | 5,819 | 2,616 | |||||||
Pernix Therapeutics Holdings, Inc. (11) | Pharmaceutical Royalty - Anti-Migraine | 12.00% Secured Bond (Maturity - August 1, 2020) | None | 3,341 | 3,309 | 3,305 | |||||||
Pike Corporation (8) (12) | Construction and Maintenance Services for Electric Transmission and Distribution Infrastructure | LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - June 22, 2022) (14) | 3 month LIBOR | 13,334 | 13,037 | 13,079 | |||||||
Polyconcept Financial B.V. (8) | Promotional Products to Corporations and Consumers | LIBOR Plus 4.75% (Floor 1.25%), Current Coupon 6.00%, Secured Debt (Maturity - June 28, 2019) | 1 month LIBOR | 5,312 | 5,303 | 5,279 | |||||||
Premier Dental Services, Inc. (8) | Dental Care Services | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - November 1, 2018) | 3 month LIBOR | 4,511 | 4,490 | 3,958 | |||||||
Prowler Acquisition Corporation (8) | Specialty Distributor to the Energy Sector | LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 5.50%, Secured Debt (Maturity - January 28, 2020) | 3 month LIBOR | 7,248 | 6,541 | 6,161 | |||||||
Raley's, Inc. (8) | Family-Owned Supermarket Chain in California | LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - May 18, 2022) | 3 month LIBOR | 5,094 | 4,998 | 5,069 | |||||||
RCHP, Inc. (8) | Region Non-Urban Hospital Owner/Operator | LIBOR Plus 10.25% (Floor 1.00%), Current Coupon 11.25%, Secured Debt (Maturity - October 23, 2019) (14) | 2 month LIBOR | 15,072 | 14,680 | 15,072 | |||||||
Renaissance Learning, Inc. (8) | Technology-based K-12 Learning Solutions | LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.00%, Secured Debt (Maturity - April 11, 2022) (14) | 3 month LIBOR | 12,950 | 12,493 | 12,238 | |||||||
RGL Reservoir Operations, Inc. (8) (9) | Oil & Gas Equipment & Services | LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.00%, Secured Debt (Maturity - August 13, 2021) | 3 month LIBOR | 3,950 | 3,850 | 1,534 | |||||||
RLJ Entertainment, Inc. (8) (11) | Movie and TV Programming Licensee and Distributor | LIBOR Plus 8.75% (Floor .25%), Current Coupon 9.08%, Secured Debt (Maturity - September 11, 2019) | 3 month LIBOR | 8,134 | 7,824 | 7,824 | |||||||
RM Bidder, LLC (11) | Acquisition Vehicle | Common Stock (1,854 shares) | — | — | 31 | 30 | |||||||
Series A Warrants (124,915 equivalent shares, Expiration - October 20, 2025) | — | — | 284 | 242 | |||||||||
Series B Warrants (93,686 equivalent shares, Expiration - October 20, 2025) | — | — | — | — | |||||||||
315 | 272 | ||||||||||||
Sage Automotive Interiors, Inc (8) | Automotive Textiles Manufacturer | LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 8, 2021) (14) | 3 month LIBOR | 5,000 | 4,956 | 4,950 | |||||||
Salient Partners, LP (8) | Provider of Asset Management Services | LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.50%, Secured Debt (Maturity - June 9, 2021) | 1 month LIBOR | 7,388 | 7,250 | 7,240 | |||||||
Siteone Landscape Supply, LLC (8) (11) | Distributor of Landscaping Supplies | LIBOR Plus 4.00% (Floor 1.00%), Current Coupon 5.00%, Secured Debt (Maturity - December 23, 2019) | 3 month LIBOR | 6,383 | 6,149 | 6,224 | |||||||
Sorenson Communications, Inc. | Manufacturer of Communication Products for Hearing Impaired | 9.00% Secured Bond (Maturity - October 31, 2020) (14) | None | 11,710 | 11,226 | 11,007 | |||||||
Sotera Defense Solutions, Inc. (8) | Defense Industry Intelligence Services | LIBOR Plus 7.50% (Floor 1.50%), Current Coupon 9.00%, Secured Debt (Maturity - April 21, 2017) | 3 month LIBOR | 3,453 | 3,344 | 3,194 | |||||||
Stardust Finance Holdings, Inc. (8) | Manufacturer of Diversified Building Products | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - March 13, 2022) | 3 month LIBOR | 2,481 | 2,425 | 2,413 | |||||||
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.50%, Secured Debt (Maturity - March 13, 2023) (14) | 3 month LIBOR | 5,000 | 4,766 | 4,825 | |||||||||
7,191 | 7,238 | ||||||||||||
Synagro Infrastructure Company, Inc. (8) | Waste Management Services | LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.25%, Secured Debt (Maturity - August 22, 2020) | 3 month LIBOR | 2,704 | 2,683 | 2,366 | |||||||
Teleguam Holdings, LLC (8) | Cable and Telecom Services Provider | LIBOR Plus 7.50% (Floor 1.25%), Current Coupon 8.75%, Secured Debt (Maturity - June 10, 2019) (14) | 1 month LIBOR | 3,000 | 3,017 | 2,985 | |||||||
Templar Energy, LLC (8) | Oil & Gas Exploration & Production | LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - November 25, 2020) (14) | 3 month LIBOR | 3,000 | 2,982 | 364 | |||||||
Tervita Corporation (8) (9) | Oil and Gas Environmental Services | LIBOR Plus 5.00% (Floor 1.25%), Current Coupon 6.25%, Secured Debt (Maturity - May 15, 2018) | 3 month LIBOR | 1,009 | 1,015 | 785 | |||||||
The Topps Company, Inc. (8) | Trading Cards & Confectionary | LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.25%, Secured Debt (Maturity - October 2, 2018) | 3 month LIBOR | 980 | 974 | 962 | |||||||
TOMS Shoes, LLC (8) | Global Designer, Distributor, and Retailer of Casual Footwear | LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.50%, Secured Debt (Maturity - October 30, 2020) | 3 month LIBOR | 4,963 | 4,548 | 3,387 | |||||||
Travel Leaders Group, LLC (8) | Travel Agency Network Provider | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - December 7, 2020) | 3 month LIBOR | 14,306 | 14,226 | 14,163 | |||||||
USJ-IMECO Holding Company, LLC (8) | Marine Interior Design and Installation | LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.00%, Secured Debt (Maturity - April 16, 2020) | 3 month LIBOR | 7,867 | 7,848 | 7,789 | |||||||
Valley Healthcare Group, LLC (8) (10) (13) | Provider of Durable Medical Equipment | LIBOR Plus 12.50% (Floor .50%), Current Coupon 13.00%, Secured Debt (Maturity - December 29, 2020) | 1 month LIBOR | 2,600 | 2,548 | 2,548 | |||||||
Vantage Oncology, LLC | Outpatient Radiation Oncology Treatment Centers | 9.50% Secured Bond (Maturity - June 15, 2017) | None | 13,507 | 13,211 | 11,413 | |||||||
Vision Solutions, Inc. (8) | Provider of Information Availability Software | LIBOR Plus 4.50% (Floor 1.50%), Current Coupon 6.00%, Secured Debt (Maturity - July 23, 2016) | 1 month LIBOR | 1,296 | 1,297 | 1,257 | |||||||
LIBOR Plus 8.00% (Floor 1.50%), Current Coupon 9.50%, Secured Debt (Maturity - July 23, 2017) (14) | 1 month LIBOR | 875 | 871 | 831 | |||||||||
2,168 | 2,088 | ||||||||||||
Volusion, LLC (10) | Provider of Online Software-as-a-Service eCommerce Solutions | 10.50% Secured Debt (Maturity Date - January 24, 2020) | None | 7,500 | 6,866 | 6,866 | |||||||
Member Units (2,090,001 shares) | — | — | 6,000 | 6,000 | |||||||||
Warrants (407,408 equivalent shares, Expiration - January 26, 2025) | — | — | 600 | 600 | |||||||||
13,466 | 13,466 | ||||||||||||
Worley Claims Services, LLC (8) (11) | Insurance Adjustment Management and Services Provider | LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - October 31, 2020) | 1 month LIBOR | 6,435 | 6,382 | 6,210 | |||||||
YP Holdings LLC (8) | Online and Offline Advertising Operator | LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.00%, Secured Debt (Maturity - June 4, 2018) | 1 month LIBOR | 12,347 | 12,336 | 11,977 | |||||||
Subtotal Non-Control/Non-Affiliate Investments (5) (95% of total portfolio investments at fair value) | $ | 866,499 | $ | 812,205 | |||||||||
Total Portfolio Investments | $ | 904,689 | $ | 852,988 | |||||||||
Short Term Investments (20) | |||||||||||||
Fidelity Institutional Money Market Funds | — | Prime Money Market Portfolio, Class II Shares (21) | — | $ | 13,363 | $ | 13,363 | $ | 13,363 | ||||
US Bank Money Market Account (21) | — | — | — | 7,009 | 7,009 | 7,009 | |||||||
Total Short Term Investments | $ | 20,372 | $ | 20,372 |
(1) All investments are Middle Market portfolio investments, unless otherwise noted. All of the Company's assets are encumbered as security for the Company's credit agreements. See Note 4 - Borrowings.
(2) Debt investments are income producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.
(3) See Note 3 - Fair Value Hierarchy for Investments for summary geographic location of portfolio companies.
(4) Affiliate investments are defined by the 1940 Investment Company Act of 1940, as amended (the “1940 Act”), as investments in which between 5% and 25% of the voting securities are owned, or an investment in an investment company’s investment adviser, and the investments are not classified as Control investments.
(5) Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments.
(6) Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
(7) Principal is net of repayments. Cost represents amortized cost which is net of repayments and adjusted for the amortization of premiums and/or accretion of discounts, as applicable.
(8) Index based floating interest rate is subject to contractual minimum interest rates.
(9) The investment is not a qualifying asset under the 1940 Act. A business development company (“BDC”) may not acquire any asset other than qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC's total assets. As of December 31, 2015, approximately 12.6% of the Company's investments were considered non-qualifying.
(10) Investment is classified as a Lower Middle Market investment.
(11) Investment is classified as a Private Loan portfolio investment.
(12) Investment or portion of investment is under contract to purchase and met trade date accounting criteria as of December 31, 2015. Settlement occurred or is scheduled to occur after December 31, 2015.
(13) Investment serviced by Main Street pursuant to servicing arrangements with the Company.
(14) Second lien secured debt investment.
(15) Investment is classified as an Other Portfolio investment.
(16) Income producing through dividends or distributions.
(17) Unsecured debt investment.
(18) Investment is on non-accrual status as of December 31, 2015.
(19) Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.
(20) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less.
(21) Effective yield as of December 31, 2015 was approximately 0.01%.
(22) The 1, 2, 3, and 6 month LIBOR rates were 0.43%, 0.51%, 0.61% and 0.85%, respectively, as of December 31, 2015. The actual LIBOR rate for each loan listed may not be the applicable LIBOR rate as of December 31, 2015, as the loan may have been priced or repriced based on a LIBOR rate prior to or subsequent to December 31, 2015. The prime rate was 3.25% as of December 31, 2015.
See notes to the condensed consolidated financial statements.
6
HMS Income Fund, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Principal Business and Organization
HMS Income Fund, Inc. (the “Company”) was formed as a Maryland corporation on November 28, 2011 under the General Corporation Law of the State of Maryland. The Company is an externally managed, non-diversified closed-end investment company that has elected to be treated as a BDC under the 1940 Act. The Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
The Company’s primary investment objective is to generate current income through debt and equity investments. A secondary objective of the Company is to generate long-term capital appreciation through such equity and equity related investments including warrants, convertible securities and other rights to acquire equity securities. The Company’s portfolio strategy calls for it to invest primarily in illiquid debt and equity securities issued by lower middle market ("LMM") companies, which generally have annual revenues between $10 million and $150 million, and middle market ("Middle Market") companies that are generally larger in size than the LMM companies. The Company categorizes some of its investments in LMM companies and Middle Market companies as private loan ("Private Loan") portfolio investments. Private Loan investments, often referred to in the debt markets as “club deals,” are investments, generally in debt instruments, that the Company originates on a collaborative basis with other investment funds. Private Loan investments are typically similar in size, structure, terms and conditions to investments the Company holds in its LMM portfolio and Middle Market portfolio. The Company’s portfolio also includes other portfolio ("Other Portfolio") investments which primarily consist of investments that are not consistent with the typical profiles for its LMM portfolio investments, Middle Market portfolio investments or Private Loan portfolio investments, including investments which may be managed by third parties.
The Company previously registered for sale up to 150,000,000 shares of common stock pursuant to a registration statement on Form N-2 (File No. 333-178548) which was initially declared effective by the Securities and Exchange Commission (the “SEC”) on June 4, 2012 (the “Initial Offering”). The Initial Offering terminated on December 1, 2015. The Company raised approximately $601.2 million under the Initial Offering, including proceeds from the dividend reinvestment plan of approximately $22.0 million. On January 5, 2016, the SEC declared a new registration statement on Form N-2 (File No. 333-204659), as amended, effective under which the Company registered for sale up to $1,500,000,000 worth of shares of common stock (the “Offering”). As of March 31, 2016, the Company had raised approximately $20.6 million in the Offering, including proceeds from the distribution reinvestment plan of approximately $5.8 million.
The Company's wholly owned subsidiaries, HMS Funding I LLC (“HMS Funding”) and HMS Equity Holding, LLC (“HMS Equity Holding”), were both organized as Delaware limited liability companies in 2014. HMS Funding was created pursuant to the Capital One Credit Facility (as defined below) in order to function as a "Structured Subsidiary," which is permitted to incur debt outside of the Capital One Credit Facility since it is not a guarantor under the Capital One Credit Facility. HMS Equity Holding, which has elected to be a taxable entity, primarily holds equity investments in portfolio companies which are “pass through” entities for tax purposes.
The business of the Company is managed by HMS Adviser LP (the “Adviser”), a Texas limited partnership and affiliate of Hines Interests Limited Partnership (“Hines”), under an Investment Advisory and Administrative Services Agreement dated May 31, 2012, as amended (the “Investment Advisory Agreement”). The Company and the Adviser have retained MSC Adviser I, LLC (the "Sub-Adviser"), a wholly owned subsidiary of Main Street Capital Corporation ("Main Street"), a New York Stock Exchange listed BDC, as the Company’s investment sub-adviser, pursuant to an Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”), to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management recommendations for approval by the Adviser, monitor the Company’s investment portfolio and provide certain ongoing administrative services to the Adviser. The Adviser and the Sub-Adviser are collectively referred to as the “Advisers,” and each is registered under the Investment Advisers Act of 1940, as amended. Upon the execution of the Sub-Advisory Agreement, Main Street became an affiliated person of the Company. The Company has engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of the Adviser, to serve as the Dealer Manager for the Offering. The Dealer Manager is responsible for marketing the Company’s shares of common stock being offered pursuant to the Offering.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company are prepared in accordance with the instructions to Form 10Q and accounting principles generally accepted in the United States of America (“GAAP”). The unaudited
7
condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.
Amounts as of December 31, 2015 included in the unaudited condensed consolidated financial statements have been derived from the Company's audited consolidated financial statements as of that date. All intercompany balances and transactions have been eliminated. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, these financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 11, 2016. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
Reclassifications
Certain amounts in the Condensed Consolidated Statements of Changes in Net Assets related to selling commissions, dealer manager fees and issuances under our dividend reinvestment plan have been disaggregated as of March 31, 2016. The prior period has been reclassified to conform to this presentation as of March 31, 2016.
