Alcentra Capital (ABDC) 10-Q 2015 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

OR

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

COMMISSION FILE NUMBER: 1-36447 

ALCENTRA CAPITAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Maryland	46-2961489
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

200 Park Avenue, 7^th Floor

New York, NY

(Address of Principal Executive Offices) (Zip Code)

(212) 922-8240

(Registrant’s Telephone Number, Including Area Code) 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of 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  ¨    No  ¨

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (do not check if a smaller reporting company)	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 ¨    No x

There were 13,516,766 shares of the Registrant’s common stock outstanding as of May 11, 2015.

ALCENTRA CAPITAL CORPORATION

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Consolidated Financial Statements of Alcentra Capital Corporation:
Consolidated Statement of Assets and Liabilities as of March 31, 2015 (unaudited)	1
Consolidated Statement of Operations for the Three Months Ended March 31, 2015 (unaudited)	2
Consolidated Statement of Changes in Net Assets for the Three Months Ended March 31, 2015 (unaudited)	3
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2015 (unaudited)	4
Consolidated Schedule of Investments as of March 31, 2015 (unaudited)	5
Financial Statements of BNY Mellon-Alcentra Mezzanine III, L.P.:
Statement of Assets and Liabilities as of March 31, 2014 (unaudited)
Statement of Operations for the Three Months Ended March 31, 2014 (unaudited)	2
Statement of Changes in Net Assets for the Three Months Ended March 31, 2014 (unaudited)	3
Statement of Cash Flows for the Three Months Ended March 31, 2014 (unaudited)	4
Schedule of Investments as of March 31, 2014 (unaudited)
Notes to Unaudited Financial Statements	13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	38
Item 4. Controls and Procedures	39
PART II. OTHER INFORMATION	40
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	40
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3. Defaults Upon Senior Securities	40
Item 4. Mine Safety Disclosures	40
Item 5. Other Information	40
Item 6. Exhibits	40
SIGNATURES	41

PART I — FINANCIAL INFORMATION

On May 8, 2014, Alcentra Capital Corporation (the “Company”) acquired substantially all of the investment portfolio of BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). Except for the $1,500 seed capital, the Company had no assets or operations prior to the acquisition of the investment portfolio of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company for purposes of this Quarterly Report. 

Item 1. Financial Statements

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Assets and Liabilities

Assets	As of March 31, 2015 (unaudited)		As of December 31, 2014
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $173,154,341 and $165,921,535, respectively)	$	173,433,992	$	167,325,100
Non-controlled, affiliated investments, at fair value (cost $62,350,239 and $61,564,299, respectively)		63,435,406		61,253,192
Controlled, affiliated investments, at fair value (cost $26,795,722 and $26,596,938, respectively)		30,158,773		30,055,562
Total of portfolio investments, at fair value (cost $262,300,302 and $254,082,772, respectively)		267,028,171		258,633,854
Cash		3,962,318		10,022,617
Dividends and interest receivable		762,380		1,417,500
Receivable for investments sold		-		4,753
Deferred financing costs		1,803,033		1,986,520
Deferred note offering costs		227,642		25,743
Prepaid expenses and other assets		73,205		128,388
Total Assets	$	273,856,749	$	272,219,375
Liabilities
Credit facility payable	$	56,954,490	$	62,499,154
Notes payable		5,936,000		-
Payable for investments purchased		-		8,717
Other accrued expenses and liabilities		153,821		539,417
Directors' fees payable		38,000		85,692
Professional fees payable		362,551		409,628
Interest and credit facility expense payable		154,693		216,476
Management fee payable		1,148,005		615,668
Incentive fee payable		806,100		-
Distributions payable		4,595,700		4,595,700
Unearned structuring fee revenue		494,381		517,339
Income tax liability		1,690		45,272
Deferred tax liability		1,856,987		1,697,004
Total Liabilities		72,502,418		71,230,067
Commitments and Contingencies (Note 12)
Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,516,766 and 13,516,766 shares issued and outstanding, respectively)		13,517		13,517
Additional paid-in capital		197,806,987		197,838,155
Accumulated net realized gain (loss)		71,966		71,712
Undistributed investment income		593,320		211,846
Net unrealized appreciation (depreciation) on investments, net of provision for taxes of $1,856,987 and $1,697,004 as of March 31, 2015 and December 31, 2014, respectively		2,868,541		2,854,078
Total Net Assets		201,354,331		200,989,308
Total Liabilities and Net Assets	$	273,856,749	$	272,219,375
Net Asset Value Per Share	$	14.90	$	14.87

1

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Operations

	Alcentra Capital Corporation and Subsidiary			BNY Mellon-Alcentra Mezzanine III, L.P.
Investment Income:	For the three months ended March 31, 2015 (unaudited)			For the three months ended March 31, 2014 (unaudited)
From non-controlled, non-affiliated investments:
Interest income from portfolio investments	$	4,157,559		$	1,392,791
Paid in-kind income from portfolio investments		735,724			373,338
Other income from portfolio investments		659,896			105,089
Dividend income from portfolio investments		-			251,752
From non-controlled, affiliated investments:
Interest income from portfolio investments		1,219,056			725,012
Paid in-kind income from portfolio investments		611,499			195,383
Other income from portfolio investments		28,358			21,176
From controlled, affiliated investments:
Interest income from portfolio investments		575,980			514,320
Paid in-kind income from portfolio investments		198,781			406,120
Other income from portfolio investments		37,800			10,482
Total investment income		8,224,653			3,995,463
Expenses:
Management fees		1,148,005			699,473
Incentive fees		1,807,567			-
Professional fees		189,386			79,327
Valuation services		122,905			-
Interest and credit facility expense		605,888			40,947
Amortization of deferred financing costs		183,487			-
Directors' fees		38,000			-
Insurance expense		69,535			-
Other expenses		84,173			-
Total expenses		4,248,946			819,747
Waiver of management and incentive fees by the Investment Advisor		(1,001,467	)		-
Net expenses		3,247,479			819,747
Net investment income		4,977,174			3,175,716
Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments		254			94,409
Non-controlled, affiliated investments		-			-
Controlled, affiliated investments		-			-
Net realized gain (loss) from portfolio investments		254			94,409
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		(1,123,914	)		2,734,627
Non-controlled, affiliated investments		1,396,274			182,597
Controlled, affiliated investments		(95,573	)		279,333
Net change in unrealized appreciation (depreciation) from portfolio investments		176,787			3,196,557
Benefit/(Provision) for taxes on unrealized gain on investments		(162,324	)		-
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments		14,717			3,290,966
Net Increase in Net Assets from Operations	$	4,991,891		$	6,466,682
Basic and diluted:
Net investment income per share	$	0.37			N.A.
Earnings per share	$	0.37			N.A.
Weighted Average Shares of Common Stock Outstanding		13,516,766			N.A.
Dividends declared per common share	$	0.340			N.A.

2

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Changes in Net Assets

	Alcentra Capital Corporation and Subsidiary			BNY Mellon-Alcentra Mezzanine III, L.P.
	For the three months ended March 31, 2015 (unaudited)			For the three months ended March 31, 2014 (unaudited)
Beginning Balances
General Partner		N.A.			4,967,879
Limited Partners		N.A.			105,671,548
Total Beginning Balances		N.A.			110,639,427
Capital contributions
General Partner		N.A.			-
Limited Partners		N.A.			34,915,014
Total		N.A.			34,915,014
Distributions
General Partner		N.A.			-
Limited Partners		N.A.			(3,941,341	)
Total		N.A.			(3,941,341	)
Net increase in net assets resulting from operations
General Partner		N.A.			-
Limited Partners		N.A.			6,466,682
Total		N.A.			6,466,682
Carried interest allocation
General Partner		N.A.			924,599
Limited Partners		N.A.			(924,599	)
Total		N.A.			-
Total - General Partner		N.A.			5,892,478
Total - Limited Partners		N.A.			142,187,304
Ending Balance		N.A.		$	148,079,782
Increase (decrease) in net assets resulting from operations
Net investment income		4,977,174			N.A.
Net realized gain (loss) on investments		254			N.A.
Net change in unrealized appreciation (depreciation) on investments		176,787			N.A.
Benefits/(Provision) for taxes on unrealized gain on investments		(162,324	)		N.A.
Net increase (decrease) in net assets resulting from operations		4,991,891			N.A.
Capital transactions
Offering costs		(31,168	)		N.A.
Net increase (decrease) in net assets resulting from capital transactions		(31,168	)		N.A.
Distributions to shareholders from:
Net investment income		(4,595,700	)		N.A.
Realized gains		-			N.A.
Total distributions to shareholders		(4,595,700	)		N.A.
Total increase (decrease) in net assets		365,023			N.A.
Net assets at beginning of period		200,989,308			N.A.
Net assets at end of period [including Undistributed investment income of $593,320]		201,354,331			N.A.

3

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Cash Flows

	Alcentra Capital Corporation and Subsidiary			BNY Mellon-Alcentra Mezzanine III, L.P.
	For the three months ended March 31, 2015 (unaudited)			For the three months ended March 31, 2014 (unaudited)
Cash Flows from Operating Activities
Net increase in net assets resulting from operations	$	4,991,891		$	6,466,682
Adjustments to reconcile net increase in net assets from operations to net cash provided by (used in) operating activities:
Net realized (gain) loss from portfolio investments		(254	)		(94,409	)
Net change in unrealized (appreciation) depreciation of portfolio investments		(176,787	)		(3,196,557	)
Deferred tax liability		159,983			-
Paid in-kind interest income from portfolio investments		(1,546,004	)		(974,841	)
Accretion of discount on debt securities		(208,115	)		(146,419	)
Purchases of portfolio investments		(21,982,468	)		(37,928,872	)
Net proceeds from sales/return of capital of portfolio investments		15,519,311			8,813,417
Amortization of deferred financing costs		183,487			-
(Increase) decrease in operating assets:
Dividends and interest receivable		655,120			560,123
Receivable for investments sold		4,753			-
Due from Limited Partners		-			(64,766	)
Deferred note offering costs		(201,899	)		-
Prepaid expenses and other assets		55,183			348,518
Increase (decrease) in operating liabilities:
Payable for investments purchased		(8,717	)		-
Other accrued expenses and liabilities		(359,853	)		(22,109	)
Due to affiliate		-			(1,286	)
Directors' fees payable		(47,692	)		-
Professional fees payable		(47,077	)		-
Interest and credit facility expense payable		(61,783	)		(8,877	)
Management fee payable		532,337			(714,014	)
Incentive fees payable		806,100			-
Unearned structuring fee revenue		(22,958	)		-
Income tax		(43,582	)		-
Net cash provided by (used in) operating activities		(1,799,024	)		(26,963,410	)
Cash Flows from Financing Activities
Offering costs paid		(56,911	)		-
Proceeds from credit facility payable		52,531,684			15,000,000
Repayments of credit facility payable		(58,076,348	)		(15,000,000	)
Proceeds from notes payable		5,936,000			-
Distributions paid to shareholders		(4,595,700	)		-
Capital contributions received from Partners		-			34,834,796
Cash distributions paid to Partners		-			(3,941,341	)
Net cash provided by (used in) financing activities		(4,261,275	)		30,893,455
Increase (decrease) in cash and cash equivalents		(6,060,299	)		3,930,045
Cash at beginning of period		10,022,617			729,431
Cash and Cash Equivalents at End of Period	$	3,962,318		$	4,659,476
Supplemental and non-cash financing activities:
Cash paid during the period for interest	$	544,105		$	49,824
Accrued offering costs	$	5,944		$	-
Accrued distributions payable	$	4,595,700		$	-

4

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments

As of March 31, 2015

(Unaudited)