Interest, Fee and Dividend Income
Interest and dividend income is recorded on the accrual basis to the extent amounts are expected to be collected. Prepayment penalties received by the Company are recorded as income upon receipt. Dividend income is recorded when dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. Accrued interest and dividend income is evaluated quarterly for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, the debt security will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. Additionally, if a debt security has deferred interest payment terms and the Company becomes aware of a deterioration in credit quality, the Company will evaluate the collectability of the deferred interest payment. If it is determined that the deferred interest is unlikely to be collected, the Company will place the security on non-accrual status and cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay the contractual amounts due. If a debt security’s status significantly improves with respect to the debtor’s ability to service the debt or other obligations, or if a debt security is fully impaired, sold or written off, it will be removed from non-accrual status.
As of March 31, 2016, the Company had three debt investments in two portfolio companies that were more than 90 days past due and had three debt investments in two portfolio companies that were on non-accrual status as of March 31, 2016. These portfolio companies experienced a significant decline in credit quality raising doubt regarding the Company's ability to collect the principal and interest contractually due. Given the credit deterioration of these portfolio companies, the Company has recognized no interest income on the three non-accrual debt investments during the three months ended March 31, 2016. Aside from these three investments on non-accrual status as of March 31, 2016, the Company is not aware of any material changes to the creditworthiness of the borrowers underlying its debt investments.
As of December 31, 2015, the Company had two debt investments in one portfolio company that were more than 90 days past due and had three debt investments in two portfolio companies that were on non-accrual status. These portfolio companies experienced a significant decline in credit quality raising doubt around the Company's ability to collect the principal and interest contractually due. Given the credit deterioration of these portfolio companies, the Company has recognized no interest income on two of the three non-accrual debt investments during the year ended December 31, 2015. For the other non-accrual debt investment, an allowance of $196,000 was booked for the interest income recognized during the three months ended December 31, 2015.
From time to time, the Company may hold debt instruments in its investment portfolio that contain a payment-in-kind (“PIK”) interest provision. If these borrowers elect to pay or are obligated to pay interest under the optional PIK provision and, if deemed collectible in management's judgment, then the interest would be computed at the contractual rate specified in the investment’s credit agreement, recorded as interest income and periodically added to the principal balance of the investment. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. The Company stops accruing PIK interest and writes off any accrued and uncollected interest in arrears when it determines that such PIK interest in arrears is no longer collectible.
8
As of March 31, 2016 and December 31, 2015, the Company held eight and seven investments, respectively, which contained a PIK provision. As of March 31, 2016, two of the eight investments with PIK provisions were on non-accrual status. No PIK interest was recorded on these two non-accrual investments during the three months ended March 31, 2016. As of December 31, 2015, two of the seven investments with PIK provisions were on non-accrual status. No PIK interest was recorded on these two non-accrual investments during the year ended December 31, 2015. For the three months ended March 31, 2016 and March 31, 2015, the Company capitalized $8,000 and $194,000, respectively, of PIK interest. The Company stops accruing PIK interest and writes off any accrued and uncollected interest in arrears when it determines that such PIK interest in arrears is no longer collectible.
The Company may periodically provide services, including structuring and advisory services, to its portfolio companies or other third parties. The income from such services is non-recurring. For services that are separately identifiable and evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into interest income over the life of the financing.
A presentation of the investment income the Company received from its Investment Portfolio in each of the periods presented (dollars in thousands) is as follows:
Three Months Ended | |||||||
March 31, 2016 | March 31, 2015 | ||||||
(Unaudited) | |||||||
Interest, Fee and Dividend Income | |||||||
Interest Income | $ | 20,706 | $ | 11,608 | |||
Fee Income | 275 | 46 | |||||
Dividend Income | 278 | 139 | |||||
Total Interest, Fee and Dividend Income | $ | 21,259 | $ | 11,793 |
Offering Costs
In accordance with the Investment Advisory Agreement and the Sub-Advisory Agreement, the Company reimburses the Advisers for any offering costs that are paid on the Company's behalf, which consist of, among other costs, actual legal, accounting, bona fide out-of-pocket itemized and detailed due diligence costs, printing, filing fees, transfer agent costs, postage, escrow fees, advertising and sales literature and other offering costs. Pursuant to the terms of the Investment Advisory Agreement and Sub-Advisory Agreement, the Advisers are responsible for the payment of offering costs to the extent they exceed 1.5% of the aggregate gross proceeds from the offering.
The Company has decided to change its accounting treatment of offering costs to more closely follow certain SEC interpretations. Prior to January 1, 2016, offering costs were capitalized as incurred by the Advisers and such costs, up to 1.5% of the gross proceeds, were recorded as a charge to additional paid in capital and a reduction of deferred offering costs. Effective January 1, 2016, offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a 12-month period. Deferred offering costs related to an offering will be fully amortized to expense upon the expiration or earlier termination of an offering. The Company evaluated this change in accounting treatment of offering costs and determined that it did not have a material impact on the Company's consolidated financial position, results of operations or cash flows for periods prior to January 1, 2016.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements under ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date which defers the effective date of ASU 2014-09 by one year for all entities under GAAP. The new guidance will be effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Early adoption would be
9
permitted for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact the adoption of this new accounting standard will have on the Company's consolidated financial statements and disclosures.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation: Amendments to the Consolidation Analysis which amends the consolidation requirements under ASC 810. This guidance amends the criteria for determining which entities are considered variable interest entities (“VIEs”) and amends the criteria for determining if a service provider possesses a variable interest in a VIE. ASU No. 2015-02 also eliminates the deferral under ASU 2010-10 for application of the VIE consolidation model that was granted for investments in certain investment companies. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company adopted this standard during the three months ended March 31, 2016. There was no impact on the Company's consolidated financial statements from the adoption of this new accounting standard.
In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs which amends the required presentation of debt issuance costs on the balance sheet. The guidance will require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the ASU No. 2015-03. For public business entities, the guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. In August 2015, the FASB issued ASU No. 2015-15, Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements which clarified ASU 2015-03. This guidance allows an entity to defer and present debt issuance costs for line-of-credit arrangements as an asset and subsequently amortize these deferred costs over the term of the line-of-credit arrangement. The Company adopted this standard during the three months ended March 31, 2016. There was no impact on the Company's consolidated financial statements from the adoption of this new accounting standard since the guidance allows the Company to continue to present its debt issuance costs for its line-of-credit arrangements as assets that are amortized over the term of the arrangements.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This ASU removes, from the fair value hierarchy, investments which measure fair value using net asset value ("NAV") per share practical expedient. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. For public companies, this ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendment should be applied retrospectively to all periods presented. The Company adopted this standard during the three months ended March 31, 2016. There was no impact on the Company's consolidated financial statements from the adoption of this new accounting standard as none of our investments are measured through the use of the practical expedient.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities which amends the guidance related to the classification and measurement of investments in equity securities. The guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The ASU will also amend the guidance related to the presentation of certain fair value changes for financial liabilities measured at fair value and certain disclosure requirements associated with the fair value of financial instruments. For public companies, this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2016-01 will have on its consolidated financial statements and disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date.
Note 3 — Fair Value Hierarchy for Investments
Fair Value Hierarchy
FASB's ASC Topic 820, Fair Value Measurement and Disclosures ("ASC 820") establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
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Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:
• | Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. |
• | Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable for essentially the full term of the investment. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in non-active markets (for example, thinly traded public companies), pricing models whose inputs are observable for substantially the full term of the investment, and pricing models whose inputs are derived principally from or corroborated by, observable market data through correlation or other means for substantially the full term of the investment. |
• | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Such information may be the result of consensus pricing information or broker quotes for which sufficient observable inputs were not available. |
As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such investments categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). The Company conducts reviews of fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain investments.
As of March 31, 2016 and December 31, 2015, the Company’s investment portfolio was comprised of debt securities, equity investments, and Other Portfolio investments. The fair value determination for these investments primarily consisted of unobservable (Level 3) inputs.
As of March 31, 2016 and December 31, 2015, all of the Company’s LMM portfolio investments consisted of illiquid securities issued by private companies. The fair value determination for the LMM portfolio investments primarily consisted of unobservable inputs. As a result, all of the Company’s LMM portfolio investments were categorized as Level 3 as of March 31, 2016 and December 31, 2015.
As of March 31, 2016 and December 31, 2015, the Company's Middle Market portfolio investments consisted primarily of Middle Market investments in secured and unsecured debt investments and independently rated debt investments. The fair value determination for these investments consisted of a combination of (1) observable inputs in non-active markets for which sufficient observable inputs were available to determine the fair value of these investments, (2) observable inputs in the non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and (3) unobservable inputs. As a result, all of the Company's Middle Market portfolio investments were categorized as Level 3 as of March 31, 2016 and December 31, 2015.
As of March 31, 2016 and December 31, 2015, the Company’s Private Loan portfolio investments consisted primarily of debt investments. The fair value determination for Private Loan investments consisted of a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and unobservable inputs. As a result, all of the Company’s Private Loan portfolio investments were categorized as Level 3 as of March 31, 2016 and December 31, 2015.
As of March 31, 2016 and December 31, 2015, the Company’s Other Portfolio investments consisted of illiquid securities issued by private companies. The fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of the Company’s Other Portfolio equity investments were categorized as Level 3 as of March 31, 2016 and December 31, 2015.
The fair value determination of the Level 3 securities required one or more of the following unobservable inputs:
• | Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers; |
• | Current and projected financial condition of the portfolio company; |
• | Current and projected ability of the portfolio company to service its debt obligations; |
• | Type and amount of collateral, if any, underlying the investment; |
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• | Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio, and net debt/earnings before interest, tax, depreciation and amortization ("EBITDA") ratio) applicable to the investment; |
• | Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio); |
• | Pending debt or capital restructuring of the portfolio company; |
• | Projected operating results of the portfolio company; |
• | Current information regarding any offers to purchase the investment; |
• | Current ability of the portfolio company to raise any additional financing as needed; |
• | Changes in the economic environment which may have a material impact on the operating results of the portfolio company; |
• | Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company; |
• | Qualitative assessment of key management; |
• | Contractual rights, obligations or restrictions associated with the investment; |
• | Third party pricing for securities with limited observability of inputs determining the pricing; and |
• | Other factors deemed relevant. |
The following table presents fair value measurements of the Company’s investments, by major class, as of March 31, 2016 according to the fair value hierarchy (dollars in thousands):
Fair Value Measurements | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
First lien secured debt investments | $ | — | $ | — | $ | 672,812 | $ | 672,812 | |||||||
Second lien secured debt investments | — | — | 138,834 | 138,834 | |||||||||||
Unsecured debt investments | — | — | 533 | 533 | |||||||||||
Equity investments | — | — | 45,653 | 45,653 | |||||||||||
Total | $ | — | $ | — | $ | 857,832 | $ | 857,832 |
The following table presents fair value measurements of the Company’s investments, by major class, as of December 31, 2015 according to the fair value hierarchy (dollars in thousands):
Fair Value Measurements | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
First lien secured debt investments | $ | — | $ | — | $ | 676,437 | $ | 676,437 | |||||||
Second lien secured debt investments | — | — | 140,459 | 140,459 | |||||||||||
Unsecured debt investments | — | — | 870 | 870 | |||||||||||
Equity investments | — | — | 35,222 | 35,222 | |||||||||||
Total | $ | — | $ | — | $ | 852,988 | $ | 852,988 |
The following table presents fair value measurements of the Company’s investments, by investment classification, segregated by the level within the fair value hierarchy as of March 31, 2016 (dollars in thousands):
Fair Value Measurements | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
LMM portfolio investments | $ | — | $ | — | $ | 93,508 | $ | 93,508 | |||||||
Private Loan investments | — | — | 119,458 | 119,458 | |||||||||||
Middle Market investments | — | — | 627,834 | 627,834 | |||||||||||
Other Portfolio investments | — | — | 17,032 | 17,032 | |||||||||||
Total | $ | — | $ | — | $ | 857,832 | $ | 857,832 |
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The following table presents fair value measurements of the Company’s investments, by investment classification, segregated by the level within the fair value hierarchy as of December 31, 2015 (dollars in thousands):
Fair Value Measurements | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
LMM portfolio investments | $ | — | $ | — | $ | 85,460 | $ | 85,460 | |||||||
Private Loan investments | — | — | 111,088 | 111,088 | |||||||||||
Middle Market investments | — | — | 645,913 | 645,913 | |||||||||||
Other Portfolio investments | — | — | 10,527 | 10,527 | |||||||||||
Total | $ | — | $ | — | $ | 852,988 | $ | 852,988 |
The significant unobservable inputs used in the fair value measurement of the Company’s LMM equity securities and Private Loan equity securities, which are generally valued through an average of the discounted cash flow technique and the market comparable/enterprise value technique (unless one of these approaches is not applicable), are (i) EBITDA multiples and (ii) the weighted average cost of capital (“WACC”). Significant increases (decreases) in EBITDA multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Conversely, significant increases (decreases) in WACC inputs in isolation would result in a significantly lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s LMM, Middle Market and Private Loan debt investments are (i) risk adjusted discount rates used in the yield-to-maturity valuation technique (described in Note 2-Basis of Presentation and Summary of Significant Accounting Policies-Valuation of Portfolio Investments in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 11, 2016) and (ii) the percentage of expected principal recovery. Significant increases (decreases) in any of these discount rates in isolation would result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in any of these expected principal recovery percentages in isolation would result in a significantly higher (lower) fair value measurement. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as determined by independent third parties, which are not presented in the table below.
The following table, which is not intended to be all inclusive, presents the significant unobservable inputs of the Company’s Level 3 investments as of March 31, 2016 (dollars in thousands):
Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | Weighted Average (2) | |||||||
LMM equity investments | $ | 27,663 | Discounted Cash Flows | WACC | 10.4% - 16.2% | 13.2% | |||||
Market Approach/Enterprise Value | EBITDA Multiples (1) | 5.0x - 18.8x | 9.5x | ||||||||
NAV Multiple | 0.8x - 2.0x | 1.6x | |||||||||
LMM debt investments | $ | 65,845 | Discounted Cash Flows | Expected Principal Recovery | 100.0% | 100.0% | |||||
Risk Adjusted Discount Factor | 8.5% - 16.5% | 10.2% | |||||||||
Private Loan debt investments | $ | 52,664 | Market Approach | Third Party Quotes | 93.0% - 98.5% | 96.6% | |||||
Private Loan debt investments | $ | 65,836 | Discounted Cash Flows | Expected Principal Recovery | 12.2% - 100.0% | 99.2% | |||||
Risk Adjusted Discount Factor | 8.5% - 16.5% | 10.2% | |||||||||
Private Loan equity investments | $ | 958 | Market Approach/Enterprise Value | EBITDA Multiples (1) | 4.5x - 9.9x | 6.2x | |||||
Revenue Multiples (1) | 3.1x | 3.1x | |||||||||
WACC | 12.8% - 12.9% | 12.8% | |||||||||
Middle Market debt investments | $ | 627,834 | Market Approach | Third Party Quotes | 11.3% - 101.0% | 92.1% | |||||
Other Portfolio investments | $ | 17,032 | Market Approach | NAV | 97.7% - 100.0% | 99.5% | |||||
$ | 857,832 |
(1) EBITDA may include pro forma adjustments and/or other add-backs based on specific circumstances related to each investment.
(2) Weighted average excludes investments for which the significant unobservable input was not utilized in the fair value determination.
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The following table, which is not intended to be all inclusive, presents the significant unobservable inputs of the Company’s Level 3 investments as of December 31, 2015 (dollars in thousands):
Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | Weighted Average (2) | |||||||
LMM equity investments | $ | 24,165 | Discounted Cash Flows | WACC | 11.9% - 16.3% | 13.9% | |||||
Market Approach/Enterprise Value | EBITDA Multiples (1) | 5.0x - 18.8x | 10.8x | ||||||||
NAV Multiple | 2.0x | 2.0x | |||||||||
LMM debt investments | $ | 61,295 | Discounted Cash Flows | Expected Principal Recovery | 100.0% | 100.0% | |||||
Risk Adjusted Discount Factor | 10.3% - 14.5% | 12.7% | |||||||||
Private Loan debt investments | $ | 60,173 | Market Approach | Third Party Quotes | 96.5% - 99.0% | 97.7% | |||||
Private Loan debt investments | $ | 50,385 | Discounted Cash Flows | Expected Principal Recovery | 16.6% - 100.0% | 98.1% | |||||
Risk Adjusted Discount Factor | 9.1% - 15.4% | 10.5% | |||||||||
Private Loan equity investments | $ | 530 | Market Approach/Enterprise Value | EBITDA Multiples (1) | 4.5x - 10.8x | 9.1x | |||||
Revenue Multiples (1) | 3.1x | 3.1x | |||||||||
WACC | 12.5% | 12.5% | |||||||||
Middle Market debt investments | $ | 645,913 | Market Approach | Third Party Quotes | 12.1% - 100.1% | 91.5% | |||||
Other Portfolio investments | $ | 10,527 | Market Approach | NAV | 98.9% | 98.9% | |||||
$ | 852,988 |
(1) EBITDA may include pro forma adjustments and/or other add-backs based on specific circumstances related to each investment.
(2) Weighted average excludes investments for which the significant unobservable input was not utilized in the fair value determination.
The following table provides a summary of changes in fair value of the Company’s Level 3 portfolio investments for the three months ended March 31, 2016 (dollars in thousands):
Type of Investment | January 1, 2016 Fair Value | Transfers Into Level 3 Hierarchy | PIK Interest Accrual | New Investments (1) | Sales/ Repayments | Net Unrealized Appreciation (Depreciation) | Net Realized Gain (Loss) | March 31, 2016 Fair Value | |||||||||||||||||||||||
LMM Equity | $ | 24,165 | $ | — | $ | (72 | ) | $ | 613 | $ | — | $ | 2,957 | $ | — | $ | 27,663 | ||||||||||||||
LMM Debt | 61,295 | — | 16 | 5,356 | (1,218 | ) | 396 | — | 65,845 | ||||||||||||||||||||||
Private Loan Equity | 530 | — | — | 502 | — | (74 | ) | — | 958 | ||||||||||||||||||||||
Private Loan Debt | 110,558 | — | 56 | 16,129 | (7,516 | ) | (567 | ) | (160 | ) | 118,500 | ||||||||||||||||||||
Middle Market | 645,913 | — | 8 | 48,136 | (48,794 | ) | (16,943 | ) | (486 | ) | 627,834 | ||||||||||||||||||||
Other Portfolio | 10,527 | — | — | 6,537 | — | (32 | ) | — | 17,032 | ||||||||||||||||||||||
Total | $ | 852,988 | $ | — | $ | 8 | $ | 77,273 | $ | (57,528 | ) | $ | (14,263 | ) | $ | (646 | ) | $ | 857,832 |
(1) Column includes changes to investments due to the net accretion of discounts/premiums and amortization of fees.
The following table provides a summary of changes in fair value of the Company’s Level 3 portfolio investments for the three months ended March 31, 2015 (dollars in thousands):
Type of Investment | January 1, 2015 Fair Value | Transfers Into Level 3 Hierarchy | PIK Interest Accrual | New Investments (1) | Sales/ Repayments | Net Unrealized Appreciation (Depreciation) | Net Realized Gain (Loss) | March 31, 2015 Fair Value | |||||||||||||||||||||||
LMM Equity | $ | 9,808 | $ | — | $ | — | $ | 6,600 | $ | — | $ | 860 | $ | — | $ | 17,268 | |||||||||||||||
LMM Debt | 23,808 | — | 6 | 8,221 | (240 | ) | 67 | (30 | ) | 31,832 | |||||||||||||||||||||
Private Loan Equity | — | — | — | 100 | — | — | — | 100 | |||||||||||||||||||||||
Private Loan Debt | 47,655 | — | 188 | 10,943 | (126 | ) | (65 | ) | — | 58,595 | |||||||||||||||||||||
Middle Market | 391,016 | — | — | 180,203 | (23,751 | ) | 2,978 | 50 | 550,496 | ||||||||||||||||||||||
Other Portfolio | 1,575 | — | — | — | — | — | — | 1,575 | |||||||||||||||||||||||
Total | $ | 473,862 | $ | — | $ | 194 | $ | 206,067 | $ | (24,117 | ) | $ | 3,840 | $ | 20 | $ | 659,866 |
(1) Column includes changes to investments due to the net accretion of discounts/premiums and amortization of fees.
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For the three months ended March 31, 2016 and 2015, there were no transfers between Level 2 and Level 3 portfolio investments.
Portfolio Investment Composition
The composition of the Company’s investments as of March 31, 2016, at cost and fair value, was as follows (dollars in thousands):
Investments at Cost | Cost Percentage of Total Portfolio | Investments at Fair Value | Fair Value Percentage of Total Portfolio | ||||||||||
First lien secured debt investments | $ | 729,455 | 79.0 | % | $ | 672,812 | 78.4 | % | |||||
Second lien secured debt investments | 150,901 | 16.3 | 138,834 | 16.2 | |||||||||
Unsecured debt investments | 2,645 | 0.3 | 533 | 0.1 | |||||||||
Equity investments | 38,623 | 4.2 | 43,576 | 5.1 | |||||||||
Equity warrants | 2,169 | 0.2 | 2,077 | 0.2 | |||||||||
Total | $ | 923,793 | 100.0 | % | $ | 857,832 | 100.0 | % |
The composition of the Company’s investments as of December 31, 2015, at cost and fair value, was as follows (dollars in thousands):
Investments at Cost | Cost Percentage of Total Portfolio | Investments at Fair Value | Fair Value Percentage of Total Portfolio | ||||||||||
First lien secured debt investments | $ | 719,941 | 79.6 | % | $ | 676,437 | 79.3 | % | |||||
Second lien secured debt investments | 148,906 | 16.5 | 140,459 | 16.5 | |||||||||
Unsecured debt investments | 2,630 | 0.3 | 870 | 0.1 | |||||||||
Equity investments | 32,025 | 3.5 | 34,020 | 4.0 | |||||||||
Equity warrants | 1,187 | 0.1 | 1,202 | 0.1 | |||||||||
Total | $ | 904,689 | 100.0 | % | $ | 852,988 | 100.0 | % |
The composition of the Company’s investments by geographic region as of March 31, 2016, at cost and fair value, was as follows (dollars in thousands) (since the Other Portfolio investments do not represent a single geographic region, this information excludes Other Portfolio investments):
Investments at Cost | Cost Percentage of Total Portfolio | Investments at Fair Value | Fair Value Percentage of Total Portfolio | ||||||||||
Northeast | $ | 183,087 | 20.2 | % | $ | 174,206 | 20.7 | % | |||||
Southeast | 188,433 | 20.8 | 191,453 | 22.8 | |||||||||
West | 137,189 | 15.1 | 121,952 | 14.5 | |||||||||
Southwest | 161,980 | 17.9 | 126,919 | 15.1 | |||||||||
Midwest | 178,477 | 19.7 | 172,761 | 20.5 | |||||||||
Non-United States | 57,433 | 6.3 | 53,514 | 6.4 | |||||||||
Total | $ | 906,599 | 100.0 | % | $ | 840,805 | 100.0 | % |
The composition of the Company’s investments by geographic region as of December 31, 2015, at cost and fair value, was as follows (dollars in thousands) (since the Other Portfolio investments do not represent a single geographic region, this information excludes Other Portfolio investments):
Investments at Cost | Cost Percentage of Total Portfolio | Investments at Fair Value | Fair Value Percentage of Total Portfolio | ||||||||||
Northeast | $ | 178,900 | 20.0 | % | $ | 171,284 | 20.3 | % | |||||
Southeast | 188,237 | 21.1 | 188,401 | 22.4 | |||||||||
West | 140,576 | 15.7 | 127,353 | 15.1 | |||||||||
Southwest | 159,579 | 17.8 | 135,473 | 16.1 | |||||||||
Midwest | 168,769 | 18.9 | 165,113 | 19.6 | |||||||||
Non-United States | 57,971 | 6.5 | 54,837 | 6.5 | |||||||||
Total | $ | 894,032 | 100.0 | % | $ | 842,461 | 100.0 | % |
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The composition of the Company’s total investments by industry as of March 31, 2016 and December 31, 2015, at cost and fair value was as follows (since the Other Portfolio investments do not represent a single industry, this information excludes Other Portfolio investments):
Cost | Fair Value | ||||||||||
March 31, 2016 | December 31, 2015 | March 31, 2016 | December 31, 2015 | ||||||||
Hotels, Restaurants, and Leisure | 10.4 | % | 10.7 | % | 11.1 | % | 11.2 | % | |||
Media | 7.9 | 7.8 | 8.0 | 7.9 | |||||||
Internet Software and Services | 5.4 | 4.2 | 5.8 | 4.4 | |||||||
IT Services | 5.4 | 5.4 | 5.5 | 5.5 | |||||||
Commercial Services and Supplies | 5.3 | 5.4 | 5.4 | 5.5 | |||||||
Oil, Gas, and Consumable Fuels | 4.9 | 4.9 | 2.4 | 3.1 | |||||||
Specialty Retail | 4.2 | 4.1 | 3.7 | 3.7 | |||||||
Auto Components | 4.0 | 3.9 | 4.2 | 3.9 | |||||||
Health Care Providers and Services | 4.0 | 4.7 | 4.3 | 4.7 | |||||||
Diversified Consumer Services | 4.0 | 4.7 | 3.6 | 4.5 | |||||||
Energy Equipment and Services | 3.5 | 3.4 | 2.3 | 2.8 | |||||||
Food Products | 3.4 | 3.1 | 3.5 | 3.2 | |||||||
Construction and Engineering | 3.2 | 3.0 | 3.4 | 3.1 | |||||||
Diversified Telecommunication Services | 3.1 | 3.1 | 3.2 | 3.3 | |||||||
Software | 3.1 | 2.4 | 3.3 | 2.6 | |||||||
Electronic Equipment, Instruments & Components | 2.7 | 2.8 | 2.8 | 2.8 | |||||||
Leisure Equipment and Products | 2.3 | 2.1 | 2.4 | 2.2 | |||||||
Health Care Equipment and Supplies | 2.1 | 2.1 | 2.4 | 2.2 | |||||||
Pharmaceuticals | 2.1 | 2.1 | 2.2 | 2.3 | |||||||
Diversified Financial Services | 1.9 | 1.7 | 2.0 | 1.7 | |||||||
Internet and Catalog Retail | 1.6 | 1.6 | 1.5 | 1.6 | |||||||
Machinery | 1.5 | 1.6 | 2.0 | 1.8 | |||||||
Aerospace and Defense | 1.5 | 1.5 | 1.4 | 1.6 | |||||||
Tobacco | 1.2 | 1.3 | 1.3 | 1.3 | |||||||
Distributors | 1.2 | 1.2 | 1.3 | 1.3 | |||||||
Textiles, Apparel & Luxury Goods | 1.1 | 1.1 | 1.0 | 1.0 | |||||||
Professional Services | 1.0 | 1.0 | 1.1 | 1.0 | |||||||
Marine | 0.9 | 0.9 | 0.9 | 0.9 | |||||||
Personal Products | 0.8 | 0.8 | 0.9 | 0.9 | |||||||
Metals and Mining | 0.8 | 0.8 | 0.9 | 0.9 | |||||||
Capital Markets | 0.8 | 0.8 | 0.9 | 0.9 | |||||||
Building Products | 0.8 | 0.8 | 0.9 | 0.9 | |||||||
Consumer Finance | 0.7 | 0.4 | 0.8 | 0.4 | |||||||
Insurance | 0.7 | 0.7 | 0.7 | 0.7 | |||||||
Food & Staples Retailing | 0.5 | 0.6 | 0.6 | 0.6 | |||||||
Automobiles | 0.5 | 0.6 | 0.6 | 0.6 | |||||||
Communications Equipment | 0.5 | 0.6 | 0.6 | 0.6 | |||||||
Air Freight & Logistics | 0.3 | 0.3 | 0.4 | 0.5 | |||||||
Chemicals | 0.3 | 0.3 | 0.3 | 0.3 | |||||||
Containers and Packaging | 0.2 | 0.2 | 0.2 | 0.2 | |||||||
Airlines | 0.2 | 0.2 | 0.2 | 0.2 | |||||||
Utilities | — | 1.1 | — | 1.2 | |||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
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Note 4 — Borrowings
On March 11, 2014, the Company entered into a senior secured revolving credit agreement (the "Capital One Credit Facility") with Capital One, National Association (“Capital One”), as administrative agent, and with Capital One and other financial institutions as lenders. The Capital One Credit Facility, as amended, provides a borrowing capacity of $125.0 million, with an accordion provision allowing borrowing capacity to increase to $150 million. As of March 31, 2016, the Company had borrowings of $65.0 million outstanding and $60.0 million available on the Capital One Credit Facility. The Company estimated that the outstanding borrowings approximated fair value. As of March 31, 2016, the Company was not aware of any instances of noncompliance with covenants related to the Capital One Credit Facility.
On May 18, 2015, HMS Funding entered into an amended and restated credit agreement (the “Deutsche Bank Credit Facility”) among HMS Funding, the Company, as equityholder and servicer, Deutsche Bank AG, New York Branch (“Deutsche Bank”), as administrative agent, the financial institutions party thereto as lenders (together with Deutsche Bank, the “HMS Funding Lenders”), and U.S. Bank National Association, as collateral agent and collateral custodian. The Deutsche Bank Credit Facility, as amended, provides a borrowing capacity of $385.0 million. As of March 31, 2016, the Company had borrowings of $330.0 million outstanding and $55.0 million available on the Deutsche Bank Credit Facility. The Company estimated that the outstanding borrowings approximated fair value. As of March 31, 2016, the Company was not aware of any instances of noncompliance with covenants related to the Deutsche Bank Credit Facility.
Note 5 – Financial Highlights
The following is a schedule of financial highlights of the Company for the three months ended March 31, 2016 and March 31, 2015.