Company***	Industry	Interest Rate	Base Rate Floor		Maturity Date	No. Shares/ Principal Amount		Cost(1)		Fair Value		% of Net Assets
Investments in Non-Controlled, Non-Affiliated Portfolio Companies — 86.13%
Senior Secured - First Lien — 41.08%
A2Z Wireless Holdings, Inc.(2)	Telecommunications	LIBOR + 11.75%			3/31/2018		8,506,183	$	8,336,058	$	8,506,183		4.22	%
Aphena Pharma Solutions(3)	Packaging	8.50% Cash, 2.0% PIK			3/3/2019		3,735,300		3,735,300		3,735,300		1.85	%
Black Diamond Rentals	Oil & Gas Services	12% Cash, 2.0% PIK			7/8/2018		12,831,084		12,831,084		13,110,086		6.51	%
Datascan Holdings, Inc.(4)	Business Services	LIBOR + 9.50%		1.00%	12/17/2018		3,000,000		3,000,000		3,000,000		1.49	%
HealthFusion, Inc.(2)	Healthcare Services	13% Cash			10/7/2018		5,750,000		5,750,000		5,980,000		2.97	%
IGT(2),(4)	Industrial Services	LIBOR + 8.50% Cash		1.00%	12/10/2019		9,227,500		9,121,696		9,227,500		4.58	%
North Atlantic Petroleum(5)	Retail Distribution	10.75% Cash			11/13/2017		14,250,000		14,250,000		14,250,000		7.08	%
Response Team Holdings LLC(4)	Restoration Services	LIBOR + 8.50% Cash, 1.00% PIK		2.00%	3/28/2019		9,206,258		9,206,258		9,208,000		4.57	%
Stancor, Inc.(4)	Wholesale/Distribution	LIBOR + 8.0%		0.75%	8/19/2019		7,000,000		7,000,000		7,000,000		3.48	%
Triton Technologies(3)	Call Center Services	8.50% Cash, 2.0% PIK			10/23/2018		1,200,000		1,186,431		1,200,000		0.60	%
Well Biz Brands(3)	Consumer Services	8.50% Cash, 2.0% PIK			10/23/2018		7,510,046		7,510,046		7,510,046		3.73	%
Total Senior Secured - First Lien									81,926,873		82,727,115		41.08	%
Senior Secured - Second Lien — 20.02%
Alpine Waste(2),(4)	Waste Services	LIBOR + 9.0% Cash, 0.5% PIK		1.00%	12/30/2020		9,011,375	$	9,011,375	$	9,011,375		4.48	%
Bioventus(4)	Healthcare: Orthopedic Products	LIBOR + 10.0% Cash		1.00%	4/10/2020		12,000,000		11,782,698		12,000,000		5.96	%
Nation Safe Drivers (NSD)(4)	Automotive	LIBOR + 8.0%		2.00%	9/29/2020		11,721,154		11,721,154		11,721,154		5.82	%
Puerto Rico Cable Acquisition Company d/b/a Choice Cable TV(4)	Media: Broadcasting & Subscription	LIBOR + 8.50%		1.00%	5/30/2019		7,500,000		7,402,023		7,575,000		3.76	%
Total Senior Secured - Second Lien									39,917,250		40,307,529		20.02	%
Senior Subordinated — 12.50%
Dentistry For Children, Inc.(2)	Healthcare Services	11% Cash, 2.25% PIK			9/1/2017		14,588,453	$	14,588,453	$	14,588,453		7.25	%
GST Autoleather	Automotive	11% Cash, 2.0% PIK			1/11/2021		8,118,167		8,118,167		8,118,167		4.03	%
Media Storm, LLC	Media & Entertainment	10% Cash			8/28/2019		2,454,545		2,454,545		2,454,545		1.22	%
Total Senior Subordinated									25,161,165		25,161,165		12.50	%
Equity/Other — 12.53%
City Carting Holding Company, Inc.,  Series A Preferred Shares	Waste Management	7% Cash, 15% PIK			4/30/2015		8,316,783	$	8,316,783	$	8,256,878		4.10	%

See notes to unaudited consolidated financial statements

5

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of March 31, 2015

(Unaudited)

Company***	Industry	Interest Rate	Base Rate Floor		Maturity Date	No. Shares/ Principal Amount		Cost(1)		Fair Value		% of Net Assets
Series B Preferred Shares		10% Cash, 8% PIK					4,152,842	$	4,152,842	$	4,152,842		2.06	%
									12,469,625		12,409,720		6.16	%
Dentistry For Children, Inc., Class A-1 Units(6)	Healthcare Services						1,500,000		2,203,000		2,379,000		1.18	%
HealthFusion, Inc., Warrants(6)	Healthcare Services						418,000		418,000		876,000		0.44	%
IGT,  Preferred Shares(6)	Industrial Services						990,324		990,324		990,324		0.49	%
Common Shares(6)							44,000		44,000		44,000		0.02	%
									1,034,324		1,034,324		0.51	%
Media Storm, LLC, Preferred Shares(6)	Media & Entertainment						1,216,204		2,346,965		1,634,000		0.81	%
Response Team Holdings LLC,  Preferred Shares	Restoration Services	12% PIK			3/28/2019		2,677,139		2,677,139		2,677,139		1.33	%
Response Team Holdings LLC, Warrants(6)							5		—		—		—
Wholesome Sweeteners, Inc., Common Shares(6)	Food & Beverage						5,000		5,000,000		4,228,000		2.10	%
Total Equity/Other									26,149,053		25,238,183		12.53	%
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies									173,154,341		173,433,992		86.13	%
Investments in Non-Controlled, Affiliated Portfolio Companies — 31.51%*
Senior Secured - First Lien — 1.90%
Show Media, Inc.	Media & Entertainment	5.5% Cash, 5.5% PIK			8/10/2017		3,821,456	$	3,537,468	$	3,821,456		1.90	%
Total Senior Secured - First Lien									3,537,468		3,821,456		1.90	%
Senior Secured - Second Lien — 5.96%
Southern Technical Institute, Inc.(4)	Education	LIBOR + 9.75%		1.00%	12/2/2020		12,000,000	$	12,000,000	$	12,000,000		5.96	%
Total Senior Secured - Second Lien									12,000,000		12,000,000		5.96	%
Senior Subordinated — 15.22%
ACT Lighting	Wholesale	12% Cash, 2% PIK			7/24/2019		8,378,081	$	8,224,790	$	8,378,081		4.16	%
		8% PIK			7/24/2020		1,849,018		1,682,063		1,722,000		0.86	%
									9,906,853		10,100,081		5.02	%
Battery Solutions, Inc.	Environmental/Recycling Services	12% Cash, 2% PIK			12/20/2018		5,236,326		5,236,326		4,713,294		2.34	%
DBI Holding, LLC	Infrastructure Maintenance	12% Cash, 4% PIK			9/6/2019		8,762,307		8,762,307		8,762,307		4.35	%
		16% PIK			9/6/2019		7,490,979		7,050,179		7,069,000		3.51	%
									15,812,486		15,831,307		7.86	%
Total Senior Subordinated									30,955,665		30,644,682		15.22	%
Equity/Other — 8.43%
ACT Lighting, Warrants(6)	Wholesale				7/24/2019		143,000	$	143,000	$	835,000		0.42	%

See notes to unaudited consolidated financial statements

6

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of March 31, 2015

(Unaudited)

Company***	Industry	Interest Rate	Base Rate Floor	Maturity Date	No. Shares/ Principal Amount		Cost(1)		Fair Value			% of Net Assets
Battery Solutions, Inc., Class A Units(6)	Environmental/Recycling Services					5,000,000	$	1,058,000	$	—			—
DBI Holding, LLC, Warrants(6)	Infrastructure Maintenance			3/6/2024		519,412		519,412		1,176,000			0.58	%
Net Access Corporation, Class A Units(6)	Technology					3,000,000		8,112,000		10,458,999			5.19	%
Show Media, Inc., Units(6)	Media & Entertainment					4,092,210		3,747,427		645,002			0.32	%
Southern Technical Institute, Inc.,  Class A Units(6)	Education					3,164,063		2,167,000		3,744,000			1.86	%
Warrants(6)						110,267		110,267		110,267			0.06	%
								2,277,267		3,854,267			1.92	%
Total Equity/Other								15,857,106		16,969,268			8.43	%
Total Investments in Non-Controlled, Affiliated Portfolio Companies								62,350,239		63,435,406			31.51	%
Investments in Controlled, Affiliated Portfolio Companies — 14.98%**
Senior Secured - First Lien — 9.16%
DRC Emergency Services	Disaster Recovery Services	10% Cash		1/11/2020		5,000,000	$	5,000,000	$	5,000,000			2.49	%
		8% Cash		6/30/2016		666,560		666,560		666,560			0.33	%
								5,666,560		5,666,560			2.82	%
FST Technical Services, LLC	Technology & Telecom	12% Cash, 2% PIK		11/18/2018		12,500,000		12,500,000		12,771,000			6.34	%
Total Senior Secured - First Lien								18,166,560		18,437,560			9.16	%
Equity/Other — 5.82%
DRC Emergency Services, Preferred Shares	Disaster Recovery Services	10% PIK				8,084,241	$	6,822,620	$	7,141,213			3.55	%
FST Technical Services, LLC, Common Shares	Technology & Telecom	9% PIK				1,750,000		1,806,542		4,580,000			2.27	%
Total Equity/Other								8,629,162		11,721,213			5.82	%
Total Investments in Controlled, Affiliated Portfolio Companies								26,795,722		30,158,773			14.98	%
Total Investments								262,300,302		267,028,171			132.62	%
Liabilities In Excess Of Other Assets										(65,673,840	)		(32.62	)%
Net Assets									$	201,354,331			100.00	%

^* Denotes investments in which the Partnership is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the three months ended March 31, 2015 in these affiliated investments are as follows:

	Fair Value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		March 31,
Name of Issuers	2014		Addition		Reductions		Other income		2015
ACT Lighting	$	10,849,399	$	77,937	$	-	$	337,530	$	10,935,081
Battery Solutions, Inc.		4,576,000		26,095		-		188,770		4,713,294
DBI Holding, LLC		16,102,785		453,900		-		754,320		17,007,307
Net Access Corporation		9,412,000		-		-		-		10,458,999
Show Media, Inc.		4,596,000		6,839,513		6,785,946		252,263		4,466,458
Southern Technical Institute, Inc.		15,717,008		-		-		326,030		15,854,267
	$	61,253,192	$	7,397,445	$	6,785,946	$	1,858,913	$	63,435,406

^** Denotes investments in which the Partnership is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the three months ended March 31, 2015 in these affiliated and controlled investments are as follows:

	Fair Value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		March 31,
Name of Issuers	2014		Addition		Reductions		Other income		2015
The DRC Group	$	12,596,562	$	198,781	$	-	$	337,261	$	12,807,773
FST Technical Services, LLC		17,459,000		-		-		475,300		17,351,000
	$	30,055,562	$	198,781	$	-	$	812,561	$	30,158,773

^*** Pledged as collateral under the Credit Facility with ING Capital LLC.

⁽¹⁾ The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities.

⁽²⁾ The investment has an unfunded commitment as of March 31, 2015 which is excluded from the presentation (see Note 12).

⁽³⁾ The investments are guaranteed by Enhanced Equity Fund, L.P. ("EEF")

See notes to unaudited consolidated financial statements

7

Alcentra Capital Corporation and Subsidiary

Consolidated Schedule of Investments (continued)

As of March 31, 2015

(Unaudited)

⁽⁴⁾ The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement.

⁽⁵⁾ Investment is not a qualifying investment as defined under section 55 (a) of the investment Company act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition.

⁽⁶⁾ Non-income producing security.

Abbreviation Legend

PIK -  Payment-In-Kind

See notes to unaudited consolidated financial statements

8

Alcentra Capital Corporation

Consolidated Schedule of Investments

As of December 31, 2014

Company***	Industry	Interest Rate	Base Rate Floor			Maturity Date	No. Shares/ Principal Amount		Cost(1)		Fair Value		% of Net Assets
Investments in Non-Controlled, Non-Affiliated Portfolio Companies — 83.25%
Senior Secured - First Lien — 36.94%
Aphena Pharma Solutions	Packaging	8.50% Cash, 2.0% PIK				3/3/2019		3,716,716	$	3,716,716	$	3,716,716		1.85	%
Black Diamond Rentals	Oil & Gas Services	12% Cash, 2.0% PIK				7/8/2018		12,767,248		12,767,248		13,044,000		6.49	%
Datascan Holdings, Inc.	Business Services	LIBOR + 9.75%		1.00	%	12/17/2018		3,000,000		3,000,000		3,000,000		1.49	%
HealthFusion, Inc.(2)	Healthcare Services	13% Cash				10/7/2018		5,750,000		5,750,000		5,980,000		2.97	%
IGT(2)	Industrial Services	LIBOR + 8.50% Cash		1.00	%	12/10/2019		9,000,000		8,893,250		9,000,000		4.48	%
North Atlantic Petroleum(3)	Retail Distribution	10.75% Cash				11/13/2017		14,625,000		14,625,000		14,625,000		7.28	%
Response Team Holdings LLC	Restoration Services	LIBOR + 8.50% Cash, 1.00% PIK		2.00	%	3/28/2019		9,518,307		9,518,307		9,520,288		4.74	%
Stancor, Inc.	Wholesale/Distribution	LIBOR + 8.0%		0.75	%	8/19/2019		7,000,000		7,000,000		7,000,000		3.48	%
Triton Technologies	Call Center Services	8.50% Cash, 2.0% PIK				10/23/2018		1,200,000		1,185,145		1,201,000		0.60	%
Well Biz Brands	Consumer Services	8.50% Cash, 2.0% PIK				10/23/2018		7,167,144		7,167,144		7,167,144		3.56	%
Total Senior Secured - First Lien										73,622,810		74,254,148		36.94	%
Senior Secured - Second Lien — 17.29%
Alpine Waste(2)	Waste Services	LIBOR + 9.0% Cash, 0.5% PIK		1.00	%	12/30/2020		9,000,000	$	9,000,000	$	9,000,000		4.48	%
Bioventus	Healthcare: Orthopedic Products	LIBOR + 10.0% Cash		1.00	%	4/10/2020		12,000,000		11,760,000		12,000,000		5.97	%
Nation Safe Drivers (NSD)(2)	Automotive	LIBOR + 8.0%		2.00	%	9/29/2020		6,173,798		6,173,798		6,173,798		3.07	%
Puerto Rico Cable Acquisition Company d/b/a Choice Cable TV	Media: Broadcasting & Subscription	LIBOR + 8.50%		1.00	%	5/30/2019		7,500,000		7,397,404		7,575,000		3.77	%
Total Senior Secured - Second Lien										34,331,202		34,748,798		17.29	%
Senior Subordinated — 12.46%
Dentistry For Children, Inc.(2)	Healthcare Services	11% Cash, 2.25% PIK				9/1/2017		14,506,700	$	14,506,700	$	14,506,700		7.22	%
GST Autoleather	Automotive	11% Cash, 2.0% PIK				1/11/2021		8,077,778		8,077,778		8,077,778		4.02	%
Media Storm, LLC	Media & Entertainment	10% Cash				8/28/2019		2,454,545		2,454,545		2,454,545		1.22	%
Total Senior Subordinated										25,039,023		25,039,023		12.46	%
Equity/Other — 16.56%
American Addiction Centers, Series A Redeemable Preferred Equity(4)	Healthcare & Pharmaceuticals	12% Cash				4/15/2017		8,000,000	$	8,000,000	$	8,160,000		4.06	%