Per Share Data: | Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||
NAV at beginning of period | $ | 7.88 | $ | 8.40 | |||
Results from Operations | |||||||
Net investment income (1) (2) | 0.19 | 0.17 | |||||
Net realized appreciation (depreciation) (1) (2) | (0.01 | ) | 0.01 | ||||
Net unrealized appreciation (depreciation) (1) (2) | (0.22 | ) | 0.10 | ||||
Net increase (decrease) in net assets resulting from operations | (0.04 | ) | 0.28 | ||||
Stockholder distributions (1) (3) | |||||||
Distributions from net investment income (1) (2) | (0.17 | ) | (0.17 | ) | |||
Distributions from realized appreciation (1) (2) | — | — | |||||
Net decrease in net assets resulting from stockholder distributions | (0.17 | ) | (0.17 | ) | |||
Capital share transactions | |||||||
Issuance of common stock above (below) NAV (4), net of offering costs (1) | — | 0.06 | |||||
Net increase (decrease) in net assets resulting from capital share transactions | — | 0.06 | |||||
Other (5) | — | — | |||||
NAV at end of the period | $ | 7.67 | $ | 8.57 | |||
Shares outstanding at end of period | 64,661,916 | 41,153,325 | |||||
Weighted average shares outstanding | 63,230,882 | 36,265,941 |
(1) | Based on weighted average number of shares of common stock outstanding for the period. |
(2) | Changes in net realized income and net unrealized appreciation (depreciation) from investments can change significantly from period to period. |
(3) | The stockholder distributions represent the stockholder distributions declared for the period. |
(4) | The continuous issuance of shares of common stock may cause an incremental increase in NAV per share due to the sale of shares at the then prevailing public offering price in excess of NAV per share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the NAV per share on each share transaction date, divided by (ii) the weighted average shares of common stock outstanding for the period. |
(5) | Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date. |
17
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | ||||||
(dollars in thousands) | |||||||
NAV at end of period | $ | 495,673 | $ | 352,480 | |||
Average net assets | $ | 493,663 | $ | 306,272 | |||
Average Credit Facilities borrowings | $ | 387,500 | $ | 223,432 | |||
Ratios to average net assets: | |||||||
Ratio of total expenses to average net assets (1) | 1.83 | % | 1.78 | % | |||
Ratio of total expenses, excluding interest expense, to average net assets (1) | 1.08 | % | 1.14 | % | |||
Ratio of net investment income to average net assets | 2.48 | % | 2.07 | % | |||
Portfolio turnover ratio | 6.73 | % | 4.25 | % | |||
Total return (2) | (0.52 | )% | 4.05 | % |
(1) | For the three months ended March 31, 2016 and the three months ended March 31, 2015, the Advisers waived base management fees of $0 and $0, respectively, subordinated incentive fees of approximately $493,000 and $358,000, respectively, and administrative services expenses of approximately $533,000 and $437,000, respectively. The ratio is calculated by reducing the expenses to reflect the waiver of expenses and reimbursement of administrative services in both periods presented. See Note 9-Related Party Transactions and Arrangements for further discussion of fee waivers provided by the Advisers. |
(2) | Total return is calculated on the change in NAV per share and stockholder distributions declared per share over the reporting period. |
Note 6 – Stockholder Distributions
The following table reflects the cash distributions per share that the Company declared on its common stock during the three months ended March 31, 2016 and March 31, 2015 (dollars in thousands except per share amounts).
Distributions | |||||||
Per Share | Amount | ||||||
2016 | |||||||
Three months ended March 31, 2016 | $ | 0.17 | $ | 11,037 | |||
2015 | |||||||
Three months ended March 31, 2015 | $ | 0.17 | $ | 6,260 |
On March 23, 2016, with the authorization of the Company’s board of directors, the Company declared distributions to its stockholders for the period of April 2016 through June 2016. These distributions have been, or will be, calculated based on stockholders of record each day from April 1, 2016 through June 30, 2016 in an amount equal to $0.00191781 per share, per day. Distributions are paid on the first business day following the completion of each month to which they relate.
The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a distribution, its stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock.
The following table reflects the sources of the cash distributions that the Company declared and, in some instances, paid on its common stock during the three months ended March 31, 2016 and March 31, 2015.
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||
Source of Distribution | Distribution Amount | Percentage | Distribution Amount | Percentage | |||||||||
Net realized income from operations (before waiver of incentive fees) | $ | 11,037 | 100 | % | $ | 5,989 | 96 | % | |||||
Waiver of base management and incentive fees | — | — | % | 271 | 4 | % | |||||||
Total | $ | 11,037 | 100 | % | $ | 6,260 | 100 | % |
The Company may fund its cash distributions from all sources of funds legally available, including stock offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies, and fee and expense waivers from the Advisers. The Company has not established limits on the amount of funds that the Company may use from legally available sources to make distributions. The Company expects that for the foreseeable
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future, a portion of the distributions may be paid from sources other than net realized income from operations, which may include stock offering proceeds, borrowings, and fee and expense waivers from the Advisers. See Note 9 - Related Party Transactions and Arrangements - Advisory Agreements and Conditional Fee Waiver.
The Company’s distributions may exceed its earnings and, as a result, a portion of the distributions it makes may represent a return of capital for U.S. federal income tax purposes. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.
Note 7 – Taxable Income
The Company has elected to be treated for U.S. federal income tax purposes as a RIC. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on net ordinary income or capital gains that the Company timely distributes to its stockholders each taxable year from taxable earnings and profits. To qualify as a RIC in any taxable year, the Company must, among other things, satisfy certain source-of-income and asset diversification requirements. In addition, the Company must distribute an amount in each taxable year generally at least equal to 90% of its investment company taxable income, determined without regard to any deduction for dividends paid, in order to maintain its ability to be subject to taxation as a RIC (the "Annual Distribution Requirement"). As a part of maintaining its RIC status, undistributed taxable income (subject to a 4% excise tax) pertaining to a given taxable year may be distributed up to 12 months subsequent to the end of that taxable year, provided such distributions are declared prior to the earlier of (1) eight-and-one-half months after the close of that taxable year or (2) the filing of the federal income tax return for such prior taxable year. In order to avoid excise tax, the Company needs to distribute, in respect of each calendar year an amount at least equal to the sum of (1) 98.0% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of its capital gain in excess of capital loss, or capital gain net income, (adjusted for certain ordinary losses) for the one-year period ending October 31 in that calendar year (or, if the Company so elects for that calendar year) and (3) any net ordinary income and capital gain net income for preceding years that was not distributed with respect to such years and on which the Company paid no U.S. federal income tax (the "Excise Tax Avoidance Requirement"). For the taxable year ended December 31, 2014, approximately $59,000, or $0.0019 per share of the Company's taxable income was distributed in 2015, prior to the filing of its federal income tax return for the 2014 taxable year, and no portion of this amount was subject to the 4% nondeductible excise tax. For the taxable year ended December 31, 2015, the Company estimated approximately $3.8 million, or $0.0615 per share, of its taxable income will be distributed in 2016, prior to the filing of its federal income tax return for the 2015 taxable year. As a result, the Company anticipates that it will be subject to a $108,000 nondeductible excise tax for the 2015 taxable year.
Listed below is a reconciliation of "Net increase (decrease) in net assets resulting from operations" to taxable income and to total distributions declared to common stockholders for the three months ended March 31, 2016 and 2015 (dollars in thousands).
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | ||||||
Net increase (decrease) in net assets resulting from operations | $ | (2,669 | ) | $ | 10,187 | ||
Net change in unrealized (appreciation) depreciation | 14,263 | (3,840 | ) | ||||
Income tax (benefit) provision | 23 | 6 | |||||
Pre-tax book (income) loss not consolidated for tax purposes | 89 | 10 | |||||
Book income and tax income differences, including debt origination, structuring fees, dividends, realized gains and changes in estimates | 14 | (136 | ) | ||||
Estimated taxable income (1) | 11,720 | 6,227 | |||||
Taxable income earned in prior year and carried forward for distribution in current year | 3,839 | 143 | |||||
Taxable income earned prior to period end and carried forward for distribution next period | (8,327 | ) | (2,463 | ) | |||
Dividend accrued as of period end and paid-in the following period | 3,805 | 2,353 | |||||
Taxable income earned to be carried forward | (4,522 | ) | (110 | ) | |||
Total distributions accrued or paid to common stockholders | $ | 11,037 | $ | 6,260 |
(1) | The Company's taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate. |
The income tax expense, or benefit, and the related tax assets and liabilities generated by HMS Equity Holding, if any, are reflected in the Company’s Condensed Consolidated Statement of Operations. For the three months ended March 31, 2016 and 2015, the
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Company recognized a net income tax (benefit) provision of $(23,000) and $6,000, respectively, related to deferred taxes of $4.4 million and $3,000 respectively, and other taxes of $(23,000) and $3,000, respectively, offset by a valuation allowance of $(4.4) million and $0, respectively. For the three months ended March 31, 2016 and 2015, the other taxes included $(23,000) and $3,000, respectively, related to accruals for state and other taxes.
The net deferred tax asset at March 31, 2016 and December 31, 2015 was $0 and $0, respectively, of which $157,000 and $4.8 million, respectively, related to current year net loss on portfolio investments held by HMS Equity Holding and $2.9 million and $187,000, respectively, related to net loss carryforwards from historical realized losses on portfolio investments held by HMS Equity Holding offset by $640,000 and $599,000, respectively, related to basis differences of portfolio investments held by HMS Equity Holding which are “pass through” entities for tax purposes and $4.4 million and $4.4 million, respectively, related to a valuation allowance. Based on HMS Equity Holding's short operating history, management believes it is more likely than not that there will be inadequate profits in HMS Equity Holding against which the deferred tax assets can be offset. Accordingly, the Company recorded a Valuation Allowance against such deferred tax asset.
The following table sets forth the significant components of net deferred tax assets and liabilities as of March 31, 2016 and December 31, 2015 (amounts in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 3,026 | $ | 2,869 | ||||
Net basis differences in portfolio investments | — | — | ||||||
Net unrealized depreciation of portfolio investments | 2,049 | 2,143 | ||||||
Total deferred tax assets | 5,075 | 5,012 | ||||||
Deferred tax liabilities: | ||||||||
Net basis differences in portfolio investments | (640 | ) | (599 | ) | ||||
Net unrealized appreciation of portfolio investments | — | — | ||||||
Other | — | — | ||||||
Total deferred tax liabilities | (640 | ) | (599 | ) | ||||
Valuation allowance | (4,435 | ) | (4,413 | ) | ||||
Total net deferred tax assets (liabilities) | $ | — | $ | — |
For federal income tax purposes, the net loss carryforwards expire in various taxable years from 2034 through 2036. The timing and manner in which HMS Equity Holding expects to utilize any net loss carryforwards in such taxable years, or in total, may be limited in the future under the provisions of the Code.
The determination of the tax attributes of the Company’s distributions is made annually at the end of the Company’s taxable year based upon the Company’s taxable income for the full taxable year and distributions paid for the full taxable year. Therefore, a determination made on an interim basis may not be representative of the actual tax attributes of distributions for a full year. The actual tax characteristics of distributions to stockholders will be reported to stockholders subject to information reporting shortly after the close of each calendar year on Form 1099-DIV.
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 GAAP and those differences could be material. These book-to-tax differences, such as the non-deductible excise tax, have no impact on net assets.
Note 8 – Supplemental Cash Flow Disclosures
Listed below are the supplemental cash flow disclosures for the three months ended March 31, 2016 and March 31, 2015 (dollars in thousands):
Supplemental Disclosure of Cash Flow Information | Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | ||||||
Cash paid for interest | $ | 3,231 | $ | 1,749 | ||||
Cash paid for income taxes | $ | 182 | $ | 9 | ||||
Supplemental Disclosure of Non-Cash Flow Information | ||||||||
Stockholder distributions declared and unpaid | $ | 3,805 | $ | 2,353 | ||||
Stockholder distributions reinvested | $ | 5,794 | $ | 2,884 | ||||
Change in unpaid deferred offering costs | $ | 1,100 | $ | 921 |
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Supplemental Disclosure of Cash Flow Information | Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | ||||||
Unpaid deferred financing costs | $ | 73 | $ | — | ||||
Unpaid sales commissions and dealer manager fee | $ | 247 | $ | — |
Note 9 — Related Party Transactions and Arrangements
Advisory Agreements and Conditional Fee Waiver
The Company and the Adviser have entered into two expense support and conditional reimbursement agreements (as amended from time to time, the “2013 and 2014 Expense Reimbursement Agreements”), pursuant to which the Adviser could pay the Company up to 100% of its operating expenses through December 31, 2015 (the “Expense Support Payment”) in order to achieve a reasonable level of expenses relative to its investment income (the “Operating Expense Objective”). The Company's board of directors, in its sole discretion, may approve the repayment of unreimbursed Expense Support Payments (a “Reimbursement Payment”) upon a determination by the board of directors that the Company has achieved the Operating Expense Objective in any quarter following receipt by the Company of an Expense Support Payment. The Company may reimburse any unreimbursed Expense Support Payments within three years from the date each respective Expense Support Payment was determined. Any Expense Support Payments that remain unreimbursed three years after such payment will be permanently waived.
The Company and the Advisers have entered into a conditional fee waiver agreement (as amended from time to time, the “Conditional Fee Waiver Agreement”), pursuant to which the Advisers could waive certain fees through December 31, 2015 upon the occurrence of any event that, in the Advisers’ sole discretion, causes such waivers to be deemed necessary. The previously waived fees are potentially subject to repayment by the Company, if at all, within a period not to exceed three years from the date of each respective fee waiver.
The Company and the Advisers have entered into a conditional income incentive fee waiver agreement (the “2016 Conditional Income Incentive Fee Waiver Agreement”), pursuant to which, for a period from January 1, 2016 through June 30, 2016, the Advisers could waive the “subordinated incentive fee on income,” as such term is defined in the Investment Advisory Agreement, upon the occurrence of any event that, in the Advisers’ sole discretion, causes such waiver to be deemed necessary. The 2016 Conditional Income Incentive Fee Waiver Agreement may require the Company to repay the Advisers for previously waived reimbursement of Expense Support Payments or waived base management fees or incentive fees under certain circumstances. The previously waived fees are potentially subject to repayment by the Company, if at all, within a period not to exceed three years from the date of each respective fee waiver. Thus, in any quarter where a surplus exists, that surplus will be available, subject to approval of the board of directors, to reimburse waived fees and Expense Support Payments as follows:
1. | First, to reimburse Expense Support Payments, beginning with the earliest year eligible for reimbursement; and |
2. | Second, to reimburse all waived fees, beginning with the earliest year eligible for reimbursement. |
Reimbursement of previously waived fees will only be permitted with the approval of the board of directors and if the operating expense ratio is equal to or less than the operating expense ratio at the time the corresponding fees were waived and if the annualized rate of regular cash distributions to stockholders is equal to or greater than the annualized rate of the regular cash distributions at the time the corresponding fees were waived.
For the three months ended March 31, 2016 and 2015, the Company incurred base management fees of approximately $4.5 million and $3.0 million, respectively, and the Advisers waived base management fees of $0 and $0, respectively. Accordingly, net of waivers, the Company paid base management fees of approximately $4.5 million for the three months ended March 31, 2016 and paid base management fees of approximately $3.0 million for the three months ended March 31, 2015. For the three months ended March 31, 2016 and 2015, the Company incurred capital gains incentive fees of $0 and $0, respectively, and subordinated incentive fees on income of approximately $493,000 and $358,000, respectively. For the three months ended March 31, 2016 and 2015, the Advisers waived capital gains incentive fees of $0 and $0, respectively, and subordinated incentive fees on income of approximately $493,000 and $358,000, respectively.
For the three months ended March 31, 2016 and 2015, the Company did not record an accrual for any previously waived fees. Any future reimbursement of previously waived fees to the Advisers will not be accrued until the reimbursement of the waived fees becomes probable and estimable, which will be upon approval of the Company’s board of directors. To date, none of the previously waived fees has been approved by the board of directors for reimbursement.
The table below presents the fees waived by the Advisers and the timing of potential reimbursement of waived fees (dollars in thousands). Previously waived fees will only be reimbursed with the approval of the Company's board of directors and if the
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"Operating Expense Ratio" (as described in footnote 3 to the table below) is equal to or less than the Company's operating expense ratio at the time the corresponding fees were waived and if the annualized rate of the Company's regular cash distributions to stockholders is equal to or greater than the annualized rate of the Company's regular cash distributions at the time the corresponding fees were waived.
Management Fee (1) | Subordinated Incentive Fee (1) | Capital Gain Incentive Fee (1) | Expense Support (1) | ||||||||||||||||||||||||||||
Quarter Ended | Waivers | Repaid to Adviser (2) | Waivers | Repaid to Adviser (2) | Waivers | Repaid to Adviser (2) | Payments | Repaid to Adviser (2) | Operating Expense Ratio (3) | Annualized Distribution Rate (4) | Eligible to be Repaid Through | ||||||||||||||||||||
6/30/2012 | $ | 31 | $ | — | $ | 18 | $ | — | $ | — | $ | — | $ | — | $ | — | 1.35% | 7.00% | Expired | ||||||||||||
9/30/2012 | $ | 97 | $ | — | $ | 52 | $ | — | $ | 3 | $ | — | $ | — | $ | — | 1.97% | 7.00% | Expired | ||||||||||||
12/31/2012 | $ | 104 | $ | — | $ | 53 | $ | — | $ | — | $ | — | $ | — | $ | — | 2.96% | 7.00% | Expired | ||||||||||||
3/31/2013 | $ | 84 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 1.86% | 7.00% | Expired | ||||||||||||
6/30/2013 | $ | 118 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 1.36% | 7.00% | 6/30/2016 | ||||||||||||
9/30/2013 | $ | 268 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 1.22% | 7.00% | 9/30/2016 | ||||||||||||
12/31/2013 | $ | 309 | $ | — | $ | — | $ | — | $ | 5 | $ | — | $ | 153 | $ | — | 0.49% | 7.00% | 12/31/2016 | ||||||||||||
3/31/2014 | $ | 306 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 1.28% | 7.00% | 3/31/2017 | ||||||||||||
6/30/2014 | $ | 548 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 1.28% | 7.00% | 6/30/2017 | ||||||||||||
9/30/2014 | $ | 821 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 328 | $ | — | 1.23% | 7.00% | 9/30/2017 | ||||||||||||
12/31/2014 | $ | 148 | $ | — | $ | 451 | $ | — | $ | — | $ | — | $ | — | $ | — | 1.70% | 7.00% | 12/31/2017 | ||||||||||||
3/31/2015 | $ | — | $ | — | $ | 358 | $ | — | $ | — | $ | — | $ | — | $ | — | 1.78% | 7.18% | 3/31/2018 | ||||||||||||
6/30/2015 | $ | — | $ | — | $ | 930 | $ | — | $ | — | $ | — | $ | — | $ | — | 1.69% | 7.07% | 6/30/2018 | ||||||||||||
9/30/2015 | $ | — | $ | — | $ | 155 | $ | — | $ | — | $ | — | $ | — | $ | — | 2.11% | 7.07% | 9/30/2018 | ||||||||||||
12/31/2015 | $ | — | $ | — | $ | 1,159 | $ | — | $ | — | $ | — | $ | — | $ | — | 2.27% | 7.78% | 12/31/2018 | ||||||||||||
3/31/2016 | $ | — | $ | — | $ | 493 | $ | — | $ | — | $ | — | $ | — | $ | — | 1.83% | 8.14% | 3/31/2019 |
(1) | Fees waived pursuant to the Conditional Fee Waiver Agreement and the 2016 Conditional Income Incentive Fee Waiver Agreement and Expense Support Payments pursuant to the 2013 and 2014 Expense Reimbursement Agreements. |
(2) | Subject to the approval of the Company’s board of directors, in future periods, previously waived fees may be paid to the Advisers, if the Company’s cumulative net increase in net assets resulting from operations exceeds the amount of cumulative distributions paid to stockholders. The previously waived fees are potentially subject to repayment by the Company, if at all, within a period not to exceed three years from the date of each respective fee waiver. To date, none of the previously waived fees and Expense Support Payments have been approved for reimbursement by the Company’s board of directors. |
(3) | The “Operating Expense Ratio” is calculated on a quarterly basis as a percentage of average net assets and includes all expenses borne by the Company, except for base management and incentive fees and administrative expenses waived by the Advisers and organizational and offering expenses. For the quarter ended December 31, 2013, expenses have been reduced by $153,000, the amount of the Expense Support Payment received in 2013 from the Adviser. For the quarter ended September 30, 2014, expenses have been reduced by $328,000, which Expense Support Payment was received from the Adviser on October 30, 2014. |
(4) | “Annualized Distribution Rate” equals $0.00191781 per share, per day. “Annualized Distribution Rate” does not include the special stock dividend paid to stockholders on September 14, 2012 and was based on the Company's offering price per share as of the final day of the quarter. |
Pursuant to the Investment Advisory Agreement and Sub-Advisory Agreement, the Company is required to pay or reimburse the Advisers for administrative services expenses, which include all costs and expenses related to the Company's day-to-day administration and management not related to advisory services. The Advisers do not earn any profit under their provision of administrative services to the Company. For the three months ended March 31, 2016 and 2015, the Company incurred, and the Advisers waived the reimbursement of, administrative services expenses of approximately $533,000 and $437,000, respectively. On May 9, 2016, the Company and the Advisers agreed to an amendment to the 2014 Expense Reimbursement Agreement, which extended the period for waiver of reimbursement of administrative services expenses accrued pursuant to the Investment Advisory Agreement and the Sub-Advisory Agreement through June 30, 2016. The waiver of the reimbursement of administrative services expenses is not subject to future reimbursement.
The table below presents the administrative services expenses waived by the Advisers (dollars in thousands).
Administrative Services | |||||||||||||
Quarter Ended | Waivers | Repaid to Adviser | Operating Expense Ratio (1) | Annualized Distribution Rate (2) | Eligible to be Repaid Through (3) | ||||||||
6/30/2012 | $ | 25 | $ | — | 1.35% | 7.00% | Not Eligible to be Repaid | ||||||
9/30/2012 | $ | 129 | $ | — | 1.97% | 7.00% | Not Eligible to be Repaid | ||||||
12/31/2012 | $ | 284 | $ | — | 2.96% | 7.00% | Not Eligible to be Repaid |
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Administrative Services | |||||||||||||
Quarter Ended | Waivers | Repaid to Adviser | Operating Expense Ratio (1) | Annualized Distribution Rate (2) | Eligible to be Repaid Through (3) | ||||||||
3/31/2013 | $ | 233 | $ | — | 1.86% | 7.00% | Not Eligible to be Repaid | ||||||
6/30/2013 | $ | 222 | $ | — | 1.36% | 7.00% | Not Eligible to be Repaid | ||||||
9/30/2013 | $ | 234 | $ | — | 1.22% | 7.00% | Not Eligible to be Repaid | ||||||
12/31/2013 | $ | 329 | $ | — | 0.49% | 7.00% | Not Eligible to be Repaid | ||||||
3/31/2014 | $ | 329 | $ | — | 1.28% | 7.00% | Not Eligible to be Repaid | ||||||
6/30/2014 | $ | 385 | $ | — | 1.28% | 7.00% | Not Eligible to be Repaid | ||||||
9/30/2014 | $ | 371 | $ | — | 1.23% | 7.00% | Not Eligible to be Repaid | ||||||
12/31/2014 | $ | 412 | $ | — | 1.70% | 7.00% | Not Eligible to be Repaid | ||||||
3/31/2015 | $ | 437 | $ | — | 1.78% | 7.18% | Not Eligible to be Repaid | ||||||
6/30/2015 | $ | 480 | $ | — | 1.69% | 7.07% | Not Eligible to be Repaid | ||||||
9/30/2015 | $ | 517 | $ | — | 2.11% | 7.07% | Not Eligible to be Repaid | ||||||
12/31/2015 | $ | 603 | $ | — | 2.27% | 7.78% | Not Eligible to be Repaid | ||||||
3/31/2016 | $ | 533 | $ | — | 1.83% | 8.14% | Not Eligible to be Repaid |
(1) | The “Operating Expense Ratio” is calculated on a quarterly basis as a percentage of average net assets and includes all expenses borne by the Company, except for base management and incentive fees and administrative expenses waived by the Advisers and organizational and offering expenses. For the quarter ended December 31, 2013, expenses have been reduced by $153,000, the amount of the Expense Support Payment received in 2013 from the Adviser. For the quarter ended September 30, 2014, expenses have been reduced by $328,000, which Expense Support Payment was received from the Adviser on October 30, 2014. |
(2) | “Annualized Distribution Rate” equals $0.00191781 per share, per day. “Annualized Distribution Rate” does not include the special stock dividend paid to stockholders on September 14, 2012 and was based on the Company's offering price per share as of the last day of the quarter. |
(3) | The Advisers have agreed to permanently waive reimbursement by the Company of administrative expenses through June 30, 2016. The administrative expenses are waived on a quarterly basis and are not eligible for future reimbursement from the Company to the Advisers. |
As of March 31, 2016 and December 31, 2015, the Adviser and Sub-Adviser have incurred approximately $10.7 million and $10.1 million, respectively, of offering costs on the Company’s behalf. As of March 31, 2016, approximately $9.3 million of offering costs has been reimbursed to the Advisers. The Company expects to reimburse the Advisers for the balance of such costs incurred on its behalf on a monthly basis up to a maximum aggregate amount of 1.5% of the gross stock offering proceeds.
The table below outlines fees incurred and expense reimbursements payable to Hines, Main Street and their affiliates for the three months ended March 31, 2016 and 2015 and amounts unpaid as of March 31, 2016 and December 31, 2015 (dollars in thousands).
Incurred | Unpaid as of | |||||||||||||||
Three Months Ended March 31, | March 31, 2016 | December 31, 2015 | ||||||||||||||
Type and Recipient | 2016 | 2015 | ||||||||||||||
Base Management Fees (1) - the Adviser, Sub-Adviser | $ | 4,494 | $ | 3,007 | $ | 4,496 | $ | 4,521 | ||||||||
Incentive Fees on Income (1) - the Adviser, Sub-Adviser | — | — | — | — | ||||||||||||
Capital Gains Incentive Fee (1) - the Adviser, Sub-Adviser | — | — | — | — | ||||||||||||
Offering Costs - the Adviser, Sub-Adviser | 308 | 555 | 7 | 1,107 | ||||||||||||
Expense Support from Adviser | — | — | — | — | ||||||||||||
Other (2) - the Adviser | 93 | 65 | 41 | 95 | ||||||||||||
Selling Commissions - Dealer Manager | 875 | 6,038 | 254 | — | ||||||||||||
Dealer Manager Fee - Dealer Manager | 423 | 2,619 | (7 | ) | — | |||||||||||
Due to Affiliates | $ | 4,791 | $ | 5,723 |
(1) | Net of amounts waived by the Advisers. |
(2) | Includes amounts the Adviser paid on behalf of the Company such as general and administrative services expenses. |
Note 10 – Share Repurchase Plan
Since inception of the share repurchase program, the Company funded the repurchase of $4.6 million in shares. For the three months ended March 31, 2016 and 2015, the Company funded $1.5 million and $289,011, respectively, for shares tendered for repurchase under the plan approved by the board of directors. Since inception of the share repurchase program, the Company has funded all redemption requests validly tendered and not withdrawn.
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For the Three Months Ended | Repurchase Date | Shares Repurchased | Percentage of Shares Tendered that were Repurchased | Repurchase Price per Share | Aggregate Consideration for Repurchased Shares | |||||||||
March 31, 2016 | 3/30/2016 | 200,508 | 100 | % | 7.62 | 1,527,873 |
Note 11 – Commitments and Contingencies
At March 31, 2016, the Company had a total of approximately $29.8 million in outstanding commitments comprised of (i) 16 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) three capital commitments that had not been fully called. The Company recognized unrealized depreciation of $98,000 on the outstanding unfunded loan commitments and unrealized appreciation of $14,000 on the outstanding unfunded capital commitments during three months ended March 31, 2016. At December 31, 2015, the Company had a total of approximately $34.1 million in outstanding commitments comprised of (i) 14 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) three capital commitments that had not been fully called. The Company recognized unrealized depreciation of $79,000 on the outstanding unfunded loan commitments and unrealized depreciation of $14,000 on the outstanding unfunded capital commitments during the year ended December 31, 2015.
Commitments and Contingencies | |||||||
(dollars in thousands) | |||||||
March 31, 2016 | December 31, 2015 | ||||||
Unfunded Loan Commitments | |||||||
AccuMed Corp. | $ | 250 | $ | 875 | |||
Apex Linen Services, Inc. | 1,003 | 1,003 | |||||
Arcus Hunting, LLC | 2,069 | 1,196 | |||||
BarFly Ventures, LLC | 1,531 | 1,531 | |||||
Buca C, LLC | 1,780 | 1,780 | |||||
CapFusion Holding, LLC | 1,600 | — | |||||
Datacom, LLC | 1,500 | 1,500 | |||||
Guerdon Modular Holdings, Inc. | 160 | 400 | |||||
Hojeij Branded Foods, Inc. | 2,000 | 2,143 | |||||
HW Temps LLC | 200 | 200 | |||||
Jackmont Hospitality, Inc. | 1,200 | 1,333 | |||||
LaMi Products, LLC | 1,765 | 1,521 | |||||
Minute Key, Inc. | 200 | 500 | |||||
Mystic Logistics, Inc. | 200 | 200 | |||||
Unirush LLC | 1,000 | — | |||||
Volusion, LLC | 3,000 | 3,000 | |||||
Unfunded Capital Commitments | |||||||
Brightwood Capital Fund III, LP | 1,250 | 1,250 | |||||
EIG Traverse Co-Investment, LP | 195 | 5,245 | |||||
Freeport First Lien Loan Fund III, LP | 8,936 | 10,423 | |||||
Total | $ | 29,839 | $ | 34,100 |
Note 12 – Subsequent Events
From April 1, 2016 through May 12, 2016, the Company raised approximately $15.5 million in the Offering. During this period, the Company funded approximately $13.5 million in investments and received proceeds from repayments and dispositions of approximately $34.5 million.
On April 20, 2016 and May 3, 2016, the Company increased its public offering price per share to $8.70 and $8.80, respectively, effective as of the Company's weekly closes on April 21, 2016 and May 5, 2016, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is based on the condensed consolidated financial statements as of March 31, 2016 (unaudited) and December 31, 2015, and for the three months ended March 31, 2016 and 2015. Amounts as of December 31, 2015 included in the unaudited condensed consolidated financial statements have been derived from the Company's audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as the audited consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2015. Capitalized terms used in this Item 2 have the same meaning as in the accompanying condensed consolidated financial statements in Item 1 unless otherwise defined in this Report.
We refer to HMS Income Fund, Inc. as the “Company,” and the use of “we,” “our,” “us” or similar pronouns in this Report refers to HMS Income Fund, Inc.