See notes to consolidated financial statements

9

Alcentra Capital Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2014

Company***	Industry	Interest Rate	Base Rate Floor			Maturity Date	No. Shares/ Principal Amount		Cost(1)		Fair Value		% of Net Assets
City Carting Holding Company, Inc.,  Series A Preferred Shares	Waste Management	7% Cash, 15% PIK				4/30/2015		7,478,639	$	7,478,639	$	7,478,639		3.72	%
Series B Preferred Shares		10% Cash, 8% PIK						3,876,840		3,876,840		3,876,840		1.93	%
										11,355,479		11,355,479		5.65	%
Dentistry For Children, Inc., Class A-1 Units(5)	Healthcare Services							1,500,000		2,203,000		2,262,000		1.13	%
HealthFusion, Inc., Warrants(5)	Healthcare Services							418,000		418,000		754,000		0.38	%
IGT,  Preferred Shares(5)	Industrial Services							962,651		962,651		962,651		0.48	%
Common Shares(5)								44,000		44,000		44,000		0.02	%
										1,006,651		1,006,651		0.50	%
Media Storm, LLC, Preferred Shares(5)	Media & Entertainment							1,216,204		2,346,964		2,555,000		1.27	%
Response Team Holdings LLC,  Preferred Shares	Restoration Services	12% PIK				3/28/2019		2,598,406		2,598,406		2,599,001		1.29	%
Response Team Holdings LLC, Warrants(5)								5		—		—		—
Wholesome Sweeteners, Inc., Common Shares(5)	Food & Beverage							5,000		5,000,000		4,591,000		2.28	%
Total Equity/Other										32,928,500		33,283,131		16.56	%
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies										165,921,535		167,325,100		83.25	%
Investments in Non-Controlled, Affiliated Portfolio Companies — 30.48%*
Senior Secured - First Lien — 2.29%
Show Media, Inc.	Media & Entertainment	11.0% PIK				8/10/2017		7,535,778	$	6,761,028	$	4,596,000		2.29	%
Total Senior Secured - First Lien										6,761,028		4,596,000		2.29	%
Senior Secured - Second Lien — 5.97%
Southern Technical Institute, Inc.	Education	LIBOR + 9.75%		1.00	%	12/2/2020		12,000,000	$	12,000,000	$	12,000,000		5.97	%
Total Senior Secured - Second Lien										12,000,000		12,000,000		5.97	%
Senior Subordinated — 14.90%
ACT Lighting	Wholesale	12% Cash, 2% PIK				7/24/2019		8,336,399	$	8,177,158	$	8,336,399		4.15	%
	8% PIK					7/24/2020		1,812,763		1,640,216		1,680,000		0.84	%
										9,817,374		10,016,399		4.99	%
Battery Solutions, Inc.	Environmental/Energy Services	12% Cash, 2% PIK				12/20/2018		5,210,232		5,210,232		4,576,000		2.28	%
DBI Holding, LLC	Infrastructure Maintenance	12% Cash, 1% PIK				9/6/2019		8,631,785		8,631,785		8,631,785		4.29	%
	13% PIK					9/6/2019		7,167,600		6,709,880		6,723,000		3.34	%
										15,341,665		15,354,785		7.63	%
Total Senior Subordinated										30,369,271		29,947,184		14.90	%

See notes to consolidated financial statements

10

Alcentra Capital Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2014

Company***	Industry	Interest Rate	Base Rate Floor	Maturity Date	No. Shares/ Principal Amount		Cost(1)		Fair Value			% of Net Assets
Equity/Other — 7.32%
ACT Lighting, Warrants(5)	Wholesale			7/24/2019		143,000	$	143,000	$	833,000			0.41	%
Battery Solutions, Inc., Class A Units(5)	Environmental/Energy Services					5,000,000		1,058,000		—			—
DBI Holding, LLC, Warrants(5)	Infrastructure Maintenance			3/6/2024		519,412		519,412		748,000			0.37	%
Net Access Corporation, Class A Units(5)	Technology					3,000,000		8,112,000		9,412,000			4.68	%
Show Media, Inc., Units(5),(6)	Media & Entertainment					324,321		324,321		—			—
Southern Technical Institute, Inc.,  Class A Units(5)	Education					3,164,063		2,167,000		3,606,741			1.80	%
Warrants(5)						110,267		110,267		110,267			0.06	%
								2,277,267		3,717,008			1.86	%
Total Equity/Other								12,434,000		14,710,008			7.32	%
Total Investments in Non-Controlled, Affiliated Portfolio Companies								61,564,299		61,253,192			30.48	%
Investments in Controlled, Affiliated Portfolio Companies — 14.95%**
Senior Secured - First Lien — 9.23%
DRC Emergency Services	Disaster Recovery Services	10% Cash		1/11/2020		5,000,000	$	5,000,000	$	5,000,000			2.49	%
	8% Cash			6/30/2016		666,560		666,560		666,560			0.33	%
								5,666,560		5,666,560			2.82	%
FST Technical Services, LLC	Technology & Telecom	12% Cash, 2% PIK		11/18/2018		12,500,000		12,500,000		12,879,000			6.41	%
Total Senior Secured - First Lien								18,166,560		18,545,560			9.23	%
Equity/Other — 5.72%
DRC Emergency Services, Preferred Shares	Disaster Recovery Services	10% PIK				7,885,459	$	6,623,838	$	6,930,002			3.44	%
FST Technical Services, LLC, Common Shares	Technology & Telecom	9% PIK				1,750,000		1,806,540		4,580,000			2.28	%
Total Equity/Other								8,430,378		11,510,002			5.72	%
Total Investments in Controlled, Affiliated Portfolio Companies								26,596,938		30,055,562			14.95	%
Total Investments								254,082,772		258,633,854			128.68	%
Liabilities In Excess Of Other Assets										(57,644,546	)		(28.68	%)
Net Assets									$	200,989,308			100.00	%

^* Denotes investments in which the Partnership is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2014 in these affiliated investments are as follows:

	Fair Value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		December 31,
Name of Issuers	2013		Addition		Reductions		Other income		2014
ACT Lighting	$	-	$	11,419,162	$	1,500,000	$	685,229	$	10,849,399
Battery Solutions, Inc.		6,075,969		68,663		-		819,578		4,576,000
DBI Holding, LLC		-		15,637,081		-		2,240,640		16,102,785
Net Access Corporation		11,964,457		-		3,920,230		359,709		9,855,000
Show Media, Inc.		6,294,000		643,862		-		818,199		4,596,000
Southern Technical Institute, Inc.		10,702,958		787,500		9,520,833		1,177,952		15,717,008
	$	35,037,384	$	28,556,269	$	14,941,063	$	6,101,307	$	61,696,192

^** Denotes investments in which the Partnership is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2014 in these affiliated and controlled investments are as follows:

	Fair value at						Interest/		Fair Value at
	December 31,		Gross		Gross		Dividend/		December 31,
Name of Issuers	2013		Addition		Reductions		Other income		2014
The DRC Group	$	11,906,520	$	8,690,664	$	8,774,638	$	1,928,028	$	12,596,562
FST Technical Services, LLC		14,034,723		37,779		156,873		2,306,535		17,459,000
	$	25,941,243	$	8,728,443	$	8,931,511	$	4,234,563	$	30,055,562

⁽¹⁾ The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities.

See notes to consolidated financial statements

11

Alcentra Capital Corporation

Consolidated Schedule of Investments (continued)

As of December 31, 2014

⁽²⁾ The investment has an unfunded commitment as of December 31, 2014 which is excluded from the presentation (see Note 12).

⁽³⁾ Investment is not a qualifying investment as defined under section 55 (a) of the investment Company act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition.

⁽⁴⁾ The Company provided financing to Behavioral Healthcare Realty, a wholly owned subsidiary of American Addiction Centers.

⁽⁵⁾ Non-income producing security.

⁽⁶⁾ As part of the December 2013 amendment, the senior secured notes of Show Media, Inc., contain a provision that, under certain circumstances, allow the holder to convert a portion of the notes into equity, subject to a maximum ownership of 49% of the Common Stock of the business. On December 31, 2014, we entered into an amendment whereby we elected to convert 50% of our Notes into Redeemable Convertible Preferred Stock (the "Preferred"). The Preferred has an 11% accrued dividend. The remaining note has an 11% coupon that is payable at 5.5% cash and 5.5% PIK commencing June 30, 2015.

Abbreviation Legend

PIK -   Payment-In-Kind

See notes to consolidated financial statements

12

ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

1. Organization and Purpose

Alcentra Capital Corporation (the “Company”, “Alcentra”, “we”, “us” or “our”) was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”) and is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946,Financial Services Investment Companies. Alcentra is managed by Alcentra NY, LLC (the “Adviser” or “Alcentra NY”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In addition, for U.S. federal income tax purposes, Alcentra intends to elect to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax year ending December 31, 2014.

The Company was formed for the purpose of acquiring certain assets held by BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). The Partnership is a Delaware limited partnership, which commenced operations on May 14, 2010 (the “Commencement Date”). BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY, LLC and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY is wholly-owned by BNY Alcentra Group Holdings, Inc. (“Alcentra Group”), which is wholly-owned by The Bank of New York Mellon Corporation.

On May 8, 2014 (commencement of operations), the Company acquired all of the assets of the Partnership other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) for $64.4 million in cash and $91.5 million in shares of Alcentra’s common stock. Concurrent with Alcentra’s acquisition of the Fund III Acquired Assets from the Partnership, Alcentra also purchased for $29 million in cash certain debt investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio debt investments were originated by the investment professionals of the Adviser and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the initial public offering of Alcentra’s shares of common stock. Except for the $1,500 seed capital, the Company had no assets or operations prior to the acquisition of the investment portfolios of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company.

On May 14, 2014, Alcentra completed its initial public offering (the “Offering”), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100 million. Alcentra used $94.2 million of the proceeds from the Offering to fund the purchase of the warehouse portfolio, and the cash portion of the consideration paid to Fund III. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’ exercise of the overallotment option for gross proceeds of $11,250,000.

On April 8, 2014, the Company formed Alcentra BDC Equity Holdings, LLC, a wholly-owned subsidiary for tax purposes. This subsidiary allows us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The financial statements of this entity are consolidated into the financial statements of Alcentra. All intercompany balances and transactions have been eliminated.

The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to $15.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization) through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. It sources investments primarily through the extensive network of relationships that the principals of its investment adviser have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.

Upon commencement of operations, the Company also entered into an administration and custodian agreement (the “Agreement”) with State Street Bank and Trust Company (the “Administrator”).

Capitalized terms used but not defined here in, shall have the meaning assigned to them in the amended and restated Limited Partnership Agreement dated as of April 5, 2012, as amended.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements of the Partnership and the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X.

13

In the opinion of management, the consolidated financial results included herein contain all adjustments considered necessary for the fair presentation of financial statements for the interim periods included herein.

The accounting records of the Company and the Partnership are maintained in United States dollars. 

Alcentra NY purchased the initial 100 shares for $1,500 on March 12, 2014.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material. The most significant estimates relate to the valuation of the Company’s portfolio investments.