Forward-Looking Statements
Some of the statements in this Report constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this Report may include statements as to:
• | our future operating results; |
• | our business prospects and the prospects of our current and prospective portfolio companies; |
• | the impact of the investments that we expect to make; |
• | the ability of our portfolio companies to achieve their objectives; |
• | our expected financings and investments; |
• | the adequacy of our cash resources and working capital; |
• | the timing of cash flows, if any, from the operations of our portfolio companies; |
• | 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; |
• | the impact of increased competition; |
• | our contractual arrangements and relationships with third parties; |
• | the dependence of our future success on the general economy, including general economic trends, and its impact on the industries in which we invest; |
• | the relative and absolute performance of our investment adviser, HMS Adviser LP (the "Adviser"), a Texas limited partnership, including in identifying suitable investments for us; |
• | our ability to make distributions to our stockholders; |
• | the effects of applicable legislation and regulations and changes thereto; and |
• | the impact of future acquisitions and divestitures. |
In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Report involve risks and uncertainties.
Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part II-Item 1A. Risk Factors” and elsewhere in this Report. Other factors that could cause actual results to differ materially include:
• | changes in the economy; |
• | risks associated with possible disruption in our operations or the economy generally |
• | future changes in laws or regulations and conditions in our operating areas. |
We have based the forward-looking statements included in this Report on information available to us on the date of this Report. Except as required by the federal securities laws, we assume 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 Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this Report are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended.
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OVERVIEW
We are a specialty finance company sponsored by Hines Interests Limited Partnership ("Hines") that makes debt and equity investments in middle market ("Middle Market") companies, which we define as companies with annual revenues generally between $10 million and $3 billion and in lower middle market ("LMM") companies, which we define as companies with annual revenues generally between $10 million and $150 million. We are an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). We are, therefore, required to comply with certain regulatory requirements. We have elected to be treated for U.S. federal income tax purposes as a regulated investment company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Our primary investment objective is to generate current income through debt and equity investments. A secondary objective is to generate long-term capital appreciation through equity and equity related investments, including warrants, convertible securities and other rights to acquire equity securities. Our portfolio strategy calls for us to invest primarily in illiquid debt and equity securities issued by LMM companies and Middle Market companies in private placements and negotiated transactions, which are traded in private over-the-counter markets for institutional investors. We will also invest in, and a significant portion of our assets are invested in, customized direct secured and unsecured loans to and equity securities of LMM companies, referred to as LMM securities. Typically, our investments in LMM companies will require us to co-invest with Main Street Capital Corporation, a New York Stock Exchange listed BDC ("Main Street"), and/or its affiliates. We categorize some of our investments in LMM companies and Middle Market companies as private loan ("Private Loan") portfolio investments. Private Loan investments, often referred to in the debt markets as “club deals,” are investments, generally in debt instruments, that we originate on a collaborative basis with other investment funds. Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio. Our portfolio also includes other portfolio ("Other Portfolio") investments which primarily consist of investments that are not consistent with the typical profiles for our LMM portfolio investments, Middle Market portfolio investments or Private Loan portfolio investments, including investments which may be managed by third parties.
We previously registered for sale up to 150,000,000 shares of common stock pursuant to a registration statement on Form N-2 (File No. 333-178548) which was initially declared effective by the SEC on June 4, 2012 (the “Initial Offering”). The Initial Offering terminated on December 1, 2015. We raised approximately $601.2 million under the Initial Offering, including proceeds from the dividend reinvestment plan of approximately $22.0 million. On January 5, 2016, the SEC declared a new registration statement on Form N-2 (File No. 333-204659), as amended, effective under which we registered for sale up to $1,500,000,000 worth of shares of common stock (the “Offering”). As of March 31, 2016, we had raised approximately $20.6 million in the Offering, including proceeds from the distribution reinvestment plan of approximately $5.8 million.
Our business is managed by the Adviser, an affiliate of Hines, under an Investment Advisory and Administrative Services Agreement dated May 31, 2012, as amended (the “Investment Advisory Agreement”). We and the Adviser have retained MSC Adviser I, LLC (the "Sub-Adviser"), a wholly owned subsidiary of Main Street as our investment sub-adviser pursuant to an Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”), to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management recommendations for approval by the Adviser, monitor our investment portfolio and provide certain ongoing administrative services to the Adviser. The Adviser and the Sub-Adviser are collectively referred to as the “Advisers,” and each is registered under the Investment Advisers Act of 1940, as amended. Upon the execution of the Sub-Advisory Agreement, Main Street became our affiliate. We have engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of the Adviser, to serve as the Dealer Manager for our offerings. The Dealer Manager is responsible for marketing our shares of common stock being offered pursuant to our offerings.
As a BDC, we are subject to certain regulatory restrictions in making our investments, including limitations on our ability to co-invest with certain affiliates, including Main Street. However, we received an order from the SEC, that permits us, subject to certain conditions, to co-invest with Main Street in certain transactions originated by Main Street and/or our Advisers. The exemptive relief permits us, and certain of our directly or indirectly wholly owned subsidiaries on one hand, and Main Street, and or/certain of its affiliates on the other hand, to co-invest in the same investment opportunities where such investment may otherwise be prohibited under Section 57(a)(4) of the 1940 Act. In addition, we may continue to co-invest with Main Street and/or its affiliates in syndicated deals and secondary loan market purchases in accordance with applicable regulatory guidance or interpretations.
As of March 31, 2016, we had investments in 83 Middle Market debt investments, 20 Private Loan debt investments, 22 LMM debt investments, 19 LMM equity investments, seven Private Loan equity investments and three Other Portfolio investments with an aggregate fair value of approximately $857.8 million, a cost basis of approximately $923.8 million, and a weighted average effective annual yield of approximately 8.2%. The weighted average annual yield was calculated using the effective interest rates for all investments at March 31, 2016, including accretion of original issue discount, amortization of premium to par value and amortization of fees received in connection with transactions. This calculation assumes zero yield for investments on non-accrual status. Approximately 80.0% and 16.5% of our total portfolio investments at fair value (excluding our Other Portfolio investments)
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were secured by first priority liens and second priority liens on portfolio company assets, respectively, with the remainder in unsecured debt investments and equity investments.
The level of new portfolio investment activity will fluctuate from period to period based upon the status of our capital raising efforts under the Offering, our view of the current economic fundamentals, our ability to identify new investment opportunities that meet our investment criteria and our ability to close on the identified transactions. The level of new investment activity and associated interest and fee income will directly impact future investment income. While we intend to grow our portfolio and our investment income over the long-term, our growth and our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or losses and unrealized appreciation or depreciation will also fluctuate depending upon portfolio activity and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results.
Investment Income
We have generated, and plan to continue to generate, investment income primarily in the form of interest on the debt securities that we hold, dividends and other distributions with respect to any equity interests that we hold and capital gains, if any, on convertible debt or other equity interests that we acquire in portfolio companies. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, and possibly consulting fees and performance-based fees. All such fees will be generated in connection with our investments and recognized as earned or as additional yield over the life of the debt investment. To date our investment income has been interest income on debt investments, accretion of original issue discounts, dividend income, amortization of premiums and fees received from transactions and net realized/unrealized appreciation (depreciation).
Expenses
On both a short-term and long-term basis, our primary use of funds will be investments in portfolio companies and cash distributions to our stockholders. Our primary operating expenses will be debt service payments, general and administrative expenses, and payment of advisory fees under the Investment Advisory Agreement. The investment advisory fees paid to our Adviser (and the fees paid by our Adviser to our Sub-Adviser pursuant to the Sub-Advisory Agreement) will compensate our Advisers for their work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. We expect our expenses to fluctuate based upon the amount of assets under management.
We bear all other expenses of our operations and transactions, including fees and expenses relating to:
● | corporate and organizational expenses relating to offerings of our common stock, subject to certain limitations; | |
● | the cost of calculating our net asset value ("NAV"), including the cost of any third-party valuation services; | |
● | the cost of effecting sales and repurchase of shares of our common stock and other securities; | |
● | fees payable to third parties relating to, or associated with, monitoring our financial and legal affairs, making investments, and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments; | |
● | interest payable on debt, if any; | |
● | investment advisory fees; | |
● | transfer agent and custodial fees; | |
● | fees and expenses associated with marketing efforts; | |
● | federal and state registration fees; | |
● | federal, state and local taxes; | |
● | independent directors’ fees and expenses, including travel expenses; | |
● | costs of director and stockholder meetings, proxy statements, stockholders’ reports and notices; | |
● | cost of fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums; | |
● | direct costs such as printing of stockholder reports and advertising or sales materials, mailing, long distance telephone, and staff; | |
● | fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act of 2002, the 1940 Act, and other applicable federal and state securities laws and regulations; | |
● | costs associated with our reporting and compliance obligations under the 1940 Act and other applicable federal and state securities laws; | |
● | brokerage commissions for our investments; |
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● | all other expenses incurred by our Advisers in performing their obligations, subject to the limitations included in the Investment Advisory Agreement and Sub-Advisory Agreement; and | |
● | all other expenses incurred by us or any administrator in connection with administering our business, including payments under any administration agreement that will be based upon our allocable portion of overhead and other expenses incurred by any administrator in performing its obligations under any proposed administration agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer and Chief Financial Officer and their respective staffs. |
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.
Base Management and Incentive Fee, Administrative Services Expense Waiver and Expense Support and Conditional Reimbursement Agreement
We and our Adviser have entered into two expense support and conditional reimbursement agreements (as amended from time to time, the “2013 and 2014 Expense Reimbursement Agreements”), pursuant to which our Adviser could pay us up to 100% of its operating expenses through December 31, 2015 (the “Expense Support Payment”) in order to achieve a reasonable level of expenses relative to our investment income (the “Operating Expense Objective”). Our board of directors, in its sole discretion, may approve the repayment of unreimbursed Expense Support Payments (a “Reimbursement Payment”) upon a determination by the board of directors that we have achieved the Operating Expense Objective in any quarter following our receipt of an Expense Support Payment. We may reimburse any unreimbursed Expense Support Payments within three years from the date each respective Expense Support Payment was determined. Any Expense Support Payments that remain unreimbursed three years after such payment will be permanently waived.
We and our Advisers have entered into a conditional fee waiver agreement (as amended from time to time, the “Conditional Fee Waiver Agreement”), pursuant to which our Advisers could waive certain fees through December 31, 2015 upon the occurrence of any event that, in our Advisers’ sole discretion, causes such waivers to be deemed necessary. The previously waived fees are potentially subject to repayment by us, if at all, within a period not to exceed three years from the date of each respective fee waiver.
We and our Advisers have entered into a conditional income incentive fee waiver agreement (the “2016 Conditional Income Incentive Fee Waiver Agreement”), pursuant to which, for a period from January 1, 2016 through June 30, 2016, our Advisers could waive the “subordinated incentive fee on income,” as such term is defined in the Investment Advisory Agreement, upon the occurrence of any event that, in our Advisers’ sole discretion, causes such waiver to be deemed necessary. The 2016 Conditional Income Incentive Fee Waiver Agreement may require us to repay our Advisers for previously waived reimbursement of Expense Support Payments or waived base management fees or incentive fees under certain circumstances. The previously waived fees are potentially subject to repayment by us, if at all, within a period not to exceed three years from the date of each respective fee waiver. Thus, in any quarter where a surplus exists, that surplus will be available, subject to approval of the board of directors, to reimburse waived fees and Expense Support Payments as follows:
1. | First, to reimburse Expense Support Payments, beginning with the earliest year eligible for reimbursement; and |
2. | Second, to reimburse all waived fees, beginning with the earliest year eligible for reimbursement. |
Reimbursement of previously waived fees will only be permitted with the approval of our board of directors and if the operating expense ratio is equal to or less than the operating expense ratio at the time the corresponding fees were waived and if the annualized rate of regular cash distributions to stockholders is equal to or greater than the annualized rate of the regular cash distributions at the time the corresponding fees were waived.
For the three months ended March 31, 2016 and 2015, we incurred base management fees of approximately $4.5 million and $3.0 million, respectively, and our Advisers waived no base management fees in either period. For the three months ended March 31, 2016 and 2015, we incurred capital gains incentive fees of $0 and $0, respectively, and subordinated incentive fees on income of $493,000 and $358,000, respectively. For the three months ended March 31, 2016 and 2015, our Advisers waived capital gains incentive fees of $0 and $0, respectively, and subordinated incentive fees on income of $493,000 and $358,000, respectively.
For the three months ended March 31, 2016 and 2015, we did not record an accrual for any previously waived fees. Any future reimbursement of previously waived fees to our Advisers will not be accrued until the reimbursement of the waived fees become probable and estimable, which will be upon approval of our board of directors. To date, none of the previously waived fees has been approved by our board of directors for reimbursement.
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For more information on our fee waivers and expense reimbursements, see Note 9 - Related Party Transactions and Arrangement - Advisory Agreements and Conditional Fee Waiver to our condensed consolidated financial statements included elsewhere in this report.
Administration
Pursuant to the Investment Advisory Agreement and Sub-Advisory Agreement, we are required to pay or reimburse our Advisers for administrative services expenses, which include all costs and expenses related to our day-to-day administration and management not related to advisory services. For the three months ended March 31, 2016 and 2015, we incurred, and our Advisers waived the reimbursement of, administrative services expenses of approximately $533,000 and $437,000, respectively. On May 9, 2016, we and the Advisers agreed to an amendment to the 2014 Expense Reimbursement Agreement, which extended the period for waiver of reimbursement of administrative expenses accrued pursuant to the Investment Advisory Agreement and the Sub-Advisory Agreement through June 30, 2016. The waiver of the reimbursement of administrative service expenses is not subject to future reimbursement.
CRITICAL ACCOUNTING POLICIES
Each of our critical accounting policies involves the use of estimates that require management to make assumptions that are subjective in nature. Management relies on its experience, collects historical and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. In addition, application of these accounting policies involves the exercise of judgments regarding assumptions as to future uncertainties. Actual results could materially differ from these estimates. A disclosure of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2015 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to our critical accounting policies during 2016, except as described below.
Offering Costs
In accordance with the Investment Advisory Agreement and the Sub-Advisory Agreement, we reimburse our Advisers for any offering costs that are paid on our behalf, which consist of, among other costs, actual legal, accounting, bona fide out-of-pocket itemized and detailed due diligence costs, printing, filing fees, transfer agent costs, postage, escrow fees, advertising and sales literature and other offering costs. Pursuant to the terms of the Investment Advisory Agreement and Sub-Advisory Agreement, our Advisers are responsible for the payment of offering costs to the extent they exceed 1.5% of the aggregate gross proceeds from our offering.
We decided to change our accounting treatment of offering costs to more closely follow certain SEC interpretations. Prior to January 1, 2016, offering costs were capitalized as incurred by our Advisers and such costs, up to 1.5% of the gross proceeds, were recorded as a charge to additional paid in capital and a reduction of deferred offering costs. Effective January 1, 2016, offering costs are capitalized as deferred offering costs as incurred by us and subsequently amortized to expense over a 12-month period. Deferred offering costs related to an offering will be fully amortized to expense upon the expiration or earlier termination of an offering.
As of March 31, 2016, our Advisers have been reimbursed approximately $9.3 million since inception for offering costs. As of March 31, 2016, our Advisers carried a balance of $1.4 million for offering expenses incurred on our behalf, net of (i) incremental offering expenses incurred by our Advisers on our behalf and (ii) our reimbursement payments to our Advisers and any payable balances for reimbursement of offering costs.
PORTFOLIO INVESTMENT COMPOSITION
Our Middle Market portfolio investments primarily consist of direct or secondary purchases of interest-bearing debt securities in companies that are generally larger in size than the LMM companies included in our LMM portfolio. While our Middle Market debt investments are generally secured by a first priority lien, 20.2% of the fair value of our Middle Market portfolio is secured by second priority liens.