Consolidation

In accordance with Regulation S-X Article 6.03 and ASC Topic 810 - Consolidation, the Company generally will not consolidate its interest in any operating company other than in investment company subsidiaries, certain financing subsidiaries, and controlled operating companies substantially all of whose business consists of providing services to the Company.

Portfolio Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation. “Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.

Cash

At March 31, 2015, cash balances totaling $3,962,318 exceeded FDIC insurance protection levels, subjecting the Company to risk related to the uninsured balance. All of the Company’s cash deposits are held by the Administrator and management believes that the risk of loss associated with any uninsured balance is remote.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the credit facility (as defined in Note 10) and are capitalized at the time of payment. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the credit facility.

Deferred Note Offering Costs

Deferred Note Offering costs consist of fees and expenses paid in connection with the series of Senior Securities issued (as defined in Note 18) and are capitalized at this time as these fees and expenses were incurred before the issuance commenced.

Valuation of Portfolio Investments

Portfolio investments are carried at fair value as determined by the General Partner of the Partnership and, in case of the fair value as of March 31, 2015, by the Board of Directors (the “Board”) of Alcentra.

The methodologies used in determining these valuations include:

(1) Preferred shares/membership units and common shares/membership units

In determining estimated fair value for common shares/membership units and preferred shares, the Company or the Partnership makes assessments of the methodologies and value measurements which market participants would use in pricing comparable investments, based on market data obtained from independent sources as well as from the Partnership’s or Company’s own assumptions and taking into account all material events and circumstance which would affect the estimated fair value of such investments. Several types of factors, circumstances and events could affect the estimated fair value of the investments. These include but are not limited to the following:

14

(i) Any material changes in the (a) competitive position of the portfolio investment, (b) legal and regulatory environment within which the portfolio investment operates, (c) management or key managers of the portfolio investment, (d) terms and/or cost of financing available to the portfolio investment, and (e) financial position or operating results of the investment; (ii) pending disposition by the Company or Partnership of all or a major portfolio investments; and (iii) sales prices of recent public or private transactions in identical or comparable investments.

One or a combination of the following valuation techniques are used to fair value these investments: Market Approach and Income Approach. The Market Approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Income Approach uses valuation techniques to convert future amounts to a present amount (i.e., discounting estimated future cash flows to a net present value amount).

(2) Debt

The yield to maturity analysis is used to estimate the fair value of debt, including the unitranche facilities, which are a combination of senior and subordinated debt in one debt instrument. The calculation of yield to maturity takes into account the current market price, par value, coupon interest rate and time to maturity.

(3) Warrants

Where warrants are considered to be in the money, their incremental value is included within the valuation of the investments.

Valuation techniques are applied consistently from period to period, except when circumstances warrant a change to a different valuation technique that will provide a better estimate of fair value. The valuation process begins with each investment being initially valued by the investment professionals of the General Partner or for the Company, its Adviser. Preliminary valuation conclusions are then documented and discussed with senior investment professionals of the General Partner of the Partnership or for the Company, its Adviser. The Investment Committee reviews the valuation of the investment professionals and then determines the fair value of each investment in good faith based on the input of the investment professionals.

With respect to the Company’s valuation process, the Board undertakes a similar multi-step valuation process each quarter, as described below:

· Alcentra’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment;

· preliminary valuation conclusions will then be documented and discussed with Alcentra’s senior management and the Adviser;

· the audit committee of the Board then reviews these preliminary valuations;

· at least once quarterly, independent valuation firms engaged by the Board prepare preliminary valuations on a selected basis and submit the reports to the Board; and

· the Board then discusses valuations and determine the fair value of each investment in Alcentra’s portfolio in good faith, based on the input of the Adviser, the independent valuation firms and the audit committee.

The Board has authorized the engagement of independent valuation firms to provide Alcentra with valuation assistance. Alcentra intends to have independent valuation firms provide it with valuation assistance on a portion of its portfolio on a quarterly basis and its entire portfolio will be reviewed at least annually by independent valuation firms; however, the Board is ultimately and solely responsible for the valuation of its portfolio investments at fair value as determined in good faith pursuant to its valuation policy and a consistently applied valuation process.

Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a readily available market for the securities existed or from those which will ultimately be realized.

Organizational and Offering Costs – Organization expenses, including reimbursement payments to the Adviser, are expensed on the Company’s consolidated statement of operations. These expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and have been expensed as incurred. Offering expenses consist principally of underwriter’s fee, legal, accounting, printing fees and other related expenses associated with the filing of a registration statement. Offering costs are offset against proceeds of the offering in paid-in capital in excess of par in the consolidated statement of changes in net assets. $1.56 million of offering costs were incurred with the initial public offering.

The Partnership is obligated to reimburse the General Partner for 100% of the placement fee and for organizational costs of the Partnership in an amount not to exceed $1,250,000 on a cumulative basis. Organizational costs paid by the Partnership in excess of $1,250,000 (“Excess Organizational Expenses”) and all placement fees paid by the Partnership will reduce the management fee as described in Note 7. No costs were charged for the Partnership for the three months ended March 31, 2015 or March 31, 2014.

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Paid-In-Capital – The Company records the proceeds from the sale of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions.

Earnings and Net Asset Value Per Share – Earnings per share is calculated based upon the weighted average number of shares of common stock outstanding during the reported period. Net Asset Value per share is calculated using the number of shares outstanding as of the end of the period.

Investments – Investment security transactions are accounted for on a trade date basis. Cost of portfolio investments represents the actual purchase price of the securities acquired including capitalized legal, brokerage and other fees as well as the value of interest and dividends received in-kind and the accretion of original issue discounts. Fees may be charged to the issuer by the Company and Partnership in connection with the origination of a debt security financing. Such fees are reflected as a discount to the cost of the portfolio security and the discount is accreted into income over the life of the related debt security.

Original Issue Discount – When the Company and Partnership receive warrants with a nominal or discounted exercise price upon origination of a debt or preferred stock investment, a portion of the cost basis is allocated to the warrants. When the investment is made concurrently with the sale of a substantial amount of equity, the value of the warrants is based on the sales price. The value of the warrants is recorded as original issue discount (“OID”) to the value of the debt or preferred stock investment and the OID is amortized over the life of the investment.

Interest and Dividend Income – Interest is recorded on the accrual basis to the extent that the Company and Partnership expect to collect such amounts. The Company and Partnership accrue paid in-kind interest (“PIK”) by recording income and an increase to the cost basis of the related investments. Dividend income is recorded on ex-dividend date. Dividends in-kind are recorded as increase in cost basis of investments and as income.

Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on non-accrual designated investments may be recognized as income or applied to principal depending on management’s judgment. There were no non-accrual investments as of March 31, 2015 and December 31, 2014.

Other Income – The Company may also receive structuring or closing fees in connection with its investments. Such upfront fees are accreted into income over the life of the investment.

Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.

Income Taxes – Beginning with its first taxable year, the Company intends to elect for U.S. federal income tax purposes to be treated as a RIC under Subchapter M of the Code, and to operate in a manner so as to qualify for the tax treatment applicable to RIC’s. To obtain and maintain our qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, the Company must distribute to our stockholders, for each taxable year, at least 90% of ‘‘investment company taxable income,’’ which is generally net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, or the Annual Distribution Requirement. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that are timely distributed to stockholders as dividends.

The Partnership is structured as a partnership for U.S. Federal income tax purposes, and as such, is not subject to income taxes; each Partner (depending on its structure for tax purposes) may be individually liable for income taxes, if any, on its share of the Partnership’s taxable income.

Alcentra BDC Equity Holdings LLC has elected to be a taxable entity (the “Taxable Subsidiary”). The Taxable Subsidiary permits the Company to hold equity investments in portfolio companies which are “pass through” entities for tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of its ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial statements. For the three months ended March 31, 2015 and for the year ended December 31, 2014, we recognized a provision for income tax on unrealized gain on investments of $0.2 million and $1.6 million for the Taxable Subsidiaries, respectively. As of March 31, 2015 and December 31, 2014, $1.8 million and $1.6 million were included in the deferred tax liability on the Consolidated Statement of Assets and Liabilities, respectively.

The following is the major tax jurisdiction for the Partnership and the earliest tax year subject to examination: United States – 2010.

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Indemnification – In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

3. Fair Value of Portfolio Investments

The Company and Partnership account for its investments in accordance with FASB Accounting Standards Codification Topic 820 (“ASC Topic 820”),Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value. ASC Topic 820 established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value.

Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1 – Quoted prices (unadjusted) are available in active markets for identical investments that the Company and Partnership has the ability to access as of the reporting date. The type of investments which would generally be included in Level 1 includes listed equity securities and listed derivatives. As required by ASC Topic 820, the Company and Partnership, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Company and Partnership holds a large position and a sale could reasonably impact the quoted price.

Level 2 – Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation by the Company and Partnership. The types of investments which would generally be included in this category include debt and equity securities issued by private entities.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company and Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The following table summarizes the levels in the fair value hierarchy into which the Company and Partnership’s financial instruments are categorized as of March 31, 2015 and December 31, 2014:

As of March 31, 2015: 

	Level 1		Level 2		Level 3		Total
Senior Secured – First Lien	$	-	$	-	$	104,986,131	$	104,986,131
Senior Secured – Second Lien		-		-		52,307,529		52,307,529
Subordinated Debt		-		-		55,805,847		55,805,847
Equity/Other		-		-		53,928,664		53,928,664
Total investments	$	-	$	-	$	267,028,171	$	267,028,171

As of December 31, 2014: 

	Level 1		Level 2		Level 3		Total
Senior Secured – First Lien	$	-	$	-	$	97,395,708	$	97,395,708
Senior Secured – Second Lien		-		-		46,748,798		46,748,798
Subordinated Debt		-		-		54,986,207		54,986,207
Equity/Other		-		8,160,000		51,343,141		59,503,141
Total investments	$	-	$	8,160,000	$	250,473,854	$	258,633,854

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During the period from May 8, 2014 to December 31, 2014, our ability to observe valuation inputs has resulted in a reclassification of $8,160,000 investment from Level 3 to Level 2 with no other reclassifications of assets between levels. This transfer was reported at the end of the reporting period in which it occurred. There were no transfers between levels for the three months ended March 31, 2015.

Transfers between levels of the fair value hierarchy are reported at the end of the reporting period in which they occur.  

The changes in investments classified as Level 3 are as follows for the three months ended March 31, 2015 and March 31, 2014. 

		Senior			Senior
		Secured -			Secured -			Senior		Equity/
		First Lien			Second Lien			Subordinated		Other			Total
Balance as of January 1, 2015	$	97,395,708		$	46,748,798		$	54,986,207	$	51,343,141		$	250,473,854
Amortized discounts/premiums		152,334			27,317			28,464		-			208,115
Paid in-kind interest		195,638			11,375			680,074		658,917			1,546,004
Net realized gain (loss)		254			-			-		-			254
Net change in unrealized appreciation (depreciation)		2,509,918			(27,317	)		111,102		(2,256,916	)		336,787
Purchases		12,251,590			5,547,356			-		4,183,522			21,982,468
Sales/Return of capital		(7,519,311	)		-			-		-			(7,519,311	)
Transfers in		-			-			-		-			-
Transfers out		-			-			-		-			-
Balance as of March 31, 2015	$	104,986,131		$	52,307,529		$	55,805,847	$	53,928,664		$	267,028,171
Net change in unrealized appreciation(depreciation) from investments still held as of March 31, 2015	$	2,407,882		$	(27,317	)	$	111,102	$	(2,699,916	)	$	(208,249	)

	Debt			Common Shares/ Membership Units			Preferred Shares/ Membership Units			Warrants		Total
Balance as of January 1, 2014	$	77,460,413		$	19,884,409		$	20,149,748		$	2,702,267	$	120,196,837
Amortized discounts/premiums		146,419			-			-			-		146,419
Paid in-kind interest		313,924			-			660,917			-		974,841
Net realized gain (loss)		-			94,409			-			-		94,409
Net change in unrealized appreciation (depreciation)		231,359			339,354			(258,156	)		773,000		1,085,557
Purchases		33,822,423			-			3,587,037			519,412		37,928,872
Sales/Return of capital		(8,219,008	)		(594,409	)		-			-		(8,813,417	)
Transfers in		-			-			-			-		-
Transfers out		-			-			-			-		-
Balance as of March 31, 2014	$	103,755,530		$	19,723,763		$	24,139,546		$	3,994,679	$	151,613,518
Net change in unrealized appreciation (depreciation) from investments still held as of March 31, 2014	$	231,359		$	433,763		$	(258,156	)	$	773,000	$	1,179,966

The following is a summary of the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of March 31, 2015 and December 31, 2014, respectively.

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As of March 31, 2015:

Assets at Fair Value	Fair Value at March 31, 2015		Valuation Technique	Unobservable Input	Range of Inputs			Weighted Average
Senior Secured - First Lien	$	104,986,131	Yield to Maturity	Comparable Market Rate		7.75%-14.0	%		11.35	%
Senior Secured - Second Lien	$	52,307,529	Yield to Maturity	Comparable Market Rate		9.5%-11.0	%		10.42	%
Senior Subordinated	$	55,805,847	Yield to Maturity	Comparable Market Rate		10.0%-23.0	%		12.11	%
Preferred Ownership	$	23,862,072	Market Approach	Enterprise Value/LTM EBITDA Multiple		7.48x-8.46x			7.97x
Common Ownership/ Common Warrants	$	30,066,592	Market Approach	Enterprise Value/LTM EBITDA Multiple		10.52x-10.69x			10.61x
Total	$	267,028,171

As of December 31, 2014:

Assets at Fair Value	Fair Value at December 31, 2014		Valuation Technique	Unobservable Input	Range of Inputs		Weighted Average
Senior Secured - First Lien	$	97,395,708	Yield to Maturity	Comparable Market Rate		8.75% - 36.3%		11.82	%
Senior Secured - Second Lien	$	46,748,798	Yield to Maturity	Comparable Market Rate		9.5% - 11.0%		10.27	%
Senior Subordinated	$	54,986,207	Yield to Maturity	Comparable Market Rate		13.0% - 20.0%		11.23	%
Preferred Ownership	$	24,402,133	Market Approach	Enterprise Value/LTM EBITDA Multiple		7.56x – 8.35x		7.95x
Common Ownership/ Common Warrants	$	26,941,008	Market Approach	Enterprise Value/LTM EBITDA Multiple		10.19x – 10.99x		10.59x
Total	$	250,473,854

4. Share Transactions/Partners’ Capital

For the three months ended March 31, 2015, there were no shares issued or proceeds received by the Company.

The Partnership held its initial closing on May 14, 2010, accepting capital commitments amounting to $105,850,000 from Limited Partners. Seven additional closings were held subsequent to May 14, 2010. The most recent of which being the final closing, took place on August 10, 2012, bringing total commitments to $210,200,000. As of March 31, 2014, Limited Partners have contributed $202,197,552 or 96.29% of their total capital commitments to the Partnership, respectively. As of March 31, 2014, the capital balances of Class A Limited Partners and Class B Limited Partners amounted to 65.91% and 28.55% of total partners’ capital, respectively. 

5. Distributions

Alcentra Capital Corporation

The Company intends to make quarterly distributions of available net investment income determined on a tax basis to its stockholders. Distributions to stockholders are recorded on the record date. The amount, if any, to be distributed to stockholders is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, will be distributed at least annually, although the Company may decide to retain such capital gains for investment and pay a 4% excise tax on such excess.

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The following table reflects the Company’s dividends declared and paid or to be paid on its common stock:

Date Declared	Record Date	Payment Date	Amount Per Share
June 24, 2014	June 30, 2014	July 7, 2014	$	0.178
August 12, 2014	September 30, 2014	October 6, 2014	$	0.340
November 4, 2014	December 30, 2014	January 6, 2015	$	0.340
March 10, 2015	March 31, 2015	April 6, 2015	$	0.340

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the stockholders who have not “opted out” of the DRIP no later than the record date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the common stock on the NASDAQ Global Select Market on the dividend payment date. Shares purchased in the open market to satisfy the DRIP requirements will be valued upon the average price of the applicable shares purchased by the Plan Administrator, before any associated brokerage or other costs.

BNY Mellon-Alcentra Mezzanine III, L.P.

Proceeds from portfolio investments will be distributed to the partners in proportion to their contributions to such investment until the partners have received a) first, 100% to all Limited Partners until the Limited Partners have received an amount equal to their aggregate capital contributions made to the Partnership (including, capital contributions made to the Partnership to fund the Partnership’s organizational expenses, management fees and other ongoing costs); b) second, 100% to all Limited Partners until the Limited Partners have received preferred returns of 8% and 5%, for Class A Limited Partners and Class B Limited Partners, respectively, per annum on the aggregate capital contributions made to the Partnership (including, capital contributions made to the Partnership to fund the Partnership’s organizational expenses, management fees and other ongoing costs); c) third, for Class A Limited Partners only, 100% to the General Partner as a carried interest distribution until the General Partner has received an amount equal to 20% of the aggregate amount of distributions; and d) thereafter (a) 80% to such Partner and (b) 20% to the General Partner. Income from short-term investments is distributed to all partners in proportion to such partners’ contributions to such investments.

For the three months ended March 31, 2014, the Partnership made distributions to the General Partner and the Limited Partners totaling $3,941,341. For the three months ended March 31, 2014, distributions made to Class A Limited Partners and Class B Limited Partners amounted to 70.03% and 29.97% of total distributions, respectively.

Upon the termination of the Partnership, if it is determined that the General Partner has received carried interest distributions in excess of the amount it would have received had such distributions been determined on a cumulative basis, a clawback payment of such excess is required of the General Partner.

Distributions to Limited Partners during the three months ended March 31, 2014 are broken down as follows:

	For the three months ended March 31, 2014
Return of capital	$	750,000
Return on capital		3,191,341
Total	$	3,941,341

6. Allocation of Profits and Losses

Allocations of Partnership profits are made in a manner which is consistent with, and gives effect to, the distribution procedures outlined in Note 5 above. Partnership losses are allocated to all partners in proportion to such partners’ capital commitments or to such partners’ percentage ownership in such investment from which the losses arose, or if there is no such investment, in proportion to their capital commitment. For the three months ended March 31, 2014, the General Partner was allocated carried interest distributions of $924,599. As a result of the completion of Alcentra’s initial public offering, the General Partner’s allocated carried interest as of May 7, 2014 was reallocated to the Limited Partners in accordance with the provisions of the Partnership’s Limited Partnership Agreement (December 31, 2013, as revised). Accordingly, the carried interest allocated to the General Partner through May 7, 2014 of approximately $6 million was reallocated to the Limited Partners.

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7. Related Party Transactions

Management Fee

Alcentra Capital Corporation

Under the Investment Advisory Agreement, we have agreed to pay Alcentra NY an annual base management fee based on our gross assets as well as an incentive fee based on our performance. The base management fee is calculated at an annual rate as follows: 1.75% of our gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if our gross assets are below $625 million; 1.625% if our gross assets are between $625 million and $750 million; and 1.5% if our gross assets are greater than $750 million. The various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to our entire gross assets in the event our gross assets exceed the various gross asset thresholds. The base management fee will be payable quarterly in arrears and shall be calculated based on the average value of the Company’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarter.

The incentive fee consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of our ‘‘pre-incentive fee net investment income’’ for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a ‘‘catch-up’’ feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20% of our aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable for administrative services under the Investment Advisory Agreement, and any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest). Pre-incentive fee net investment income excludes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income until we have received such income in cash.

For the three months ended March 31, 2015, the Company recorded expenses for base management fees of $1,148,005, of which $0 was waived by the Adviser and $1,148,005 was payable at March 31, 2015. For the three months ended March 31, 2014, the Partnership recorded an expense for base management fee of $699,473 of which $1,000 was payable at March 31, 2014.

Our Adviser may waive its fees (base management and incentive fee), without recourse against or reimbursement by us, for the remainder of the quarter in which the initial public offering is completed and the subsequent four quarters to the extent required in order for the Company to earn a quarterly net investment income to maintain a targeted dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis). For the three months ended March 31, 2015, the Company incurred incentive fees of $1,807,567, of which $1,001,467 was waived by the Adviser.

For the three months ended March 31, 2015 and March 31, 2014, the Company recorded waivers of management and incentive fees which totaled $1,001,467 and $0, respectively.

BNY Mellon-Alcentra Mezzanine III, L.P.

For the period from the Commencement Date to the fifth anniversary of the Final Closing Date, the Partnership will pay to the Manager a management fee at an annual rate equal to the product of 1.50% for each Class A Limited Partner and 1.00% - 1.25% for each Class B Limited Partner, in each case multiplied by such Limited Partner’s capital commitment. After the fifth anniversary of the Final Closing Date, the management fee will be paid at annual rates of 1.50% and 1.00% - 1.25% for Class A Limited Partners and Class B Limited Partners, respectively, in each case multiplied by the aggregate amount of such Limited Partner’s capital contributions used to fund the cost of investments that have not been the subject of a disposition less the aggregate amount of such Limited Partner’s capital contributions with respect to all investments which have not been disposed of prior to the date of such distribution and which have been permanently written off. The management fee is payable quarterly in advance. For the three months ended March 31, 2014, Class A Limited Partners were charged $528,719, and Class B Limited Partners were charged $170,754, in management fees.

The management fee is reduced by the placement fees and Excess Organization Expenses paid by the Partnership. The management fee is further reduced by 100% of all transaction fees, investment fees, monitoring fees, management fees and directors’ fees received by the General Partner or any affiliate thereof, net of unreimbursed out-of-pocket expenses. For the three months ended March 31, 2014, there were no placement fees, Excess Organizational Expenses, or fees received by the Manager that reduced management fee expense in the reporting period.

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Certain employees of the Manager are Limited Partners of the Partnership. As of May 7, 2014, an affiliate of the Partnership also had a $50.0 million commitment to the Partnership as a Limited Partner. For the three months ended March 31, 2014, this Limited Partner has contributed $48,460,603, or 96.92%, of its total capital commitments to the Partnership.

8. Directors Fees

The independent directors of the Company each receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending in person each board of directors meeting and $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting telephonically. They also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended in person and each telephonic committee meeting. The chairman of the audit committee, the nominating and corporate governance committee and the compensation committee will receive an annual fee of $10,000, $5,000 and $5,000, respectively. We have obtained directors’ and officers’ liability insurance on behalf of our directors and officers.

For the three months ended March 31, 2015, the Company recorded directors fee expense of $38,000, of which $38,000 was payable at March 31, 2015. For the three months ended March 31, 2014, the Company did not record any directors’ fees expense.

9. Purchases and Sales (Investment Transactions)

Investment purchases, sales and principal payments/paydowns are summarized below for the three months ending March 31, 2015 and March 31, 2014.

	For the three months ended March 31,
	2015		2014
Investment purchases, at cost (including PIK interest)	$	23,528,472	$	38,903,713
Investment sales, proceeds (including Principal payments/paydown proceeds)		15,519,311		8,813,417

10. Alcentra Capital InterNotes®

On January 30, 2015, we entered into a Selling Agent Agreement (the “Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $40 million of Alcentra Capital InterNotes® (the “InterNotes® Offering”). Additional agents may be appointed by us from time to time in connection with the InterNotes Offering and become parties to the Selling Agent Agreement.

These notes are direct unsecured obligations and each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

During the three months ended March 31, 2015, we issued $6.0 million in aggregate principal amount of our Alcentra Capital InterNotes for net proceeds of $5.8 million. These notes were issued with a stated interest rate of 6.5% and 6.375%. These notes mature between March 15, 2020 and January 15, 2022.

The following table summarizes the Alcentra Capital InterNotes® issued and outstanding during the three months ended March 31, 2015.

Tenor at Origination (in years)	Principal Amount   (000’s omitted)		Interest Rate Range			Weighted Average Interest Rate	Maturity Date Range
7	$	1,331		6.500	%		January 15, 2022
5		2,055		6.375	%		February 15, 2020
5		1,000		6.375	%		February 15, 2020
5		1,050		6.375	%		February 15, 2020
5		500		6.375	%		March 15, 2020
	$	5,936

The net proceeds of this offering were used to repay outstanding indebtedness under the Credit Facility.

In connection with the issuance of the Alcentra Capital InterNotes®, we incurred $0.115 million of fees which are being amortized over the term of the notes and are included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015. During the three months ended March 31, 2015 we recorded $50,236 of interest costs and amortization of financing costs on the Alcentra Capital InterNotes® as interest expense.

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11. Credit Facility/Line of Credit

On May 8, 2014, the Company entered into a senior secured revolving credit agreement (the “Credit Facility”) with ING Capital LLC (“ING”), as administrative agent, collateral agent and lender to provide liquidity in support of its investment and operational activities. The Credit Facility has an initial commitment of $80 million with an accordion feature that allows for an increase in the total commitments up to $160 million, subject to certain conditions and the satisfaction of specified financial covenants. Effective December 19, 2014 the Company entered into an amendment to the Credit Facility to upsize the revolver to a commitment size of $115 million. The Credit Facility is secured primarily by the Company’s assets. The stated maturity date for the Credit Facility is May 8, 2017, which may be extended by mutual agreement. Costs of $2,313,355 were incurred in connection with obtaining and amending the Credit Facility, which have been recorded as deferred financing costs on the Statements of Assets and Liabilities and are being amortized over the life of the Credit Facility.