Our current LMM portfolio consists of debt investments secured by first and second priority liens (66.4% and 4.0% of the total fair value of the LMM portfolio, respectively) on the assets of the portfolio companies and equity investments (29.6% of the total fair value of the LMM portfolio) in privately held LMM companies as of March 31, 2016. The LMM debt investments generally mature between five and seven years from the original investment date. The LMM equity investments represent an equity position or the right to acquire an equity position through warrants.
Our Private Loan portfolio primarily consists of debt investments secured by first and second priority liens (92.3% and 6.9% of the total fair value of the Private Loan portfolio, respectively) on the assets of the 19 Private Loan portfolio companies and equity
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investments (0.8% of the total fair value of the Private Loan portfolio) in three Private Loan companies as of March 31, 2016. The Private Loan debt investments typically have stated terms between three and seven years from the original investment date. The Private Loan equity investments represent an equity position or the right to acquire an equity position through warrants.
Our Other Portfolio investments consist of investments which are not consistent with the typical profiles for LMM, Middle Market and Private Loan portfolio investments, including investments which may be managed by third parties. In the Other Portfolio investments, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds.
During the three months ended March 31, 2016, we funded investment purchases of approximately $83.1 million and had two investments under contract to purchase as of March 31, 2016, for approximately $3.6 million, which settled or are scheduled to settle after March 31, 2016. We also received proceeds from sales and repayments of existing portfolio investments of approximately $47.4 million including $37.5 million in sales. Additionally, we had three investments under contract to sell as of March 31, 2016, for approximately $11.8 million, which represented the contract sales price. The combined result of which increased our portfolio, on a cost basis, by approximately $19.1 million, or 2.1%, and the number of portfolio investments by seven, or 4.8%, compared to the portfolio as of December 31, 2015. As of March 31, 2016, the largest investment in an individual portfolio company represented approximately 2.4% of our portfolio’s fair value with the remaining investments in an individual portfolio company ranging from 0.03% to 1.9%. The average investment in our portfolio is approximately $5.6 million or 0.6% of the total portfolio. As a result of these transactions, our portfolio has become increasingly broadened across individual portfolio investments, geographic regions, and industries. Further, our total portfolio's investment composition (excluding our Other Portfolio investments) at fair value is comprised of 80.0% first lien debt securities, 16.5% second lien debt securities, with the remainder in unsecured debt investments and equity investments. First lien debt securities have priority over subordinated debt owed by the issuer with respect to the collateral pledged as security for the loan. Due to the relative priority of payment of first lien investments, these generally have lower yields than lower priority, less secured investments.
During the three months ended March 31, 2015, we made investment purchases of approximately $187.2 million and had 15 investments under contract to purchase as of March 31, 2015 for approximately $68.9 million, which settled after March 31, 2015. We also received proceeds from sales and repayments of existing portfolio investments of approximately $24.6 million including $3.5 million in sales and had one investment under contract to sell as of March 31, 2015 for approximately $1.0 million, which represented the contract sales price.
The result of the aforementioned transactions further diversified our geographic and industry concentrations and based upon our investment rating system, which is described further below, the weighted average rating of our LMM was approximately 2.5 and 3.0 as of March 31, 2016 and December 31, 2015. Lastly, the overall weighted average effective yield on our investment portfolio has decreased from 8.3% as of December 31, 2015 to 8.2% as of March 31, 2016.
Summaries of the composition of our total investment portfolio at cost and fair value are shown in the following tables (this information excludes Other Portfolio investments):
March 31, 2016 | December 31, 2015 | ||||||||||||||||||||||
Cost: | LMM | Private Loan | Middle Market | Total | LMM | Private Loan | Middle Market | Total | |||||||||||||||
First Lien Secured Debt | 70.1 | % | 92.4 | % | 79.6 | % | 80.5 | % | 69.4 | % | 92.3 | % | 79.9 | % | 80.5 | % | |||||||
Second Lien Secured Debt | 4.3 | 6.7 | 20.0 | 16.6 | 4.1 | 7.2 | 19.7 | 16.7 | |||||||||||||||
Unsecured Debt | — | — | 0.4 | 0.3 | — | — | 0.4 | 0.3 | |||||||||||||||
Equity | 24.4 | 0.1 | — | 2.4 | 25.6 | 0.1 | — | 2.4 | |||||||||||||||
Equity warrants | 1.2 | 0.8 | — | 0.2 | 0.9 | 0.4 | — | 0.1 | |||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
March 31, 2016 | December 31, 2015 | ||||||||||||||||||||||
Fair Value: | LMM | Private Loan | Middle Market | Total | LMM | Private Loan | Middle Market | Total | |||||||||||||||
First Lien Secured Debt | 66.4 | % | 92.3 | % | 79.7 | % | 80.0 | % | 67.7 | % | 92.1 | % | 79.9 | % | 80.3 | % | |||||||
Second Lien Secured Debt | 4.0 | 6.9 | 20.2 | 16.5 | 4.0 | 7.4 | 19.9 | 16.7 | |||||||||||||||
Unsecured Debt | — | — | 0.1 | 0.1 | — | — | 0.2 | 0.1 | |||||||||||||||
Equity | 28.4 | 0.1 | — | 3.2 | 27.4 | 0.1 | — | 2.8 | |||||||||||||||
Equity warrants | 1.2 | 0.7 | — | 0.2 | 0.9 | 0.4 | — | 0.1 | |||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
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For the tables showing our total investment portfolio composition by geographic region and by industry, see Note 3-Fair Value Hierarchy for Investments-Portfolio Investment Composition to our condensed consolidated financial statements included elsewhere in this Report.
PORTFOLIO ASSET QUALITY
As of March 31, 2016, we owned a broad portfolio of 154 investments in 121 companies representing a wide range of industries. We believe that this diversity adds to the structural protection of the portfolio, revenue sources, income, cash flows and dividends. The portfolio included the following:
▪ | 83 debt investments in 80 Middle Market portfolio companies with an aggregate fair value of approximately $627.8 million and a cost basis of approximately $695.5 million. The Middle Market portfolio had a weighted average annual effective yield of approximately 8.2% and 79.7% of the investments were secured by first priority liens. Further, 87.3% of the Middle Market investments contain variable rates, though a majority of the investments with variable rates are subject to contractual minimum base interest rates between 100 and 150 basis points. |
▪ | 20 debt investments in 19 Private Loan portfolio companies with an aggregate fair value of approximately $118.5 million and a cost basis of approximately $122.2 million. The Private Loan debt investments had a weighted average annual effective yield of approximately 9.0%, which is calculated assuming the investments on non-accrual status are non-yielding, and 93.0% of the Private Loan debt investments were secured by first priority liens. Further, 96.0% of the Private Loan debt investments contain variable rates, though a majority of the investments with variable rates are subject to contractual minimum base interest rates between 100 and 150 basis points. |
▪ | 22 debt investments in 18 LMM portfolio companies with an aggregate fair value of approximately $65.8 million and a cost basis of approximately $65.3 million. The LMM debt investments had a weighted average annual effective yield of approximately 11.1% and 94.3% of the debt investments were secured by first priority liens. Further, 43.4% of the LMM debt investments are fixed rate investments with fixed interest rates between 7.0% and 15.1%. Further, 10 LMM debt investments, representing approximately 56.6% of the LMM debt investments have variable rates subject to a contractual minimum base interest rate of 100 basis points. |
▪ | 19 equity investments and 10 equity warrant investments in 16 LMM portfolio companies, three Private Loan portfolio companies and three Other Portfolio companies with an aggregate fair value of approximately $45.7 million and a cost basis of approximately $40.8 million. |
Overall, our investment portfolio had a weighted average effective yield of approximately 8.2%, and 78.4% of our total portfolio's investment composition (including our Other Portfolio investments) was secured by first-priority liens.
As of March 31, 2016, we had three investments in two portfolio companies that were on non-accrual status. These companies were in default for failure to pay the combined outstanding principal balances of $13.2 million due upon the maturity of the loans. Our Advisers are currently working with the borrowers to maximize recovery of the amounts borrowed. As of March 31, 2016, these three investments on non-accrual status comprised approximately 0.2% of our total investment portfolio at fair value and 1.3% of the total investment portfolio at cost. As of December 31, 2015, we had three investments in two portfolio companies that were on non-accrual status. These two investments on non-accrual status comprised approximately 0.4% of the total investment portfolio at fair value and 1.3% of the total investment portfolio at cost. One of the two portfolio companies on non-accrual status was in default due to failure to pay its outstanding principal balance of $3.4 million due upon the maturity of its two loans. The other portfolio company on non-accrual status was in default due to failure to pay its required quarterly interest payment and due to declaring bankruptcy in the fourth quarter of 2015. For those investments in which S&P credit ratings are available, approximately 50.3% of the portfolio, the portfolio had a weighted average effective credit rating of B.
We utilize a rating system developed by our Sub-Adviser to rate the performance of each LMM portfolio company. The investment rating system takes into consideration various factors, including each investment’s expected level of returns, collectability, comparisons to competitors and other industry participants, and the portfolio company’s future outlook.
• | Investment Rating 1 represents a LMM portfolio company that is performing in a manner which significantly exceeds expectations. |
• | Investment Rating 2 represents a LMM portfolio company that, in general, is performing above expectations. |
• | Investment Rating 3 represents a LMM portfolio company that is generally performing in accordance with expectations. All new LMM portfolio investments receive an initial Investment Rating 3. |
• | Investment Rating 4 represents a LMM portfolio company that is underperforming expectations, requiring increased monitoring and scrutiny by us. |
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• | Investment Rating 5 represents a LMM portfolio company that is significantly underperforming, requiring heightened levels of monitoring and scrutiny by us and involves the recognition of significant unrealized depreciation on such investment. |
The following table shows the distribution of our LMM portfolio investments on the 1 to 5 investment rating scale at fair value as of March 31, 2016 and December 31, 2015 (dollars in thousands):
March 31, 2016 | December 31, 2015 | |||||||||||||
Investment Rating | Investments at Fair Value | Percentage of Total LMM Portfolio | Investments at Fair Value | Percentage of Total LMM Portfolio | ||||||||||
1 | $ | — | — | % | $ | — | — | % | ||||||
2 | 48,337 | 51.7 | 9,093 | 10.6 | ||||||||||
3 | 39,484 | 42.2 | 70,653 | 82.7 | ||||||||||
4 | 5,687 | 6.1 | 5,714 | 6.7 | ||||||||||
5 | — | — | — | — | ||||||||||
Totals | $ | 93,508 | 100.0 | % | $ | 85,460 | 100.0 | % |
Based upon the investment rating system, the weighted average rating of our LMM portfolio at fair value was approximately 2.5 and 3.0 as of March 31, 2016 and December 31, 2015.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
RESULTS COMPARISONS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND MARCH 31, 2015
Total Investment Income, Expenses, Net Assets
For the three months ended March 31, 2016 and 2015, our total investment income was approximately $21.3 million and $11.8 million, respectively, consisting predominately of interest income. As of March 31, 2016 the portfolio had a weighted average annual effective yield on investments of approximately 8.2% compared to 8.5% as of March 31, 2015, and our average investment portfolio for the three months ended March 31, 2016 was $855.4 million compared to $566.9 million for the three months ended March 31, 2015. Additionally, during the three months ended March 31, 2016 and 2015, we accreted approximately $2.3 million and $489,000, respectively, of unearned income into interest income. The increase in interest income was primarily due to the growth in our total portfolio resulting from the investment of additional equity capital raised and borrowings under our senior secured revolving credit facility with Capital One, National Association as administrative agent (the "Capital One Credit Facility") and the amended and restated credit agreement entered into by HMS Funding I, LLC, our wholly owned subsidiary, with Deutsche Bank AG, New York Branch as administrative agent (the "Deutsche Bank Credit Facility," and, together with our Capital One Credit Facility, the "Credit Facilities"). We believe further increases in investment income in future periods may arise due to (i) a growing base of portfolio company investments and (ii) investments being held for the entire period relative to incremental net investment activity during each quarter. For information on the Credit Facilities, see Note 4 - Borrowings to our condensed consolidated financial statements included elsewhere in this report.
For the three months ended March 31, 2016, expenses, net of incentive fee and administrative services expense waivers, were approximately $9.0 million as compared to expenses of approximately $5.5 million for the three months ended March 31, 2015. The increase in expenses is primarily due to increases in management fees of $1.5 million, interest expense of $1.7 million, and other general and administrative expense of $96,000. Management fees increased primarily due to an increase in the average gross assets of the Company. Interest expense increased due to an increase in the average borrowings during the period. Average borrowings were $387.5 million for the three months ended March 31, 2016 compared to $223.4 million for the three months ended March 31, 2015. Additionally, interest expense was higher for the three months ended March 31, 2016, due to the increase in amortization of deferred financing costs as a result of costs paid in connection with the Credit Facilities. As of both March 31, 2016 and March 31, 2015, the annualized interest rate on our borrowings was approximately 3%. Other general and administrative expenses increased due to additional banking costs, trade costs and other costs associated with the increase in overall portfolio size.
For the three months ended March 31, 2016, the net decrease in net assets resulting from operations (gross of stockholder distributions declared) was approximately $2.7 million. The decrease was attributable to unrealized depreciation on investments of approximately $14.3 million, realized losses of approximately $646,000 and offset by net investment income of approximately $12.2 million.
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For the three months ended March 31, 2015, the net increase in net assets was approximately $10.2 million. The increase was primarily attributable to net investment income of approximately $6.3 million, realized gains of approximately $20,000 and unrealized appreciation on investments of approximately $3.8 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Overview
As of March 31, 2016, we had approximately $20.5 million in cash and cash equivalents, and our NAV totaled approximately $495.7 million, equating to approximately $7.67 per share. The change from the December 31, 2015 NAV per share of $7.88 was largely due to the unrealized depreciation on investments in the portfolio. The unrealized depreciation on investments in our portfolio was primarily driven by the broad price declines in the high yield bond and leveraged loan markets and by the effect of declining oil prices on our investments in the oil and gas sector.
Liquidity and Capital Resources
Cash Flows
For the three months ended March 31, 2016, we experienced a net decrease in cash and cash equivalents of approximately $3.5 million. During that period, approximately $24.9 million of cash was used in our operating activities, which principally consisted of the purchase of new portfolio investments of $83.1 million and a net decrease in net assets resulting from operations of approximately $2.7 million offset by principal repayments from and sales of investments in portfolio companies of $47.4 million. During the three months ended March 31, 2016, approximately $21.4 million was generated from financing activities, which principally consisted of a net $15.0 million increase in borrowings under the Credit Facilities, and $13.4 million in net stock offering proceeds received offset by $5.2 million in cash distributions paid to stockholders, $1.5 million in cash distributions related to redemption of our common stock and $359,000 paid for financing costs related to the Credit Facilities amendments during the three months ended March 31, 2016.
For the three months ended March 31, 2015, we experienced a net increase in cash and cash equivalents of approximately $4.0 million. During that period, approximately $157.7 million of cash was used in our operating activities, which principally consisted of the purchase of new portfolio debt investments of $187.2 million, offset by a net increase in net assets resulting from operations of approximately $10.2 million and principal repayments from and sales of investments in portfolio companies of $24.6 million. During the three months ended March 31, 2015, approximately $161.7 million was generated from financing activities, which principally consisted of a net $81.1 million increase in borrowings under the Credit Facilities and $84.4 million in net stock offering proceeds received and offset by $2.8 million in cash distributions paid to stockholders and $752,000 paid for financing costs related to the Credit Facilities entered into during the three months ended March 31, 2015.