Amounts available to borrow under the Credit Facility are subject to a minimum borrowing /collateral base that applies an advance rate to certain investments held by the Company. The Company is subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan size, portfolio company leverage which may affect the borrowing base and therefore amounts available to borrow.

Borrowings under the Credit Facility bear interest, subject to the Company’s election, at a rate per annum equal to (i) the one, three or six month LIBOR, as applicable, plus 3.25% or (ii) 2.25% plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5% and (C) three month LIBOR plus 1.0%. The Company pays a commitment fee between 0.5% and 1.0% per annum based on the size of the unused portion of the Credit Facility. This fee is included in interest expense on the Company’s consolidated statements of operations.

The Company has made customary representations and warranties and is required to comply with various covenants and reporting requirements. These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility. As of March 31, 2015, the Company was in compliance in all material respects with the terms of the Credit Facility.

As of March 31, 2015 and March 31, 2014 the Company had United States dollar borrowings of $57.0 million and $62.5 million outstanding under the Credit Facility, respectively. For the three months ended March 31, 2015, the Company borrowed an average of $55.9 million with a weighted average interest rate of 4.03%.

The Partnership entered into a credit agreement with the Administrator under which the Partnership can borrow an aggregate principal amount of $15 million for the financing of portfolio investments. Interest is charged at the Alternative Rate, defined as the higher of (a) the Federal Fund Rate and (b) the Overnight LIBOR Rate, plus 130 basis points. The interest rate, period to date, has ranged from 1.39% to 1.40%. The credit agreement is set to mature on dates between May 17, 2014 and June 29, 2014. As of March 31, 2014, the Partnership had outstanding borrowings of $15,000,000. For the three months ended March 31, 2014, the Partnership borrowed an average of $15,000,000. On April 17, 2014, the Partnership repaid the outstanding borrowing of $15,000,000.

12. Market and Other Risk Factors

At March 31, 2015, the Company’s portfolio investments are comprised of non-publicly-traded securities. The non-publicly-traded securities trade in an illiquid marketplace. The portfolio is concentrated in the twenty-five industries listed in Note 13. Risks affecting these industries include, but are not limited to, increasing competition, rapid changes in technology, government actions and changes in economic conditions. These risk factors could have a material effect on the ultimate realizable value of the Company’s investments.

Economic conditions in 2014 continued to impact revenues and operating cash flows for most businesses and continued to impact the lending markets, leaving many businesses unable to borrow or refinance debt obligations. These restrictions on obtaining available financing, coupled with the continuing economic slowdown, have resulted in a low volume of purchase and sale transactions across all industries, which have limited the amount of observable inputs available to the Company in estimating the fair value of the Company’s investments. The Company estimates the fair value of investments for which observable market prices in active markets do not exist based on the best information available, which may differ significantly from values that would have otherwise been used had a ready market for the investments existed and the differences could be material.

Market conditions may deteriorate, which may negatively impact the estimated fair value of the Company’s investments or the amounts which are ultimately realized for such investments.

The above events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to significant limitations and uncertainties. There may also be risk associated with the concentration of investments in one geographic region or in certain industries.

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13. Commitments and Contingencies

In the normal course of business, the Company and the Partnership enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. In addition, the Company has agreed to indemnify its officers, directors, employees, agents or any person who serves on behalf of the Company from any loss, claim, damage, or liability which such person incurs by reason of his performance of activities of the Company, provided they acted in good faith. The Company expects the risk of loss related to its indemnifications to be remote.

The Company’s investment portfolio may contain debt investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of March 31, 2015, the Company had $13,959,025 unfunded commitments under loan and financing agreements. As of March 31, 2015 and December 31, 2014, the Partnership’s unfunded commitment under loan and financing agreements are presented below.

	As of
	March 31,  2015		December 31,  2014
A2Z Wireless Holdings, Inc.	$	2,709,025	$	-
Alpine Waste		5,000,000		5,000,000
Dentistry for Children, Inc.		3,500,000		3,500,000
HealthFusion, Inc.		2,500,000		2,500,000
IGT		250,000		500,000
Nation Safe Drivers (NSD)		-		826,202
Total	$	13,959,025	$	12,326,202

14. Classification of Portfolio Investments

As of March 31, 2015, the Company’s portfolio investments were categorized as follows:

		Cost		Fair Value	% of Net Assets *
Industry
Healthcare Services	$	22,959,453	$	23,823,453	11.83	%
Automotive		19,839,321		19,839,321	9.85	%
Technology & Telecom		14,306,542		17,351,000	8.62	%
Infrastructure Maintenance		16,331,898		17,007,307	8.45	%
Education		14,277,267		15,854,267	7.87	%
Retail Distribution		14,250,000		14,250,000	7.08	%
Oil & Gas Services		12,831,084		13,110,086	6.51	%
Disaster Recovery Services		12,489,180		12,807,773	6.36	%
Waste Management		12,469,625		12,409,720	6.16	%
Healthcare: Orthopedic Products		11,782,698		12,000,000	5.96	%
Restoration Services		11,883,397		11,885,139	5.90	%
Wholesale		10,049,853		10,935,081	5.43	%
Technology		8,112,000		10,458,999	5.19	%
Industrial Services		10,156,020		10,261,824	5.10	%
Waste Services		9,011,375		9,011,375	4.48	%
Media & Entertainment		12,086,405		8,555,003	4.25	%
Telecommunications		8,336,058		8,506,183	4.22	%
Media: Broadcasting & Subscription		7,402,023		7,575,000	3.76	%
Consumer Services		7,510,046		7,510,046	3.73	%
Wholesale/Distribution		7,000,000		7,000,000	3.48	%
Environmental/Recycling Services		6,294,326		4,713,294	2.34	%
Food & Beverage		5,000,000		4,228,000	2.10	%
Packaging		3,735,300		3,735,300	1.86	%
Business Services		3,000,000		3,000,000	1.49	%
Call Center Services		1,186,431		1,200,000	0.60	%
Total	$	262,300,302	$	267,028,171	132.62	%
Geographic Region
South	$	69,474,705	$	70,983,104	35.25	%
Eastern		49,901,464		52,164,571	25.91	%
South East		44,192,848		44,587,892	22.14	%
West		40,024,169		38,778,960	19.26	%
Mid West		22,748,551		21,337,644	10.60	%
South West		14,306,542		17,351,000	8.62	%
Canada		14,250,000		14,250,000	7.08	%
Puerto Rico		7,402,023		7,575,000	3.76	%
Total	$	262,300,302	$	267,028,171	132.62	%
Investment Type
Senior Secured – First Lien	$	103,630,901	$	104,986,131	52.14	%
Senior Subordinated		56,116,830		55,805,847	27.72	%
Equity/Other		50,635,321		53,928,664	26.78	%
Senior Secured – Second Lien		51,917,250		52,307,529	25.98	%
Total	$	262,300,302	$	267,028,171	132.62	%

*Fair value as a percentage of Net Assets

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As of December 31, 2014, the Company’s portfolio investments were categorized as follows:

	Cost		Fair Value		% of Net Assets *
Industry
Healthcare Services	$	22,877,700	$	23,502,700		11.69	%
Technology & Telecom		14,306,541		17,459,000		8.69	%
Infrastructure Maintenance		15,861,076		16,102,785		8.01	%
Education		14,277,267		15,717,008		7.82	%
Retail Distributions		14,625,000		14,625,000		7.28	%
Automotive		14,251,576		14,251,576		7.09	%
Oil & Gas Services		12,767,248		13,044,000		6.49	%
Disaster Recovery Services		12,290,398		12,596,562		6.26	%
Restoration Services		12,116,713		12,119,289		6.03	%
Healthcare: Orthopedic Products		11,760,000		12,000,000		5.97	%
Waste Management		11,355,479		11,355,479		5.65	%
Wholesale		9,960,374		10,849,399		5.40	%
Industrial Services		9,899,901		10,006,651		4.98	%
Media & Entertainment		11,886,858		9,605,545		4.78	%
Technology		8,112,000		9,412,000		4.68	%
Waste Services		9,000,000		9,000,000		4.48	%
Healthcare & Pharmaceuticals		8,000,000		8,160,000		4.06	%
Media: Broadcasting & Subscription		7,397,404		7,575,000		3.77	%
Consumer Services		7,167,144		7,167,144		3.57	%
Wholesale/Distribution		7,000,000		7,000,000		3.48	%
Food & Beverage		5,000,000		4,591,000		2.28	%
Environmental/Energy Services		6,268,232		4,576,000		2.28	%
Packaging		3,716,716		3,716,716		1.85	%
Business Services		3,000,000		3,000,000		1.49	%
Call Center Services		1,185,145		1,201,000		0.60	%
Total	$	254,082,772	$	258,633,854		128.68	%
Geographic Region
South	$	63,408,612	$	65,129,019		32.39	%
South East		52,303,129		52,764,705		26.25	%
Eastern		48,315,209		50,080,809		24.92	%
West		39,380,867		38,346,543		19.08	%
South West		14,306,541		17,459,000		8.69	%
Canada		14,625,000		14,625,000		7.28	%
Mid West		14,346,010		12,653,778		6.30	%
Puerto Rico		7,397,404		7,575,000		3.77	%
Total	$	254,082,772	$	258,633,854		128.68	%
Investment Type
Senior Secured – First Lien	$	98,550,397	$	97,395,708		48.46	%
Equity/Other		53,792,879		59,503,141		29.60	%
Senior Subordinated		55,408,294		54,986,207		27.36	%
Senior Secured – Second Lien		46,331,202		46,748,798		23.26	%
Total	$	254,082,772	$	258,633,854		128.68	%

*Fair value as a percentage of Net Assets

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15. Financial Highlights

The following per share data and financial ratios have been derived from information provided in the consolidated financial statements of the Company. The following is a schedule of financial highlights for one share of common stock for the three months ended March 31, 2015.

Per share data(1)
Net asset value, beginning of period	$	14.87
Net investment income (loss)		0.37
Net realized and unrealized gains (losses)		0.01
Provision for taxes on unrealized appreciation on investments		(0.01	)
Net increase (decrease) in net assets resulting from operations		0.37
Distributions to shareholders:(2)
From net investment income		(0.34	)
Net asset value, end of period	$	14.90
Market value per share, end of period	$	13.30
Total return based on net asset value(3)(4)		2.5	%
Total return based on market value(3)(4)		(8.5	)%
Shares outstanding at end of period		13,516,766
Ratio/Supplemental Data:
Net assets, at end of period	$	201,354,331
Ratio of total expenses before waiver to average net assets(5)		8.57	%
Ratio of interest expense to average net assets(5)		1.59	%
Ratio of incentive fees to average net assets(5)		3.64	%
Ratio of waiver of management and incentive fees to average net assets(5)		2.02	%
Ratio of net expenses to average net assets(5)		6.55	%
Ratio of net investment income (loss) before waiver to average net assets(5)		8.01	%
Ratio of net investment income (loss) after waiver to average net assets(5)		10.03	%
Total Credit Facility payable outstanding	$	56,954,490
Total Notes payable outstanding	$	5,986,236
Asset coverage ratio(6)		4.2
Portfolio turnover rate(4)(7)		6	%

(1) The per share data was derived by using the shares outstanding during the period.

(2) The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period.

(3) Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Company’s dividend reinvestment plan.

(4) Not Annualized.

(5) Annualized.

(6) Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period.

(7) For the three months ended March 31, 2015.

The following performance ratios and internal rate of return (“IRR”) (since inception) are presented for the Limited Partners as a single class, taken as a whole. The actual ratios of each individual investor may vary and are dependent upon the specific allocations of income and expense to such investor and the timing of capital transactions for such investor.

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The net investment income (loss) ratio and the expense ratio are computed using the weighted average capital of the Limited Partners during the periods. The net investment income (loss) ratio does not include the effects of the carried interest allocation. The weighted average capital calculation reflects a measure of capital after each capital contribution, distribution or other significant change in capital at the end of each quarterly accounting period. The IRR was computed based on the actual dates of Limited Partners’ cash inflows (capital contributions) and outflows (cash and stock distributions), and the residual value of the Limited Partners’ capital accounts as of March 31 2014.

	For the three months ended   March 31, 2014
Net investment income (loss) ratio before carried interest allocation		10.79	%
Expense ratio before carried interest allocation		2.80	%
Carried interest allocation		0.77
Expense ratio after carried interest allocation		3.57	%
Cumulative IRR after carried interest allocation		11.04	%

These financial highlights may not be indicative of future performance.

16. Unconsolidated Significant Subsidiaries

In accordance with the SEC’s Regulation S-X and GAAP, we have subsidiaries that are not required to be consolidated. We have certain unconsolidated significant subsidiaries that pursuant to Rule 4-08(g) of Regulation S-X, summarized financial information is presented below in aggregate as of and for the three month ended March 31, 2015 and as of and for the year ended December 31, 2014.

	As of			For the three months ended
Balance Sheet	March 31, 2015		Income Statement	March 31, 2015
Current Assets		20,053,747	Net Sales		5,192,525
Noncurrent Assets		26,233,183	Gross Profit		1,443,361
Current Liabilities		5,800,050	Net Income (Loss)		(987,289	)
Noncurrent Liabilities		20,000,000

	As of			For the year ended
Balance Sheet	December 31, 2014		Income Statement	December 31, 2014
Current Assets		30,648,653	Net Sales		71,694,426
Noncurrent Assets		27,038,806	Gross Profit		25,815,319
Current Liabilities		11,701,846	Net Income (Loss)		10,241,467
Noncurrent Liabilities		20,219,922

In addition to the risks associated with our investments in general, there are unique risks associated with our investments in each of these entities. In this regard, DRC Emergency Services LLC (“DRC ES”) derives significantly all of its revenue from contracts with federal, state and local governments and governmental agencies. As a result, if it does not comply with the terms of a contract or with regulations or statutes, it could be subject to downward contract price adjustments or refund obligations or could in extreme circumstances be assessed penalties or be debarred or suspended from obtaining future contracts for a specified period of time. Any such suspension or debarment or other sanction could have an adverse effect on its business.

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Similarly, the business and growth of FST Technical Services, LLC (“FST”) depends in large part on the continued trend toward outsourcing of certain services in the semiconductor and biopharmaceutical industries. There can be no assurance that this trend in outsourcing will continue, as companies may elect to perform such services internally. A significant change in the direction of this trend generally, or a trend in the semiconductor and biopharmaceutical industry not to use, or to reduce the use of, outsourced services such as those provided by it, could significantly decrease its revenues and such decreased revenues could have a material adverse effect on it or its results operations or financial condition.

On August 29, 2014, DRC ES was suspended from Federal Government contracting and from directly or indirectly receiving the benefits of federal assistance programs. In DRC ES’s opinion the suspension primarily resulted from alleged actions taken by former employees and subcontractors related to two particular contracts. None of the employees in question work for DRC ES or any of its affiliates. DRC ES is fully cooperating with all Government investigations. The suspension was terminated on October 1, 2014. At this time we believe the DRC ES’s contracts and customer relationships were not materially impacted by the suspension.

17. Subsequent Events

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

Subsequent to March 31, 2015, the following activity occurred:

On April 2, 2015, Alcentra funded a $10,000,000 investment in Radiant Logistics, Inc.(12.0 % subordinated note)

On April 6, 2015, a $0.34 per share dividend was paid to shareholders of record March 31, 2015

On April 15, 2015, Alcentra completed a $40 million note offering program which commenced on January 29, 2015. The unsecured notes mature on January 15, 2022, February 15, 2020, March 15, 2020 and April 15, 2020. The Notes bear interest at a rate of 6.5% and 6.375% semi-annually and have maturities ranging from five to seven years. The net proceeds of $39.2 million were used to reduce the outstanding borrowings on the credit facility.

On April 30, 2015, Alcentra funded a $9,500,000 investment in Alarm Capital Alliance, LLC (13% Cash, 3.25% PIK subordinated note)

On April 30, 2015, the Company amended its senior subordinated note investment in Battery Solutions, LLC and Battery Solutions Holdings, LLC. Approximately $3.3 million of the senior subordinated note was converted into Class E Preferred Units and Class F Units. Based on certain financial performance tests, the Company has the right to convert some of the Class E Preferred Units back to subordinated debt (with a corresponding reduction in Class F Units). The amended senior subordinated notes have a 14% coupon (6% cash and 8% PIK), with more of the coupon paid in cash starting in the second year following the conversion as long as certain conditions have been met. Battery Solutions has remained current on all their interest payments throughout this period. In addition, the fair market value of this investment was written up as EBITDA improved by 13% on a year-over-year basis.

On May 11, 2015, the Board of Directors approved the 2015 Second quarter dividend of $0.34 per share for shareholders of record date June 30, 2014 and payable July 6, 2015.

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

Forward-Looking Statements

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

• our future operating results;

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

• the effect of investments that we expect to make;

• our contractual arrangements and relationships with third parties;

• actual and potential conflicts of interest with Alcentra NY, LLC;

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

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

• the use of borrowed money to finance a portion of our investments;

• the adequacy of our financing sources and working capital;

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

• our ability to maintain our qualification as a business development company; and

• the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this quarterly report on Form 10-Q.

Overview

Alcentra Capital Corporation (the “Company”, “Alcentra”, “ACC”, “we”, “us” or “our”) was formed as a Maryland corporation on June 4, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). Alcentra is managed by Alcentra NY, LLC (the “Adviser”, or “Alcentra NY”), registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). State Street Bank and Trust Company (“State Street”) provides us with financial reporting, post-trade compliance, and treasury services. In addition, for U.S. federal income tax purposes, Alcentra intends to elect to be treated as a regulated investment company (“RIC”), commencing with its tax year ending December 31, 2014, under Subchapter M of the Internal Revenue.

BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership” or “Fund III”) is a Delaware limited partnership, which commenced operations on May 14, 2010. The Partnership was formed for the purpose of seeking current income and long-term capital appreciation by making investments in senior debt securities, subordinated debt securities, and common and preferred equity securities with equity rights or participations in U.S.-based middle market companies. BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY, LLC (“Alcentra Group”) and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY, LLC is wholly owned by BNY Alcentra Group Holdings, Inc. which is wholly owned by The Bank of New York Mellon Corporation.

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On May 14, 2014, Alcentra completed its initial public offering (the “Offering”), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100,000,000. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’ exercise of the overallotment option for gross proceeds of $11,250,000.

Immediately prior to the Offering, Fund III sold all of its assets other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) to the Company for $64.4 million in cash and $91.5 million in shares of the Company’s common stock. Concurrent with the acquisition of the Fund III Acquired Assets from Fund III, the Company also purchased for $29 million in cash certain additional investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio consisted of approximately $29 million in debt investments originated by the investment professionals of the Manager and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the Offering.

The Company entered into a senior secured term loan agreement (the “Bridge Facility”) with ING Capital LLC as lender that it used to fund the purchase of the Warehouse Portfolio and to fund the cash portion of the consideration paid to Fund III. In May 2014, the Company used $94.2 million of the proceeds from the Offering to repay the Bridge Facility in full.

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments by targeting investment opportunities with favorable risk-adjusted returns. The Company invests primarily in middle-market companies in the form of mezzanine and senior secured loans, each of which may include an equity component, and, to a lesser extent, by making direct equity investments in such companies

 The Company is required to comply with certain regulatory requirements such as not acquiring any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private operating companies, operating companies whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized and with their principal of business in the United States

Since Alcentra did not commence investment operations until May 8, 2014, the discussion and analysis of financial condition and results of operations as of March 31, 2014 described in this section pertains to the historical operations of Fund III given that Alcentra acquired substantially all of Fund III’s investment portfolio in connection with the acquisition of the Fund III Acquired Assets. However, ACC did not assume any liabilities of Fund III in connection with the acquisition of the Fund III Acquired Assets or contractual arrangements of Fund III, including with its lender or the Manager, in connection with the acquisition of the Fund III Acquired Assets other than to fund $2.6 million under revolving lines of credit. As a result, you should be mindful of the foregoing facts when reviewing the discussion and analysis set forth in this section as well as in connection with reviewing the financial information contained elsewhere in this Form 10-Q. In addition, the discussion and analysis below does not take into account or otherwise relate to the Warehouse Portfolio acquired by ACC from Alcentra Group.

As used in this section, the terms “we” and “us” refer to Fund III for the periods prior to the Offering and refer to ACC for the periods after the Offering.

Portfolio Composition and Investment Activity

Portfolio Composition

We originate and invest primarily in middle-market companies (typically those with $5.0 million to $15.0 million of EBITDA) through first lien, second lien, unitranche and mezzanine debt financing, often times with a corresponding equity investment.

As of March 31, 2015, we had $267.0 million (at fair value) invested in 28 companies. Our portfolio included approximately 39% of first lien debt, 20% of second lien debt, 21% of mezzanine debt and 20% of equity investments. The composition of our investments as of March 31, 2015 was as follows:

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	Cost		Fair Value
Senior Secured – First Lien	$	103,630,901	$	104,986,131
Senior Secured – Second Lien		51,917,250		52,307,529
Unsecured Debt		56,116,830		55,805,847
Equity		50,635,321		53,928,664
Total Investments	$	262,300,302	$	267,028,171

As of December 31, 2014, we had $258.6 million (at fair value) invested in 28 portfolio companies. Our portfolio included approximately 37.6% of first lien debt, 18.0% of second lien debt, 21.2% of mezzanine debt and 23% of equity investments at fair value. The composition of our investments as of December 31, 2014 was as follows:

	Cost		Fair Value
Senior Secured – First Lien	$	98,550,397	$	97,395,708
Senior Secured – Second Lien		46,331,202		46,748,798
Unsecured Debt		55,408,294		54,986,207
Equity		53,792,879		59,503,141
Total Investments	$	254,082,772	$	258,633,854

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of March 31, 2015 and December 31, 2014, we had $13.9 million and $12.3 million respectively of unfunded commitments under loan and financing agreements.

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The following is a summary of industry concentration of our investment portfolio as of March 31, 2015:

Industry	Cost		Fair Value		% of Total Investments
Healthcare Services	$	22,959,453	$	23,823,453		8.92	%
Automotive		19,839,321		19,839,321		7.43	%
Technology & Telecom		14,306,542		17,351,000		6.50	%
Infrastructure Maintenance		16,331,898		17,007,307		6.37	%
Education		14,277,267		15,854,267		5.94	%
Retail Distribution		14,250,000		14,250,000		5.34	%
Oil & Gas Services		12,831,084		13,110,086		4.91	%
Disaster Recovery Services		12,489,180		12,807,773		4.80	%
Waste Management		12,469,625		12,409,720		4.65	%
Healthcare: Orthopedic Products		11,782,698		12,000,000		4.49	%
Restoration Services		11,883,397		11,885,139		4.45	%
Wholesale		10,049,853		10,935,081		4.10	%
Technology		8,112,000		10,458,999		3.92	%
Industrial Services		10,156,020		10,261,824		3.84	%
Waste Services		9,011,375		9,011,375		3.37	%
Media & Entertainment		12,086,405		8,555,003		3.20	%
Telecommunications		8,336,058		8,506,183		3.19	%
Media: Broadcasting & Subscription		7,402,023		7,575,000		2.84	%
Consumer Services		7,510,046		7,510,046		2.81	%
Wholesale/Distribution		7,000,000		7,000,000		2.62	%
Environmental/Recycling Services		6,294,326		4,713,294		1.77	%
Food & Beverage		5,000,000		4,228,000		1.58	%
Packaging		3,735,300		3,735,300		1.40	%
Business Services		3,000,000		3,000,000		1.12	%
Call Center Services		1,186,431		1,200,000		0.45	%
Total	$	262,300,302	$	267,028,171		100.00	%

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The following is a summary of industry concentration of our investment portfolio as of December 31, 2014:

Industry	Cost		Fair Value		% of Total Investments
Healthcare Services	$	22,877,700	$	23,502,700		9.09	%
Technology & Telecom		14,306,541		17,459,000		6.75	%
Infrastructure Maintenance		15,861,076		16,102,785		6.23	%
Education		14,277,267		15,717,008		6.08	%
Retail Distribution		14,625,000		14,625,000		5.65	%
Automotive		14,251,576		14,251,576		5.51	%
Oil & Gas Services		12,767,248		13,044,000		5.04	%
Disaster Recovery Services		12,290,398		12,596,562		4.87	%
Restoration Services		12,116,713		12,119,289		4.69	%
Healthcare: Orthopaedic Products		11,760,000		12,000,000		4.64	%
Waste Management		11,355,479		11,355,479		4.39	%
Wholesale		9,960,374		10,849,399		4.19	%
Industrial Services		9,899,901		10,006,651		3.87	%
Media & Entertainment		11,886,858		9,605,545		3.71	%
Technology		8,112,000		9,412,000		3.64	%
Waste Services		9,000,000		9,000,000		3.48	%
Healthcare & Pharmaceuticals		8,000,000		8,160,000		3.16	%
Media: Broadcasting & Subscription		7,397,404		7,575,000		2.93	%
Consumer Services		7,167,144		7,167,144		2.77	%
Wholesale/Distribution		7,000,000		7,000,000		2.71	%
Environmental/Energy Services		6,268,232		4,576,000		1.77	%
Food & Beverage		5,000,000		4,591,000		1.78	%
Packaging		3,716,716		3,716,716		1.44	%
Business Services		3,000,000		3,000,000		1.16	%
Call Center Services		1,185,145		1,201,000		0.46	%
Total	$	254,082,772	$	258,633,854		100.00	%

At March 31, 2015 our average portfolio company investment at amortized cost and fair value was approximately $8.8 million and $8.9 million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $16.5 million and $17.3 million, respectively. At December 31, 2014, our average portfolio company investment at amortized cost and fair value was approximately $8.8 million and $8.9 million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $16.5 million and $16.8 million, respectively.