Initial Offering and Offering
During the three months ended March 31, 2016, we raised proceeds of $20.6 million from the Offering, including proceeds from the distribution reinvestment plan, and incurred $1.3 million for selling commissions and Dealer Manager fees. We also incurred an obligation for $308,000 of costs related to the Offering.
During the three months ended March 31, 2015, we raised proceeds of $98.9 million from the Initial Offering, including proceeds from the distribution reinvestment plan, and incurred $8.7 million for selling commissions and Dealer Manager fees. We also incurred an obligation for $1.5 million of costs related to the Initial Offering.
Distributions
The following table reflects the cash distributions per share that we have declared on our common stock during the three months ended March 31, 2016 and March 31, 2015 (dollars in thousands except per share amounts).
Distributions | |||||||
Per Share | Amount | ||||||
2016 | |||||||
Three months ended March 31, 2016 | $ | 0.17 | $ | 11,037 | |||
2015 | |||||||
Three months ended March 31, 2015 | $ | 0.17 | $ | 6,260 |
On March 23, 2016, with the authorization of our board of directors, we declared distributions to our stockholders for the period of April 2016 through June 2016. These distributions have been, or will be, calculated based on stockholders of record each day
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from April 1, 2016 through June 30, 2016 in an amount equal to $0.00191781 per share, per day. Distributions are paid on the first business day following the completion of each month to which they relate.
Specific tax characteristics of all distributions are reported to stockholders shortly after the close of each calendar year on Form
1099-DIV. For the year ended December 31, 2015, approximately 99.7% of the distributions paid were taxable to the investor as ordinary income and approximately 0.3% were treated capital gain distributions for federal income tax purposes.
We have adopted an “opt in” distribution reinvestment plan for our stockholders. As a result, if we make a distribution, our stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock.
We may fund our cash distributions from any sources of funds legally available, including stock offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and fee waivers from our Advisers. We have not established any limit on the extent to which we may use borrowings or stock offering proceeds to fund distributions. Our distributions may exceed our earnings, especially during the period before we have substantially invested the stock offering proceeds. As a result, a portion of the distributions we make may represent a return of capital for U.S. federal income tax purposes.
The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.
In order to satisfy the Code's requirements applicable to maintaining our ability to be subject to tax as a RIC, we must distribute to our stockholders substantially all of our taxable income each taxable year. However, we may elect to spill over certain excess undistributed taxable income from one taxable year into the next taxable year, which would require us to pay a 4% non-deductible excise tax on such excess undistributed taxable income. In order to avoid excise tax, we need to satisfy the Excise Tax Avoidance Requirement. We estimate approximately $3.8 million, or $0.0615 per share, of our taxable income for the 2015 taxable year will be distributed during the 2016 taxable year, prior to the filing of our federal income tax return for our 2015 taxable year. As such, we anticipate that we will be subject to a taxable year 2015 liability for the 4% nondeductible excise tax of approximately $108,000. In order to avoid excise tax, we need to distribute, in respect of each calendar year dividends of an amount at least equal to the sum of (1) 98.0% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain in excess of capital loss, or capital gain net income, adjusted for certain ordinary losses, for the one year period ending on October 31st of such calendar year (or, if we so elect, for the calendar year) and (3) any net ordinary income and capital gain net income for the preceding calendar years that was not distributed during such calendar years and on which we paid no U.S. federal income tax.
Financing Arrangements
We anticipate that we will continue to fund our investment activities through existing cash, capital raised from our stock offerings, and borrowings on the Credit Facilities. Our primary uses of funds in both the short-term and long-term will be investments in portfolio companies, operating expenses and cash distributions to holders of our common stock.
As of March 31, 2016, we had $65.0 million outstanding and $60.0 million available under our Capital One Credit Facility, and $330.0 million outstanding and $55.0 million available under the Deutsche Bank Credit Facility, both of which we estimated approximated fair value. Availability under the Credit Facilities is subject to certain limitations and the asset coverage restrictions under the 1940 Act.
As a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200%. As of March 31, 2016, our asset coverage ratio under BDC regulations was 217% when including unfunded commitments as a senior security. As of December 31, 2015, our asset coverage ratio under BDC regulations was 219% when including unfunded commitments as a senior security. As of March 31, 2016, considering these limitations, we had the ability to draw upon the entire $115.0 million of remaining capacity in the Credit Facilities.
Although we have been able to secure access to potential additional liquidity, through proceeds from the Offering and also by entering into the Credit Facilities, there is no assurance that equity or debt capital will be available to us in the future on favorable terms, or at all.
Related-Party Transactions and Agreements
We have entered into agreements with our Advisers and our Dealer Manager, whereby we pay certain fees and reimbursements to these entities. These include payments to our Dealer Manager for selling commissions and the Dealer Manager fee and payments to our Adviser for reimbursement of offering costs. In addition, we make payments for certain services that include the identification,
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execution, and management of our investments and also the management of our day-to-day operations provided to us by our Advisers, pursuant to various agreements that we have entered into. See Note 9-Related Party Transactions and Arrangements to the financial statements included elsewhere in this Report on Form 10-Q for additional information regarding related party transactions.
Contractual Obligations
As of March 31, 2016, we had $395.0 million in borrowings outstanding under the Credit Facilities. Unless extended, our Capital One Credit Facility will expire March 11, 2017, and the Deutsche Bank Credit Facility will mature on June 16, 2020. Our Capital One Credit Facility has two, one-year extension options, with lender approval that, if approved and exercised, would permit us to extend the maturity to March 11, 2019. See Note 4-Borrowings to the financial statements included elsewhere in this Report on Form 10-Q for a description of the Credit Facilities.
A summary of our significant contractual payment obligations for the repayment of outstanding borrowings at March 31, 2016 is as follows:
Payments Due By Period (dollars in thousands) | |||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||
Capital One Credit Facility(1) | $ | 65,000 | $ | — | $ | 65,000 | $ | — | $ | — | |||||||||
Deutsche Bank Credit Facility(2) | $ | 330,000 | $ | — | $ | — | $ | 330,000 | $ | — | |||||||||
Total Credit Facilities | $ | 395,000 | $ | — | $ | 65,000 | $ | 330,000 | $ | — |
(1) | At March 31, 2016, $60.0 million remained available under our Capital One Credit Facility; however, our borrowing capacity is limited to the asset coverage ratio restrictions imposed by the 1940 Act, as discussed above. |
(2) | At March 31, 2016, $55.0 million remained available under the Deutsche Bank Credit Facility; however, our borrowing ability is limited to the asset coverage ratio restrictions imposed by the 1940 Act, as discussed above. |
Off-Balance Sheet Arrangements
At March 31, 2016, we had a total of approximately $29.8 million in outstanding commitments comprised of (i) 16 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) three capital commitments that had not been fully called. We recognized unrealized depreciation of $98,000 on our outstanding unfunded loan commitments and unrealized appreciation of $14,000 on our outstanding unfunded capital commitments during three months ended March 31, 2016. At December 31, 2015, we had a total of approximately $34.1 million in outstanding commitments comprised of (i) 14 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) three capital commitments that had not been fully called. We recognized unrealized depreciation of $79,000 on our outstanding unfunded loan commitments and unrealized depreciation of $14,000 on our outstanding unfunded capital commitments during the year ended December 31, 2015.
Commitments and Contingencies | |||||||
(dollars in thousands) | |||||||
March 31, 2016 | December 31, 2015 | ||||||
Unfunded Loan Commitments | |||||||
AccuMed Corp. | $ | 250 | $ | 875 | |||
Apex Linen Services, Inc. | 1,003 | 1,003 | |||||
Arcus Hunting, LLC | 2,069 | 1,196 | |||||
BarFly Ventures, LLC | 1,531 | 1,531 | |||||
Buca C, LLC | 1,780 | 1,780 | |||||
CapFusion Holding, LLC | 1,600 | — | |||||
Datacom, LLC | 1,500 | 1,500 | |||||
Guerdon Modular Holdings, Inc. | 160 | 400 | |||||
Hojeij Branded Foods, Inc. | 2,000 | 2,143 | |||||
HW Temps LLC | 200 | 200 | |||||
Jackmont Hospitality, Inc. | 1,200 | 1,333 | |||||
LaMi Products, LLC | 1,765 | 1,521 | |||||
Minute Key, Inc. | 200 | 500 | |||||
Mystic Logistics, Inc. | 200 | 200 | |||||
Unirush LLC | 1,000 | — | |||||
Volusion, LLC | 3,000 | 3,000 |
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Commitments and Contingencies | |||||||
(dollars in thousands) | |||||||
March 31, 2016 | December 31, 2015 | ||||||
Unfunded Capital Commitments | |||||||
Brightwood Capital Fund III, LP | 1,250 | 1,250 | |||||
EIG Traverse Co-Investment, LP | 195 | 5,245 | |||||
Freeport First Lien Loan Fund III, LP | 8,936 | 10,423 | |||||
Total | $ | 29,839 | $ | 34,100 |
Recent Developments and Subsequent Events
From April 1, 2016 through May 12, 2016, we raised approximately $15.5 million in the Offering. During this period, we funded approximately $13.5 million in investments and received proceeds from repayments and dispositions of approximately $34.5 million.
On April 20, 2016 and May 3, 2016, we increased our public offering price per share to $8.70 and $8.80, respectively, effective as of our weekly closes on April 21, 2016 and May 5, 2016, respectively.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, in particular changes in interest rates. Changes in interest rates may affect our interest income from portfolio investments, the fair value of our fixed income investments, and our cost of funding.
Our interest income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent any of our debt investments include floating interest rates. We generally invest in floating rate debt instruments, meaning that the interest rate payable on such instrument resets periodically based upon changes in a specified interest rate index, typically the one-month LIBOR. As of March 31, 2016, approximately 85.3% of our LMM, Private Loan, and Middle Market portfolio debt investments (based on cost) contained floating interest rates. At March 31, 2016, the one-month LIBOR was approximately 0.4%. However, many of our investments provide that the specified interest rate index on such instruments will never fall below a level, or floor, generally between 100 and 150 basis points, equal to 1.0% to 1.5%, regardless of the level of the specified index rate. Given that most floating rate debt investments have index floors at or above 100 basis points, a decline in index rates is not expected to result in a change to interest income.
In addition, any fluctuations in prevailing interest rates may affect the fair value of our fixed rate debt instruments and result in changes in unrealized gains and losses, and may also affect a net increase or decrease in net assets resulting from operations. Such changes in unrealized appreciation and depreciation will materialize into realized gains and losses if we sell our investments before their respective debt maturity dates.
Further, because we borrow money to make investments, our net investment income is partially dependent upon the difference between the interest rate at which we invest borrowed funds and the interest rate at which we borrow funds. In periods of rising interest rates and when we have borrowed capital with floating interest rates, our interest expense will increase, which will increase our financing costs and reduce our net investment income, especially to the extent we hold fixed-rate debt investments. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
The following table shows the approximate annualized increase or decrease (dollars in thousands) in the components of net investment income due to hypothetical interest rate index changes, assuming no changes in our investments and borrowings as of March 31, 2016.
Change in interest rates | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) in Net Investment Income | |||||||||
Down 25 basis points | $ | (65 | ) | $ | (988 | ) | $ | 923 | ||||
Up 50 basis points | 705 | 1,975 | (1,270 | ) | ||||||||
Up 100 basis points | 4,072 | 3,950 | 122 | |||||||||
Up 200 basis points | 11,678 | 7,900 | 3,778 | |||||||||
Up 300 basis points | 19,291 | 11,850 | 7,441 |
Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the Credit Facilities or other borrowings, that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.
If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. As of March 31, 2016, we had not entered into any interest rate hedging arrangements.
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Item 4. Controls and Procedures.
In accordance with Securities Exchange Act of 1934, as amended (the "Exchange Act"), Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), during the three months ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, that we filed with the SEC on March 11, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Repurchases of our common stock pursuant to our tender offer are as follows:
Period | Total Number of Shares Purchased | Average Price per Share | Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | |||||||||
January 1, 2016 through January 31, 2016 | — | $ | — | — | — | ||||||||
February 1, 2016 through February 29, 2016 | — | $ | — | — | — | ||||||||
March 1, 2016 through March 31, 2016 | 200,508 | $ | 7.62 | 200,508 | — |
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
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Item 6. Exhibits.
Exhibit No. | Description | |
3.1 | Articles of Amendment and Restatement (filed as Exhibit (a)(2) to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-178548), filed on May 31, 2012 and incorporated herein by reference). | |
3.2 | Amended and Restated Bylaws of the Registrant (Filed as Exhibit 3.1 to the Registrant’s current report on Form 8-K filed with the SEC on September 24, 2015 (File No. 814-00939) and incorporated by reference herein). | |
10.1 | Third Amendment to the Amended and Restated Loan Financing and Servicing Agreement, dated as of February 9, 2016, by and among HMS Funding I LLC, as borrower, the Registrant, as equityholder and servicer, the financial institutions party thereto as lenders, Deutsche Bank AG, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent (Filed as Exhibit 10.1 to the Registrant’s current report on Form 8-K, filed on February 11, 2016 (File No. 814-00939) and incorporated herein by reference). | |
10.2 | Conditional Income Incentive Fee Waiver Agreement, dated as of May 9, 2016, by and among the Registrant, HMS Adviser LP and MSC Adviser I, LLC (Filed as Exhibit 10.1 to the Registrant’s current report on Form 8-K, filed on May 13, 2016 (File No. 814-00939) and incorporated herein by reference). | |
31.1 | Certification of Chief Executive Officer of the Registrant, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). | |
31.2 | Certification of Chief Financial Officer of the Registrant, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer of the Registrant, 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.
HMS INCOME FUND, INC. | |||
Date: | May 16, 2016 | By: | /s/ SHERRI W. SCHUGART |
Sherri W. Schugart | |||
Chairman, Chief Executive Officer and President | |||
Date: | May 16, 2016 | By: | /s/ RYAN T. SIMS |
Ryan T. Sims | |||
Chief Financial Officer and Secretary |
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EXHIBIT INDEX
Exhibit No. | Description | |
3.1 | Articles of Amendment and Restatement (filed as Exhibit (a)(2) to Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-178548), filed on May 31, 2012 and incorporated herein by reference). | |
3.2 | Amended and Restated Bylaws of the Registrant (Filed as Exhibit 3.1 to the Registrant’s current report on Form 8-K filed with the SEC on September 24, 2015 (File No. 814-00939) and incorporated by reference herein). | |
10.1 | Third Amendment to the Amended and Restated Loan Financing and Servicing Agreement, dated as of February 9, 2016, by and among HMS Funding I LLC, as borrower, the Registrant, as equityholder and servicer, the financial institutions party thereto as lenders, Deutsche Bank AG, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent (Filed as Exhibit 10.1 to the Registrant’s current report on Form 8-K, filed on February 11, 2016 (File No. 814-00939) and incorporated herein by reference). | |
10.2 | Conditional Income Incentive Fee Waiver Agreement, dated as of May 9, 2016, by and among the Registrant, HMS Adviser LP and MSC Adviser I, LLC (Filed as Exhibit 10.1 to the Registrant’s current report on Form 8-K, filed on May 13, 2016 (File No. 814-00939) and incorporated herein by reference). | |
31.1 | Certification of Chief Executive Officer of the Registrant, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). | |
31.2 | Certification of Chief Financial Officer of the Registrant, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith). | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer of the Registrant, 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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