At March 31, 2015, 40.0% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 60.0% bore interest at fixed rates. At December 31, 2014, 31.8% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 68.2% bore interest at fixed rates.

The weighted average yield on all of our debt investments as of March 31, 2015 and December 31, 2014 was approximately 11.9% and 11.7%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of original issue discount.

$120.0 million of the portfolio (44.9%) had a first dollar loss at 0.0x-1.0x EBITDA; $73.2 million of the portfolio (27.4%) had a first dollar loss at 1.0x-3.0x EBITDA; $36.2 million of the portfolio (13.5%) had a first dollar loss of 3.0x-4.0x EBITDA; and $21.2 million of the portfolio (7.9%) had a first dollar loss of 4.0x-4.5x EBITDA; and $3.8 million of the portfolio (1.4%) had a first dollar loss >4.5x EBITDA

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Asset Quality

We currently do not use a rating system to monitor portfolio performance. As the portfolio grows in size, we would expect to implement a portfolio rating system.

RESULTS OF OPERATIONS

Comparison of the period ended March 31, 2015 and December 31, 2014

Investment Activity

During the three months ended March 31, 2015, we made $18.0 million of investments ($12.0 in a new investment and $6.0 in add on investments) and $8.5 million of repayments were received.

During the three months ended March 31, 2014, we made $38.0 million of investments in new and existing portfolio companies and $8.9 million of repayments were received.

Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital to middle market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.

Loans and Debt Securities on Non-Accrual Status

We will generally not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or more and/or we have reason to doubt our ability to collect such interest. As of March 31, 2015 and December 31, 2014, we had no loans on non-accrual status.

Results of Operations

An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses including interest on borrowed funds. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.

Comparison of the Three Months ended March 31, 2015 and 2014

Investment Income

We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a fixed or floating rate. Interest on our debt securities is payable both quarterly and monthly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.

For the three months ended March 31, 2015, total investment income totaled $8.2 million, a $4.2 million increase from $4.0 million of total investment income for the three months ended March 31, 2014. This increase was attributable to an increase in the portfolio size to 28 portfolio companies as of March 31, 2015 from 13 portfolio companies as of March 31, 2014. This resulted in an increase of $3.7 million of interest income (including PIK). There was also an increase in non-recurring other income of approximately $0.5million due to prepayment penalties, breakage fees and amendment fees.

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Operating Expenses

For the three months ended March 31, 2015, operating expenses totaled $1.3 million, a $1.2 million increase from $.120 million as of March 31, 2014. Operating expenses consist of interest and financing fees and general and administrative expenses. For the three months ended March 31, 2015 and March 31, 2014, interest and financing fees were $0.606 million and $0.040 million, respectively.

For the three months ended March 31, 2015, our general and administrative expenses totaled $0.687 million, a $0.608 million increase from $0.079 million as of March 31, 2014. In addition, our efficiency ratio (defined as general and administrative expenses as a percentage of total investment income) was 8.36%.

For the three months ended March 31, 2015 and 2014, we incurred base management fees payable to the Manager of $1.1 million and $ 0.7 million, respectively. For the three months ended March 31, 2015, we incurred incentive fees of $0.8 million, net of waivers. There were no incentive fees earned as of March 31, 2014.

Net Investment Income

As a result of the $4.2 million increase in total investment income and the $2.4 million increase in expenses, net investment income increased by $1.8 million to $4.9 million for the three months ended March 31, 2015 as compared to $3.1 million for the three months ended March 31, 2014.

Net Increase in Net Assets Resulting from Operations

For the three months ended March 31, 2015, the net increase in net assets totaled $4.9 million.

For the three months ended March 31, 2014, net increase in net assets resulting from operations totaled $6.5 million.

Provision for Taxes on Unrealized Appreciation on Investments

We have direct wholly owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are “pass through” entities for tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with us for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For the three month period ended March 31, 2015, we recognized a provision for income tax on unrealized gain on investments of $1.86 million for the Taxable Subsidiaries. For the year ended December 31, 2014, the provision was $1.70 million.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

For the three months ended March 31, 2015, we experienced a decrease in cash and cash equivalents in the amount of $6.0 million. During that period, our operating activities used $1.8 million in cash, primarily in connection with the purchase/repayments of investments and the increase in liabilities due to an increase in management and incentive fees. In addition, financing activities reduced cash by $4.2 million primarily from the paydown of our credit facility. As of March 31, 2015, we had $3.9 million of cash on hand.

For the three months ended March 31, 2014, we experienced an increase in cash and cash equivalents in the amount of $3.9 million. During that period, our operating activities used $26.9 million in cash, primarily in connection with the purchase of new investments. In addition, our financing activities provided cash of $30.9 million primarily from capital contributions received from limited partners. As of March 31, 2014, we had $4.6 million of cash on hand.

Our liquidity and capital resources are derived from the capital contributions and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as distributions to our stock holders. We expect to use these capital resources as well as proceeds from turnover within our portfolio, borrowings under the Credit Facility and from public and private offerings of securities to finance our investment activities.

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Financing Transactions

In connection with the Offering, Alcentra entered into a senior secured revolving credit agreement (“Credit Facility”) with ING Capital LLC, as administrative agent and lender. The Credit Facility had an initial commitment of $80 million with an accordion feature that allows for an increase in total commitments to $160 million. On December 22, 2014, Alcentra entered into an Incremental Commitment Agreement with ING Capital LLC and certain lenders thereto which provides for increased commitments under the Credit Facility of $35 million. The Credit Facility has a maturity date of May 8, 2018 and bears interest, at Alcentra’s election, at a rate per annum equal to (i) the one, three or six month LIBOR, as applicable, plus 3.25% or (ii) 2.25% plus the highest of (A) a prime rate, (B) the Federal Funds rate plus 0.5% and (C) three month LIBOR plus 1.0%. The Credit Facility is secured by a first priority security interest in all of Alcentra’s portfolio investments, the equity interests in certain of its direct and indirect subsidiaries and substantially all of its other assets. Alcentra is also subject to customary covenants and events of default typical of a facility of this type. As of March 31, 2015 total commitments under the Credit Facility were $115 million. Borrowings under the facility were $56.9 million and $62.5 million as of March 31, 2015 and December 31, 2014, respectively.

Fund III had entered into a credit agreement under which could borrow an aggregate principal amount of $15 million for the financing of portfolio investments. Borrowings under the credit agreement were $.0 million and $15.0 million as of March 31, 2015 and December 31, 2014, respectively. The credit agreement, which was not assumed by ACC in connection with the acquisition of Fund III Acquired Assets, terminated on April 24, 2014.

Interest is charged at the Alternative Rate, defined as the higher of (a) the Federal Fund Rate and (b) the Overnight LIBOR Rate, plus 130 basis points. The interest rate, period to date, ranged from 1.39% to 1.40%. Fund III recorded interest and fee expense of $0.1 million for the three months ended March 31, 2014. The average borrowings under the credit agreement for the three months ended March 31, 2014 were $15.0 million.

Regulated Investment Company Status and Distributions

We intend to elect to be treated as a RIC under Subchapter M of the Code for the fiscal year ending December 31, 2014. If we qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Dividends declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.

To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we qualify as a RIC, we will also be subject to a federal excise tax, based on distributive requirements of our taxable income on a calendar year basis.

We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income).

Investment Advisory Agreement

Under the Advisory Agreement, Alcentra pays Alcentra NY, LLC (the “Adviser”) a base management fee calculated at an annual rate as follows: 1.75% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are below $625 million; 1.625% of its total gross assets if our gross assets are between $625 million and $750 million; and 1.5% of its gross assets if its assets are greater than $750 million. These various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to ACC’s entire gross assets in the event its gross assets exceed the various gross asset thresholds.  

In addition, Alcentra pays the Adviser an incentive fee under the Advisory Agreement which consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of ACC’s “pre-incentive fee net investment income” for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a “catch-up” feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Advisory Agreement, as of the termination date) and equals 20% of ACC’s aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. See Note 6.

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The Adviser has agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by ACC, for the remainder of the quarter in which the Offering is completed and the subsequent four quarters to the extent required in order for ACC to earn a quarterly net investment income to maintain a targeted dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis).

Critical Accounting Policies

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

Valuation of portfolio investments

We generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by ACC’s board of directors. Such determination of fair values may involve subjective judgments and estimates, although we engage independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least once annually. With respect to unquoted securities, we value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies and other factors.

Because there is not a readily available market for substantially all of the investments in our portfolio, we value most of our portfolio investments at fair value as determined in good faith by ACC’s board of directors using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

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

• Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment;

• Preliminary valuation conclusions are then documented and discussed with our senior management and the Adviser committee;

• The audit committee of ACC’s board of directors then reviews these preliminary valuations;

• At least once quarterly, independent valuation firms engaged by ACC’s board of directors will prepare valuations on a selected basis and submit reports to the board of directors; and

• The board of directors then discusses valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of Adviser, the independent valuation firm and the audit committee.

Revenue recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We will not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or more and/or we have reason to doubt our ability to collect such interest.

Loan origination fees, original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We record prepayment premiums on loans and debt securities as interest income.

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. Our off-balance sheet arrangements consisted of $13.9 million and $12.3 million of unfunded commitments to provide debt financing to one of our portfolio companies as of March 31, 2015 and December 31, 2014, respectively. 

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Recent Developments

Subsequent to March 31, 2015, the following activity occurred:

On April 2, 2015, Alcentra funded a $10,000,000 investment in Radiant Logistics, Inc.(12.0 % subordinated note)

On April 6, 2015, a $0.34 per share dividend was paid to shareholders of record March 31, 2015

On April 15, 2015, Alcentra completed a $40 million note offering program which commenced on January 29, 2015. The unsecured notes mature on January 15, 2022, February 15, 2020, March 15, 2020 and April 15, 2020. The Notes bear interest at a rate of 6.5% and 6.375% semi-annually and have maturities ranging from five to seven years. The net proceeds of $39.2 million were used to reduce the outstanding borrowings on the credit facility.

On April 30, 2015, Alcentra funded a $9,500,000 investment in Alarm Capital Alliance,LLC (13% Cash, 3.25% PIK subordinated note)

On April 30, 2015, the Company amended its senior subordinated note investment in Battery Solutions, LLC and Battery Solutions Holdings, LLC. Approximately $3.3 million of the senior subordinated note was converted into Class E Preferred Units and Class F Units. Based on certain financial performance tests, the Company has the right to convert some of the Class E Preferred Units back to subordinated debt (with a corresponding reduction in Class F Units). The amended senior subordinated notes have a 14% coupon (6% cash and 8% PIK), with more of the coupon paid in cash starting in the second year following the conversion as long as certain conditions have been met. Battery Solutions has remained current on all their interest payments throughout this period. In addition, the fair market value of this investment was written up as EBITDA improved by 13% on a year-over-year basis.

On May 11, 2015, the Board of Directors approved the 2015 Second quarter dividend of $0.34 per share for shareholders of record date June 30, 2014 and payable July 6, 2015.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. For the three months ended March 31, 2015 and March 31, 2014, 40% and 12% , or 10 and 1 of the loans in our portfolio bore interest at floating rates, respectively. In the future, we expect other loans in our portfolio will have floating rates. For the three months ended March 31, 2015 and March 31, 2014, we did not engage in hedging activities.

Changes in interest rates will affect our cost of funding. Our interest expense will be affected by changes in certain published indices such as the LIBOR rate in connection with the Credit Facility.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer (“CEO”) and its Chief Accounting Officer (“CAO”), has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CAO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) Changes in Internal Control Over Financial Reporting

Management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is not currently subject to any material legal proceedings, nor, its knowledge, is any material legal proceeding threatened against it. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its financial condition or results of operations.

Item 1A. Risk Factors

There has been no material change in the information provided under the heading “Risk Factors” in the Company’s final prospectus filed with the SEC on May 9, 2014. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial may materially affect its business, financial condition and/or operating results.

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

None.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

Exhibit Number	Description
31.1	Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Chief Accounting Officer Certification 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 Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 12, 2015

By:	/s/ Paul J. Echausse
	Name: Paul J. Echausse
	Title: Chief Executive Officer and President
By:	/s/ Ellida McMillan
	Name: Ellida McMillan
	Title: Chief Accounting Officer, Secretary, and Treasurer

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EXHIBIT INDEX

Exhibit Number	Description
31.1	Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith.