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EX-32.1 - EXHIBIT 32.1 - PhenixFIN Corpv350809_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - PhenixFIN Corpv350809_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - PhenixFIN Corpv350809_ex31-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

   

x             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2013

 

OR

 

¨            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number 1-35040

 

Medley Capital Corporation

 

(Exact name of registrant as specified in its charter)

 

Delaware   27-4576073
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

375 Park Avenue, Suite 3304

New York, NY 10152

(Address of principal executive offices)

 

(212) 759-0777

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

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

Yes 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 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.

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨  (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

 

As of July 31, 2013, the Registrant had 33,226,126 shares of common stock, $0.001 par value, outstanding. 

 

 
 

 

TABLE OF CONTENTS

 

    Page
     
Part I.   Financial Information    
     
Item 1.   Financial Statements   F-1
     
  Consolidated Statements of Assets and Liabilities as of  June 30, 2013 (unaudited) and September 30, 2012   F-1
     
  Consolidated Statements of Operations for the three and nine months ended  June 30, 2013 and 2012 (unaudited)   F-2
     
  Consolidated Statements of Changes in Net Assets for the nine months ended  June 30, 2013 and 2012 (unaudited)   F-3
     
  Consolidated Statements of Cash Flows for the nine months ended June 30, 2013 and 2012 (unaudited)   F-4
     
  Consolidated Schedules of Investments as of  June 30, 2013 (unaudited) and September 30, 2012   F-5
     
  Notes to Consolidated Financial Statements (unaudited)   F-10
     
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations   1
     
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   13
     
Item 4.   Controls and Procedures   14
     
Part II.   Other Information    
     
Item 1.   Legal Proceedings   15
     
Item 1A. Risk Factors 15
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   15
     
Item 3.   Defaults Upon Senior Securities   15
     
Item 4.   Mine Safety Disclosures   15
     
Item 5.   Other Information   15
     
Item 6.   Exhibits   16
     
SIGNATURES   17

 

 
 

   

Part I. Financial Information

 

Item 1. Financial Statements

 

Medley Capital Corporation

 

Consolidated Statements of Assets and Liabilities 

 

   As of 
   June 30, 2013   September 30, 2012 
   (unaudited)     
ASSETS          
Investments at fair value          
Non-controlled/non-affiliated investments (amortized cost of $686,448,197 and $394,482,053, respectively)  $677,350,840   $393,741,357 
Affiliated investments (amortized cost of $9,126,612 and $8,678,596, respectively)   9,024,065    8,208,006 
Total investments at fair value   686,374,905    401,949,363 
Cash and cash equivalents   13,458,925    4,893,616 
Interest receivable   9,941,064    3,940,148 
Deferred financing costs, net   8,295,305    4,651,724 
Fees receivable   1,625,000    - 
Other assets   345,460    232,496 
Receivable for investments sold   4,568,652    - 
Deferred offering costs   241,510    103,671 
Total assets  $724,850,821   $415,771,018 
           
LIABILITIES          
Revolving credit facility payable  $54,700,000   $15,000,000 
Term loan payable   115,000,000    55,000,000 
Notes payable   103,500,000    40,000,000 
SBA debentures   5,000,000    - 
Payable for investments purchased   15,000,000    10,212,300 
Management and incentive fees payable, net   5,984,655    3,514,772 
Accounts payable and accrued expenses   1,635,812    924,152 
Administrator expenses payable   681,924    465,412 
Deferred revenue   181,315    173,627 
Interest and fees payable   2,813,939    1,048,205 
Due to affiliate   24,028    13,246 
Offering costs payable   83,054    80,073 
Total liabilities  $304,604,727   $126,431,787 
           
NET ASSETS          
Common stock, par value $.001 per share, 100,000,000 common shares authorized,
33,226,126 and 23,110,242 common shares issued and outstanding, respectively
  $33,226   $23,110 
Capital in excess of par value   422,205,081    285,012,499 
Accumulated undistributed net investment income   7,014,978    5,559,635 
Accumulated net realized gain (loss) from investments   192,713    (44,727)
Net unrealized appreciation (depreciation) on investments   (9,199,904)   (1,211,286)
Total net assets   420,246,094    289,339,231 
Total liabilities and net assets  $724,850,821   $415,771,018 
           
NET ASSET VALUE PER SHARE  $12.65   $12.52 

 

See accompanying notes to consolidated financial statements.

 

F-1
 

 

Medley Capital Corporation

 

Consolidated Statements of Operations

 

   For the three months
ended June 30
   For the nine months
ended June 30
 
   2013   2012   2013   2012 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
INVESTMENT INCOME                    
Interest from investments                    
Non-controlled/Non-affiliated investments  $19,572,407   $10,179,522   $50,383,033   $23,962,160 
Affiliated investments   376,790    239,761    1,112,503    2,013,461 
Total interest income   19,949,197    10,419,283    51,495,536    25,975,621 
Interest from cash and cash equivalents   2,677    781    6,192    3,513 
Other fee income (See note 9)   3,639,234    1,832,307    10,016,301    4,475,777 
Total investment income   23,591,108    12,252,371    61,518,029    30,454,911 
                     
EXPENSES                    
Base management fees   2,977,097    1,498,212    7,606,894    3,782,158 
Incentive fees   3,007,559    1,552,011    8,010,952    4,110,844 
Interest and financing expenses   4,032,337    1,781,455    9,283,079    2,890,872 
Administrator expenses   681,924    395,689    1,773,348    1,074,173 
Professional fees   319,982    469,650    1,160,684    1,102,278 
Directors fees   71,125    131,125    314,786    377,504 
Insurance   69,758    121,506    210,517    343,325 
General and administrative   398,785    94,678    963,046   371,505 
Organizational expense   2,305    -    150,916    - 
Expenses before management fee waiver   11,560,872    6,044,326    29,474,222    14,052,659 
Management fee waiver   -    -    -    (41,126)
Total expenses net of management fee waiver   11,560,872    6,044,326    29,474,222    14,011,533 
Net investment income before excise taxes   12,030,236    6,208,045    32,043,807    16,443,378 
Excise tax expense   -    -    -    (35,501)
NET INVESTMENT INCOME   12,030,236    6,208,045    32,043,807    16,407,877 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:                    
Net realized gain/(loss) from investments   (136,914)   (15,016)   237,440    93,552 
Net unrealized appreciation/(depreciation) on investments   (8,736,445)   (1,353,281)   (7,988,618)   (1,434,400)
Net gain/(loss) on investments   (8,873,359)   (1,368,297)   (7,751,178)   (1,340,848)
                     
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $3,156,877   $4,839,748   $24,292,629   $15,067,029 
                     
WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE  $0.10   $0.28   $0.85   $0.87 
WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE  $0.37   $0.36   $1.12   $0.95 
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (SEE NOTE 11)   32,658,336    17,320,468    28,684,229    17,320,468 
                     
DIVIDENDS DECLARED PER COMMON SHARE  $0.36   $0.31   $1.08   $0.84 

 

See accompanying notes to consolidated financial statements.

 

F-2
 

 

Medley Capital Corporation

 

Consolidated Statements of Changes in Net Assets

 

   For the nine months ended 
June 30, 2013
   For the nine months ended 
June 30, 2012
 
   (unaudited)   (unaudited) 
INCREASE FROM OPERATIONS:          
Net investment income  $32,043,807   $16,407,877 
Net realized gain/(loss) from investments   237,440    93,552 
Net unrealized appreciation/(depreciation) on investments   (7,988,618)   (1,434,400)
Net increase/(decrease) in net assets from operations   24,292,629    15,067,029 
SHAREHOLDER DISTRIBUTIONS:          
Distributions declared from income ($1.08 and $0.84 per share, respectively)   (30,588,465)   (14,549,193)
Net decrease in net assets from shareholder distributions   (30,588,465)   (14,549,193)
CAPITAL SHARE TRANSACTIONS:          
Issuance of common stock, net of underwriting costs   137,696,574    - 
Offering costs   (493,875)   - 
Net increase in net assets from common share transactions   137,202,699    - 
Total increase/(decrease) in net assets   130,906,863    517,836 
Net assets at beginning of period   289,339,231    217,652,696 
Net assets at end of period including accumulated undistributed net investment
income of $7,014,978 and $5,078,773, respectively
  $420,246,094   $218,170,532 
           
Net asset value per common share  $12.65   $12.60 
Common shares outstanding at end of period   33,226,126    17,320,468 

 

See accompanying notes to consolidated financial statements.

 

F-3
 

 

Medley Capital Corporation

 

Consolidated Statements of Cash Flows

 

   For the nine
months ended 
June 30, 2013
   For the nine
months ended
June 30, 2012
 
   (unaudited)   (unaudited) 
Cash flows from operating activities          
NET INCREASE IN NET ASSETS FROM OPERATIONS  $24,292,629   $15,067,029 
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH USED BY OPERATING ACTIVITIES:
          
Paid-in-kind interest income   (6,522,188)   (2,545,968)
Net amortization of premium (discount) on investments   (565,649)   (23,574)
Amortization of deferred financing costs   1,029,597    432,836 
Net realized (gain) loss from investments   (237,440)   (93,552)
Net unrealized (appreciation) depreciation on investments   7,988,618    1,434,400 
Proceeds from sale and redemption of investments   140,693,504    26,637,386 
Purchase of investments   (425,782,387)   (189,295,850)
(Increase) decrease in operating assets:          
Interest receivable   (6,000,916)   (1,597,551)
Fees receivable   (1,625,000)   - 
Other assets   (112,964)   621,928 
Receivable for investments sold   (4,568,652)   - 
Increase (decrease) in operating liabilities:          
Payable for investments purchased   4,787,700    - 
Accounts payable and accrued expenses   711,660    362,159 
Management and incentive fees payable, net   2,469,883    1,566,472 
Administrator expenses payable   216,512    49,396 
Interest and fees payable   1,765,734    1,209,482 
Deferred revenue   7,688    79,780 
Due to affiliate   10,782    81,391 
NET CASH USED BY OPERATING ACTIVITIES   (261,440,889)   (146,014,236)
           
Cash flows from financing activities          
Proceeds from issuance of common stock, net of underwriting costs   137,696,574    - 
Offering cost paid   (628,734)   (82,666)
Borrowings on debt   335,300,000    159,400,000 
Paydowns on debt   (167,100,000)   (10,700,000)
Financing cost paid   (4,673,177)   (2,135,443)
Payments of cash dividends   (30,588,465)   (14,549,193)
NET CASH PROVIDED BY FINANCING ACTIVITIES   270,006,198    131,932,698 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   8,565,309    (14,081,538)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   4,893,616    17,201,643 
CASH AND CASH EQUIVALENTS, END OF PERIOD  $13,458,925   $3,120,105 
           
Supplemental Information:          
Interest paid during the period  $6,437,602   $1,248,554 
Excise tax paid during the period  $-   $35,501 
Supplemental non-cash information          
Paid-in-kind interest income  $6,522,188   $2,545,968 
Net amortization of premium (discount) on investments  $565,649   $23,574 
Amortization of deferred financing costs  $(1,029,597)  $(432,836)
Issuance of common stock in connection with dividend reinvestment plan  $1,764,174   $- 

 

See accompanying notes to consolidated financial statements. 

 

F-4
 

  

Medley Capital Corporation

 

Consolidated Schedule of Investments

 

June 30, 2013

(unaudited)

  

Company (1)  Industry  Type of Investment  Maturity   Par Amount (2)   Cost   Fair Value   % of
Net Assets (3)
 
Non-Controlled/ Non-Affiliated Investments:                            
                                
Accupac, Inc.  Containers, Packaging and Glass  Senior Secured Second Lien Term Loan (12.29%)   11/10/2018   $12,000,000   $12,000,000   $12,000,000    2.9%
               12,000,000    12,000,000    12,000,000      
                                
Aderant North America, Inc.  Electronics  Senior Secured Second Lien Term Loan (LIBOR + 8.75%, 1.25% LIBOR Floor)   6/20/2019    4,550,000    4,550,000    4,550,000    1.1%
               4,550,000    4,550,000    4,550,000      
                                
American Apparel, Inc.(8)  Retail Stores  Senior Secured Note (13.00%)   4/15/2020    13,000,000    12,618,046    13,064,500    3.1%
               13,000,000    12,618,046    13,064,500      
                                
American Gaming Systems LLC  Hotels, Motels, Inns and Gaming  Senior Secured First Lien Term Loan (LIBOR + 10.00%, 1.50% LIBOR Floor)   8/15/2016    10,750,000    10,750,000    10,793,294    2.6%
               10,750,000    10,750,000    10,793,294      
                                
ARBOC Specialty Vehicles LLC  Automobile  Senior Secured First Lien Term Loan (LIBOR + 12.50% Cash, 1.00% LIBOR Floor)   3/21/2018    25,000,000    25,000,000    25,000,000    5.9%
               25,000,000    25,000,000    25,000,000      
                                
Aurora Flight Sciences Corporation  Aerospace & Defense  Senior Secured Second Lien Term Loan
(11.25% Cash, 2.00% PIK)
   3/16/2014    15,727,315    15,727,315    15,839,603    3.8%
               15,727,315    15,727,315    15,839,603      
                                
BayDelta Maritime LLC  Cargo Transport  Senior Secured First Lien Term Loan (11.25% Cash, 2.50% Deferred)   6/30/2016    6,669,293    6,566,855    6,686,440    1.6%
      Fee Note (14.88%)(6)   6/30/2016    250,000    164,853    164,853    0.0%
      Warrants to purchase 10% of the outstanding equity   6/30/2016    N/A    25,000    468,307    0.1%
               6,919,293    6,756,708    7,319,600      
                                
Brantley Transportation LLC  Oil and Gas  Senior Secured First Lien Term Loan (12.00%)   8/2/2017    10,762,500    10,956,185    10,762,500    2.6%
               10,762,500    10,956,185    10,762,500      
                                
Calloway Laboratories, Inc.  Healthcare, Education and Childcare  Senior Secured First Lien Term Loan (12.00% PIK)   9/30/2014    24,121,937    23,797,201    19,075,382    4.5%
      Warrants to purchase 15% of the outstanding equity   9/30/2014    N/A    68,433    -    0.0%
               24,121,937    23,865,634    19,075,382      
                                
Caregiver Services, Inc.  Healthcare, Education and Childcare  Senior Secured Second Lien Term Loan (12.45% Cash, 2.00% PIK)   12/29/2017    15,283,238    15,283,238    15,268,801    3.6%
               15,283,238    15,283,238    15,268,801      
                                
Cenegenics LLC  Personal, Food and Miscellaneous Services  Senior Secured First Lien Term Loan (10.00% Cash, 2.25% PIK)   12/20/2017    19,601,755    19,601,755    19,666,529    4.7%
               19,601,755    19,601,755    19,666,529      
                                
Dispensing Dynamics International(8)  Personal and Nondurable Consumer Products (Manufacturing Only)  Senior Secured Note (12.50%)   1/1/2018    4,800,000    4,711,076    4,833,389    1.2%
               4,800,000    4,711,076    4,833,389      
                                
DLR Restaurants LLC  Restaurant & Franchise  Senior Secured First Lien Term Loan (11.00% Cash, 2.50% PIK)   4/18/2018    9,622,039    9,622,039    9,622,039    2.3%
      Unsecured Debt (12.00% Cash, 4.00% PIK)   4/18/2018    252,060    252,060    252,060    0.1%
               9,874,099    9,874,099    9,874,099      
                                
Exide Technologies (9)  Machinery (Nonagriculture, Nonconstruction, Nonelectric)  Senior Secured Note (8.63%)   2/1/2018    11,000,000    9,006,908    6,668,750    1.6%
               11,000,000    9,006,908    6,668,750      
                                
FC Operating LLC  Retail Stores  Senior Secured First Lien Term Loan (LIBOR + 10.75%, 1.25% LIBOR Floor)   11/14/2017    11,212,500    11,212,500    11,230,794    2.7%
               11,212,500    11,212,500    11,230,794      
                                
Geneva Wood Fuels LLC (4)(10)  Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured First Lien Term Loan (4.50% Cash, 10.50% PIK)   12/31/2014    8,199,184    8,143,385    4,090,000    1.0%
               8,199,184    8,143,385    4,090,000      
                                
Harrison Gypsum LLC  Mining, Steel, Iron and Nonprecious Metals  Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 0.50% PIK, 1.50% LIBOR Floor)   12/21/2017    24,408,401    24,408,401    24,425,174    5.8%
               24,408,401    24,408,401    24,425,174      
                                
HD Vest, Inc.  Finance  Senior Secured Second Lien Term Loan (LIBOR + 8.00% Cash, 1.25% LIBOR Floor)   6/18/2019    8,750,000    8,750,000    8,640,625    2.1%
               8,750,000    8,750,000    8,640,625      
                                
Help/Systems LLC  Business Services  Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)   6/28/2020    15,000,000    15,000,000    14,400,000    3.4%
               15,000,000    15,000,000    14,400,000      
                                
HGDS Acquisition LLC  Business Services  Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.50% PIK)   3/28/2018    13,625,087    13,625,087    13,552,421    3.2%
               13,625,087    13,625,087    13,552,421      
                                
Hoffmaster Group, Inc.  Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured Second Lien Term Loan
(LIBOR + 9.50% Cash, 1.50% LIBOR Floor)
   1/3/2019    6,000,000    6,000,000    6,007,167    1.4%
      Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.25% LIBOR Floor)   1/3/2019    2,000,000    1,982,405    1,942,667    0.5%
               8,000,000    7,982,405    7,949,834      
                                
Ingenio Acquisition LLC  Personal, Food and Miscellaneous Services  Senior Secured First Lien Term Loan (12.75%)   5/9/2018    25,000,000    25,000,000    25,000,000    5.9%
               25,000,000    25,000,000    25,000,000      

 

F-5
 

Insight Pharmaceuticals LLC  Personal, Food and Miscellaneous Services  Senior Secured Second Lien Term Loan (LIBOR + 11.75%, 1.50% LIBOR Floor)   8/25/2017    7,724,138    7,724,138    7,816,705    1.9%
               7,724,138    7,724,138    7,816,705      
                                
Integra Telecom  Telecommunications  Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.25% LIBOR Floor)   2/22/2020    12,132,000    12,158,858    12,480,795    3.0%
               12,132,000    12,158,858    12,480,795      
                                
Interface Security Systems(8)  Electronics  Senior Secured Note (9.25%)   1/15/2018    3,333,000    3,333,000    3,399,660    0.8%
               3,333,000    3,333,000    3,399,660      
                                
JD Norman Industries, Inc.  Diversified/Conglomerate Manufacturing  Senior Secured Second Lien Term Loan (13.50%)   6/28/2018    12,500,000    12,500,000    12,500,000    3.0%
               12,500,000    12,500,000    12,500,000      
                                
Kelley Amerit Holdings, Inc.  Business Services  Senior Secured Second Lien Term Loan
(LIBOR + 9.70% Cash, 1.00% LIBOR Floor, 1.50% PIK)
   12/21/2016    8,990,555    8,990,555    8,956,595    2.1%
               8,990,555    8,990,555    8,956,595      
                                
Linc Energy Finance (USA), Inc.(8)  Oil and Gas  Senior Secured Note (12.50%)   10/31/2017    3,500,000    3,387,276    3,832,500    0.9%
               3,500,000    3,387,276    3,832,500      
                                
Meridian Behavioral Health LLC  Healthcare, Education and Childcare  Senior Secured First Lien Term Loan A (14.00% )   11/14/2016    6,139,141    5,729,463    6,294,461    1.5%
      Senior Secured First Lien Term Loan B (14.00%)   11/14/2016    3,750,000    3,750,000    3,750,000    0.9%
      Warrants to purchase 8% of the outstanding membership units   11/14/2016    N/A    536,296    1,063,521    0.2%
               9,889,141    10,015,759    11,107,982      
                                
Modern VideoFilm, Inc.  Leisure, Amusement, Motion Pictures, Entertainment  Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 3.00% PIK, 1.50% LIBOR Floor)   9/25/2017    11,561,601    11,263,485    9,422,705    2.2%
      Warrants to purchase 4.5%
of the outstanding equity
   9/25/2017    N/A    339,572    8,932    0.0%
               11,561,601    11,603,057    9,431,637      
                                
Physicians Care Alliance LLC  Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured First Lien Term Loan (10.00% Cash, 1.00% PIK)   12/28/2017    15,813,580    15,813,580    15,989,111    3.8%
      Senior Secured First Lien Revolver (10.50%)(7)   12/28/2017    N/A    N/A    N/A    0.0%
               15,813,580    15,813,580    15,989,111      
                                
Prestige Industries LLC  Business Services  Senior Secured Second Lien Term Loan (10.00% Cash, 3.00% PIK)   1/31/2017    5,983,801    5,862,075    5,470,885    1.3%
      Warrants to purchase 0.63% of the outstanding common units   1/31/2017    N/A    151,855    -    0.0%
               5,983,801    6,013,930    5,470,885      
                                
Prince Mineral Holdings Corp.(8)  Mining, Steel, Iron and Nonprecious Metals  Senior Secured Note (11.50%)   12/15/2019    6,800,000    6,724,437    7,276,000    1.7%
               6,800,000    6,724,437    7,276,000      
                                
RCS Management Corporation & Specialized Medical Services, Inc.  Diversified/Conglomerate Service  Senior Secured Second Lien Term Loan ( LIBOR + 11.00% Cash, 1.50% LIBOR Floor, 0.50% PIK)   9/23/2015    25,442,201    25,442,201    25,644,399    6.1%
               25,442,201    25,442,201    25,644,399      
                                
Red Skye Wireless LLC  Retail Stores  Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 2.00% PIK, 1.00% LIBOR Floor)   6/27/2017    15,001,667    15,001,667    15,001,667    3.6%
               15,001,667    15,001,667    15,001,667      
                                
Reddy Ice Corporation  Beverage, Food and Tobacco  Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.25% LIBOR Floor)   10/1/2019    17,000,000    17,000,000    16,668,477    4.0%
               17,000,000    17,000,000    16,668,477      
                                
Revstone Aero LLC  Aerospace & Defense  Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.00% PIK)   11/1/2013    15,465,235    15,273,301    15,465,235    3.7%
      Fee Note   11/1/2013    500,000    263,297    470,000    0.1%
               15,965,235    15,536,598    15,935,235      
                                
Santa Cruz Nutritional  Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured Second Lien Term Loan (14.50%)   5/25/2015    15,000,000    15,000,000    15,555,833    3.7%
               15,000,000    15,000,000    15,555,833      
                                
Sequel Youth and Family Services LLC  Healthcare, Education and Childcare  Senior Secured Second Lien Term Loan (14.00%)   12/23/2014    10,500,000    10,500,000    10,815,000    2.6%
               10,500,000    10,500,000    10,815,000      
                                
SESAC HOLDCO II  Business Services  Senior Secured Second Lien Term Loan (LIBOR + 8.75%, 1.25% LIBOR Floor)   7/12/2019    2,500,000    2,463,944    2,546,505    0.6%
               2,500,000    2,463,944    2,546,505      
                                
Sizzling Platter LLC(8)  Restaurant & Franchise  Senior Secured Note (12.25% )   4/15/2016    10,867,000    11,083,728    11,356,015    2.7%
               10,867,000    11,083,728    11,356,015      
                                
Strike Holdings LLC  Leisure, Amusement, Motion Pictures, Entertainment  Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 2.00% PIK, 1.00% LIBOR Floor)   8/31/2017    16,018,032    16,018,032    16,979,114    4.0%
               16,018,032    16,018,032    16,979,114      
                                
Taylored Freight Services LLC  Business Services  Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 2.00% PIK, 1.50% LIBOR Floor)   11/1/2017    14,164,938    14,164,938    14,246,030    3.4%
               14,164,938    14,164,938    14,246,030      
                                
Tempel Steel Company(8)  Mining, Steel, Iron and Nonprecious Metals  Senior Secured Note (12.00%)   8/15/2016    12,000,000    11,815,899    11,520,000    2.7%
               12,000,000    11,815,899    11,520,000      
                                
Tenere Acquisition Corp.  Diversified/Conglomerate Manufacturing  Senior Secured First Lien Term Loan (11.00% Cash, 2.00% PIK)   12/15/2017    10,853,764    10,853,764    10,974,026    2.6%
               10,853,764    10,853,764    10,974,026      

 

F-6
 

 

The Great Atlantic & Pacific Tea Company, Inc.  Grocery  Senior Secured First Lien Term Loan (LIBOR + 9.00%, 2.00% LIBOR Floor)   3/13/2017    7,897,491    7,897,491    8,055,441    1.9%
               7,897,491    7,897,491    8,055,441      
                                
Tower International, Inc.(8)  Automobile  Senior Secured Note (10.63%)   9/1/2017    725,000    737,092    761,250    0.2%
               725,000    737,092    761,250      
                                
Travelclick, Inc.  Hotels, Motels, Inns and Gaming  Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.25% LIBOR Floor)   3/26/2018    15,000,000    15,000,000    15,150,000    3.6%
               15,000,000    15,000,000    15,150,000      
                                
U.S. Well Services LLC (9)  Oil and Gas  Senior Secured Note (14.50%)   2/15/2017    21,558,808    21,423,536    21,593,509    5.1%
      Warrants to purchase 3.48% of the outstanding common membership interests   2/15/2017    N/A    11,370    326,467    0.1%
               21,558,808    21,434,906    21,919,976      
                                
United Restaurant Group L.P.  Restaurant & Franchise  Senior Secured Second Lien Term Loan (LIBOR + 11.50% Cash, 3.50% PIK)   12/31/2016    10,736,470    10,736,470    10,712,683    2.5%
               10,736,470    10,736,470    10,712,683      
                                
United Road Towing Inc.  Personal, Food and Miscellaneous Services  Senior Secured Second Lien Term Loan
(11.50% Cash, 3.50% PIK)
   10/21/2016    15,835,461    15,835,461    14,378,553    3.4%
               15,835,461    15,835,461    14,378,553      
                                
Velum Global Credit Management LLC  Finance  Senior Secured First Lien Term Loan (15.00%)   3/31/2014    8,300,000    8,346,788    8,300,000    2.0%
               8,300,000    8,346,788    8,300,000      
                                
Water Capital USA, Inc.  Finance  Senior Secured First Lien Term Loan (7.00% Cash, 7.00% PIK)   1/3/2015    24,704,104    24,704,104    24,704,104    5.9%
               24,704,104    24,704,104    24,704,104      
                                
Westport Axle Corp  Automobile  Senior Secured First Lien Term Loan (11.50% Cash, 1.50% PIK)   11/17/2018    19,011,875    19,011,875    19,011,875    4.5%
               19,011,875    19,011,875    19,011,875      
                                
YRCW Receivables LLC  Cargo Transport  Senior Secured Second Lien Term Loan (LIBOR + 9.75%, 1.50% LIBOR Floor)   9/30/2014    4,860,416    4,775,907    4,847,492    1.1%
               4,860,416    4,775,907    4,847,492      
                                
Subtotal Non-Controlled / Non-Affiliated Investments       $689,755,587   $ 686,448,197   $677,350,840      
                                
Affiliated Investments:                               
                                
Cymax Stores, Inc.(9)  Home and Office Furnishings, Housewares, and Durable Consumer Products  Senior Secured First Lien Term Loan (10.00% Cash, 5.00% PIK)   8/1/2015    8,892,509    8,448,458    8,350,911    2.0%
      190 Class B Common Units (5)        N/A    678,154    673,154    0.2%
                                
Subtotal Affiliated Investments          $8,892,509   $9,126,612   $9,024,065      
                                
Total Investments, June 30, 2013          $698,648,096   $695,574,809   $686,374,905    163.3%

 

 

 

 

(1)All of our investments are domiciled in the United States except for Cymax Stores, Inc. which is domiciled in Canada.
(2)Par amount includes accumulated PIK interest and is net of repayments.
(3)Percentage is based on net assets of $420,246,094 as of June 30, 2013.
(4)Investment is held via participation agreements with affiliated entities (See note 7).
(5)190 Class B Common Units represent 19% ownership of Cymax Stores, Inc.
(6)Fee note is a zero coupon note, which is considered as a senior secured first lien term loan due at the earlier of prepayment or maturity and stated interest rate represents an effective interest rate.
(7)The entire commitment was unfunded at June 30, 2013. As such, no interest is being earned on this investment.
(8)Securities are exempt from registration under Rule 144a of the Securities Act of 1933. These securities represent $56.0 million and 13.3% of net assets as of June 30, 2013 and are considered restricted.
(9)The investment is not a qualifying asset under the Investment Company Act of 1940, as amended.
(10)Investment was on PIK non-accrual status as of June 30, 2013.

 

See accompanying notes to consolidated financial statements.

 

F-7
 

  

Medley Capital Corporation

 

Consolidated Schedule of Investments

 

September 30, 2012(8)

 

Company (1)  Industry  Type of
Investment
  Maturity   Par Amount (2)   Cost   Fair Value   % of
Net Assets (3)
 
Non-Controlled/ Non-Affiliated Investments:                         
                                
American Gaming Systems LLC  Hotels, Motels, Inns and Gaming  Senior Secured First Lien Term Loan (LIBOR + 10.00%, 1.50% LIBOR Floor)   8/15/2016   $9,509,615   $9,509,615   $9,509,615    3.3%
               9,509,615    9,509,615    9,509,615      
                                
Atkore International, Inc. (7)  Mining, Steel, Iron and Nonprecious Metals  Senior Secured Note (9.88%)   1/1/2018    5,000,000    4,825,086    4,875,000    1.7%
               5,000,000    4,825,086    4,875,000      
                                
Aurora Flight Sciences Corporation  Aerospace & Defense  Senior Secured Second Lien Term Loan (11.25% Cash, 2.00% PIK)   3/16/2014    15,490,782    15,490,782    15,490,782    5.3%
               15,490,782    15,490,782    15,490,782      
                                
BayDelta Maritime LLC  Cargo Transport  Senior Secured First Lien Term Loan (11.25% Cash, 2.50% Deferred)   6/30/2016    6,669,293    6,547,553    6,669,293    2.3%
      Fee Note (14.88%)(6)   6/30/2016    250,000    148,611    148,611    0.1%
      Warrants to purchase 10% of the outstanding equity   6/30/2016    N/A    25,000    216,387    0.1%
               6,919,293    6,721,164    7,034,291      
                                
Bennu Glass, Inc.  Containers, Packaging and Glass  Senior Secured First Lien Term Loan (15.00%)   4/30/2013    10,000,000    10,062,296    10,000,000    3.4%
               10,000,000    10,062,296    10,000,000      
                                
Brantley Transportation LLC  Oil and Gas  Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 2.50% PIK, 1.50% LIBOR Floor)   8/2/2017    10,920,360    10,920,360    10,920,360    3.8%
               10,920,360    10,920,360    10,920,360      
                                
Calloway Laboratories, Inc.  Healthcare, Education and Childcare  Senior Secured First Lien Term Loan (10.00% Cash , 2.00% PIK)   9/30/2014    20,041,029    19,973,752    19,743,006    6.8%
      Warrants to purchase 2.4% of the outstanding equity   9/30/2014    N/A    68,433    68,433    0.0%
               20,041,029    20,042,185    19,811,439      
                                
Caregiver Services, Inc.  Healthcare, Education and Childcare  Senior Secured Second Lien Term Loan (12.45% Cash, 2.00% PIK)   12/29/2017    15,053,384    15,053,384    15,053,384    5.2%
               15,053,384    15,053,384    15,053,384      
                                
Exide Technologies (7)  Machinery (Nonagriculture, Nonconstruction, Nonelectric)  Senior Secured Note (8.63%)   2/1/2018    10,000,000    8,669,210    8,662,500    3.0%
               10,000,000    8,669,210    8,662,500      
                                
Flexera Software LLC  Electronics  Senior Secured First Lien Term Loan (LIBOR + 6.25%,
1.25% LIBOR Floor)
   9/30/2017    3,920,000    3,920,000    3,920,000    1.3%
      Senior Secured Second Lien Term Loan (LIBOR + 9.75%, 1.25% LIBOR Floor)   9/30/2018    6,000,000    6,000,000    5,819,983    2.0%
               9,920,000    9,920,000    9,739,983      
                                
Geneva Wood Fuels LLC (4)   Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured First Lien Term Loan (LIBOR + 13.00%, 2.50% LIBOR Floor)   12/31/2012    7,500,000    7,500,000    6,937,502    2.4%
               7,500,000    7,500,000    6,937,502      
                                
Gulf Coast Asphalt Company, Inc. (7)  Oil and Gas  Senior Secured Second Lien Term Loan (LIBOR + 11.00% Cash, 1.00% LIBOR Floor, 3.50% PIK)   6/14/2017    11,180,191    11,180,191    11,180,191    3.9%
               11,180,191    11,180,191    11,180,191      
                                
Hilex Poly Co.  Chemicals, Plastics and Rubber  Senior Secured First Lien Term Loan (LIBOR + 9.25%, 2.00% LIBOR Floor)   11/19/2015    1,533,848    1,533,848    1,533,848    0.5%
               1,533,848    1,533,848    1,533,848      
                                
Hoffmaster Group, Inc.  Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured Second Lien Term Loan (LIBOR + 9.50% Cash, 1.50% LIBOR Floor)   1/3/2019    6,000,000    6,000,000    5,935,052    2.0%
      Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.25% LIBOR Floor)   1/3/2019    2,000,000    1,980,714    1,913,402    0.7%
               8,000,000    7,980,714    7,848,454      
                                
Insight Pharmaceuticals LLC  Personal, Food and Miscellaneous Services  Senior Secured Second Lien Term Loan (LIBOR + 11.75%, 1.50% LIBOR Floor)   8/25/2017    10,000,000    10,000,000    10,000,000    3.4%
               10,000,000    10,000,000    10,000,000      
                                
Integra Telecom, Inc. (7)  Telecommunications  Senior Secured Note (10.75%)   4/15/2016    7,250,000    7,113,784    7,113,784    2.5%
               7,250,000    7,113,784    7,113,784      
                                
Kelley Amerit Holdings, Inc.  Business Services  Senior Secured Second Lien Term Loan (LIBOR + 9.70% Cash, 1.00% LIBOR Floor, 1.50% PIK)   12/22/2016    9,242,940    9,242,940    9,242,940    3.2%
               9,242,940    9,242,940    9,242,940      
                                
Meridian Behavioral Health LLC  Healthcare, Education and Childcare  Senior Secured First Lien Term Loan A (12.00% Cash, 2.00% PIK)   11/14/2016    6,107,870    5,635,807    6,199,931    2.1%
      Senior Secured First Lien Term Loan B (12.00%)   11/14/2016    3,000,000    3,000,000    2,830,434    1.0%
      Warrants to purchase 8% of the outstanding membership units   11/14/2016    N/A    536,296    786,118    0.3%
               9,107,870    9,172,103    9,816,483      
                                
Modern VideoFilm, Inc. (7)  Leisure, Amusement, Motion Pictures, Entertainment  Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 3.00% PIK, 1.50% LIBOR Floor)   9/25/2017    16,000,000    15,522,547    15,522,547    5.4%
      Warrants to purchase 5% of the outstanding equity   9/25/2017    N/A    480,000    480,000    0.2%
               16,000,000    16,002,547    16,002,547      
                                
Prestige Industries LLC  Business Services  Senior Secured Second Lien Term Loan (10.00% Cash, 3.00% PIK)   1/31/2017    5,849,374    5,709,063    5,537,365    1.9%
      Warrants to purchase 3.04% of the outstanding common units   1/31/2017    N/A    151,855    119,406    0.0%
               5,849,374    5,860,918    5,656,771      

 

F-8
 

 

RCS Management Corporation & Specialized Medical Services, Inc.  Diversified/Conglomerate Service  Senior Secured Second Lien Term Loan ( LIBOR + 11.00% Cash, 1.50% LIBOR Floor, 0.50% PIK)   9/23/2015    19,346,687    19,346,687    19,346,687    6.7%
               19,346,687    19,346,687    19,346,687      
                                
Renaissance Learning LLC  Healthcare, Education and Childcare  Senior Secured First Lien Term Loan (LIBOR + 6.25%,
1.50% LIBOR Floor)
   10/19/2017    2,970,000    2,865,919    2,865,919    1.0%
      Senior Secured Second Lien Term Loan (LIBOR + 10.50%, 1.50% LIBOR Floor)   10/19/2018    2,000,000    1,927,002    1,927,002    0.7%
               4,970,000    4,792,921    4,792,921      
                                
Revstone Aero LLC  Aerospace & Defense  Senior Secured First Lien Term Loan (LIBOR + 12.00% Cash, 3.00% PIK)   6/30/2017    15,117,806    14,901,459    14,901,459    5.2%
      Fee Note (17.38%) (6)   6/30/2017    500,000    233,561    233,561    0.1%
               15,617,806    15,135,020    15,135,020      
                                
Santa Cruz Nutritional (7)  Personal and Nondurable Consumer
Products (Manufacturing Only)
  Senior Secured Second Lien Term Loan (14.50%)   5/25/2015    15,000,000    15,000,000    15,000,000    5.2%
               15,000,000    15,000,000    15,000,000      
                                
Sequel Youth and Family Services LLC  Healthcare, Education and Childcare  Senior Secured Second Lien Term Loan (14.00%)   12/23/2014    10,500,000    10,500,000    10,500,000    3.6%
               10,500,000    10,500,000    10,500,000      
                                
Sizzling Platter LLC (7)  Restaurant & Franchise  Senior Secured Note (12.25% )   4/15/2016    3,630,000    3,529,636    3,757,050    1.3%
               3,630,000    3,529,636    3,757,050      
                                
Strike Holdings LLC  Leisure, Amusement, Motion Pictures, Entertainment  Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 2.00% PIK, 1.00% LIBOR Floor)   8/31/2017    15,777,126    15,777,126    15,777,126    5.4%
               15,777,126    15,777,126    15,777,126      
                                
Tempel Steel Company (7)  Mining, Steel, Iron and Nonprecious Metals  Senior Secured Note (12.00%)   8/15/2016    12,000,000    11,781,691    11,879,995    4.1%
               12,000,000    11,781,691    11,879,995      
                                
The Great Atlantic & Pacific Tea Company, Inc. (7)  Grocery  Senior Secured First Lien Term Loan (LIBOR + 9.00%, 2.00% LIBOR Floor)   3/13/2017    7,960,000    7,960,000    7,960,000    2.8%
               7,960,000    7,960,000    7,960,000      
                                
Tower International, Inc. (7)  Automobile  Senior Secured Note (10.63%)   9/1/2017    6,101,000    6,216,917    6,216,916    2.1%
               6,101,000    6,216,917    6,216,916      
                                
U.S. Well Services LLC (7)  Oil and Gas  Senior Secured Note (14.50% PIK until 8/15/12, 14.50%  Cash therafter)   2/15/2017    13,393,941    13,244,727    13,244,727    4.6%
      Warrants to purchase 2.29% of the outstanding common membership interests   2/15/2017    N/A    10,697    -    0.0%
               13,393,941    13,255,424    13,244,727      
                                
United Restaurant Group L.P.  Restaurant & Franchise  Senior Secured Second Lien Term Loan (LIBOR + 11.50% Cash, 3.50% PIK)   12/31/2016    10,455,664    10,455,664    10,246,510    3.5%
               10,455,664    10,455,664    10,246,510      
                                
United Road Towing Inc.  Personal, Food and Miscellaneous Services  Senior Secured Second Lien Term Loan (11.50% Cash, 3.50% PIK)   10/21/2016    15,421,293    15,421,293    14,997,196    5.2%
               15,421,293    15,421,293    14,997,196      
                                
Velum Global Credit Management LLC  Finance  Senior Secured First Lien Term Loan (15.00%)   3/31/2014    10,000,000    10,106,822    10,000,000    3.5%
               10,000,000    10,106,822    10,000,000      
                                
Water Capital USA, Inc. (7)  Finance  Senior Secured First Lien Term Loan (7.00% Cash, 7.00% PIK)   1/3/2013    23,437,803    23,437,803    23,437,803    8.1%
               23,437,803    23,437,803    23,437,803      
                                
Welocalize, Inc. (7)  Business Services  Senior Secured First Lien Term Loan A (LIBOR + 8.00%, 2.00% LIBOR Floor)   11/19/2015    4,716,740    4,716,740    4,716,740    1.6%
      Senior Secured First Lien Term Loan B (LIBOR + 9.00%, 2.00% LIBOR Floor, 1.25% PIK)   11/19/2015    5,478,728    5,478,728    5,478,728    1.9%
               10,195,468    10,195,468    10,195,468      
                                
YRCW Receivables LLC  Cargo Transport  Senior Secured Second Lien Term Loan (LIBOR + 9.75%, 1.50% LIBOR Floor)   9/30/2014    4,897,519    4,768,454    4,824,064    1.7%
               4,897,519    4,768,454    4,824,064      
                                
Subtotal Non-Controlled / Non-Affiliated Investments       $397,222,993   $394,482,053   $393,741,357      
                                
Affiliated Investments:                               
                                
Cymax Stores, Inc.  Home and Office Furnishings, Housewares, and Durable Consumer Products  Senior Secured First Lien Term Loan (10.00% Cash, 5.00% PIK)   8/1/2015    8,562,329    8,000,442    7,534,852    2.6%
      190 Class B Common Units (5)        N/A    678,154    673,154    0.2%
                                
Subtotal Affiliated Investments          $8,562,329   $8,678,596   $8,208,006      
                                
Total Investments, September 30, 2012          $405,785,322   $403,160,649   $401,949,363    138.9%

 

 

 

(1)All of our investments are domiciled in the United States except for Cymax Stores, Inc. which is domiciled in Canada.
(2)Par amount includes accumulated PIK interest and is net of repayments.
(3)Percentage is based on net assets of $289,339,231 as of September 30, 2012.
(4)Investment is held via participation agreements with affiliated entities (See note 7).
(5)190 Class B Common Units represent 19% ownership of Cymax Stores, Inc.
(6)Fee note is a zero coupon note, which is considered as a senior secured first lien term loan due at the earlier of prepayment or maturity and stated interest rate represents an effective interest rate.
(7)An affiliated fund that is managed by an affiliate of MCC Advisors LLC also holds an investment in this security.
(8)The September 30, 2012 presentation has been revised to conform to the current period presentation.

 

See accompanying notes to consolidated financial statements.

 

F-9
 

  

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements

June 30, 2013

(unaudited)

 

Note 1. Organization

 

Medley Capital Corporation (the “Company”, “we” and “us”) is a non-diversified closed end management investment company incorporated in Delaware that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected and qualified to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We are externally managed and advised by our investment adviser, MCC Advisors LLC (“MCC Advisors”) a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), pursuant to an investment management agreement.

 

Medley Capital BDC LLC (the “LLC”), a Delaware limited liability company, was formed on April 23, 2010. On January 18, 2011, the LLC, in accordance with Delaware law, converted into Medley Capital Corporation, a Delaware corporation, and on January 20, 2011, the Company filed an election to be regulated as a BDC under the 1940 Act.

 

On January 20, 2011, the Company consummated its IPO, sold 11,111,112 shares of common stock at $12.00 per share and commenced its operations and investment activities. On February 24, 2011, an additional 450,000 shares of common stock were issued at a price of $12.00 per share pursuant to the partial exercise of the underwriters’ over-allotment option. Net of underwriting fees and offering costs, the Company received total cash proceeds of approximately $129.6 million.

 

On January 20, 2011, the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “MCC”.

 

Prior to the consummation of our IPO, Medley Opportunity Fund LP (“MOF LP”), a Delaware limited partnership, and Medley Opportunity Fund, Ltd. (“MOF LTD”), a Cayman Islands exempted limited liability company, which are managed by an affiliate of MCC Advisors, transferred all of their respective interests in six loan participations in secured loans to middle market companies with a combined fair value, plus payment-in-kind interest and accrued interest thereon, of approximately $84.95 million (the “Loan Assets”) to MOF I BDC LLC (“MOF I BDC”), a Delaware limited liability company, in exchange for membership interests in MOF I BDC. As a result, MOF LTD owned approximately 90% of the outstanding MOF I BDC membership interests and MOF LP owned approximately 10% of the outstanding MOF I BDC membership interests.

 

On January 18, 2011, each of MOF LTD and MOF LP contributed their respective MOF I BDC membership interests to the LLC in exchange for LLC membership interests. As a result, MOF I BDC became a wholly-owned subsidiary of the LLC. As a result of the LLC’s conversion noted above, MOF LTD and MOF LP’s LLC membership interests were exchanged for 5,759,356 shares of the Company’s common stock at $14.75 per share.

 

On March 26, 2013, our wholly-owned subsidiary, Medley SBIC LP (“SBIC LP“), a Delaware limited partnership, received a license from Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958.

 

The Company’s investment objective is to generate current income and capital appreciation by lending directly and indirectly to privately-held small and middle market companies to help these companies fund acquisitions, growth or refinancing. The portfolio will generally consist of senior secured first lien loans and senior secured second lien loans. In many of our investments, we will receive warrants or other equity participation features which we believe will increase the total investment returns.

 

Note 2. Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, MOF I BDC and SBIC LP. All references made to the “Company,” “we,” and “us” herein include Medley Capital Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended September 30, 2012, which was filed with the U.S. Securities and Exchange Commission on December 10, 2012. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2013.

 

F-10
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

Cash and Cash Equivalents

 

The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in a financial institution and, at times, such balance may be in excess of the Federal Deposit Insurance Corporation insurance limits.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Organizational Expenses

 

Organizational expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and have been expensed as incurred.

 

Deferred Offering Costs

 

Deferred offering costs consist of fees and expenses incurred in connection with the public offering and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement.

 

On December 3, 2012, we completed a public offering of 5,000,000 shares of our common stock at a public offering price of $13.75 per share, raising approximately $66.0 million in net proceeds. On December 19, 2012, we sold an additional 495,263 shares of our common stock at a public offering price of $13.75 per share, raising approximately $6.5 million in net proceeds, pursuant to the underwriters’ partial exercise of the over-allotment option.

 

On April 12, 2013, we completed a public offering of 4,000,000 shares of our common stock and an additional 492,271 shares of our common stock pursuant to the underwriters’ partial exercise of the over-allotment option at a public offering price of $14.70 per share, raising approximately $63.4 million in net proceeds.

 

 

Deferred Financing Costs

 

Financing costs, incurred in connection with our credit facilities, unsecured notes and SBA debentures are deferred and amortized over the life of the respective facility.

 

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.

 

Revenue Recognition

 

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis.

 

Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Other fees are capitalized as deferred revenue and recorded into income over the respective period. Other fee income for the three and nine months ended June 30, 2013 was approximately $3.6 million and $10.0 million, respectively. For the three and nine months ended June 30, 2012 other fee income was approximately $1.8 million and $4.5 million, respectively.

 

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.

 

Administrative agent fee received by the Company are recorded as income when the services are rendered.

 

F-11
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three and nine months ended June 30, 2013, the Company earned approximately $2.4 million and $6.5 million in PIK, respectively. For the three and nine months ended June 30, 2012, the Company earned approximately $1.0 million and $2.5 million in PIK interest, respectively.

 

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports changes in fair value of investments as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations. 

 

Management reviews all loans that become 90 days or more past due on principal and interest or when there is reasonable doubt that principal or interest will be collected for possible placement on non-accrual status. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At June 30, 2013, one portfolio company was on PIK non-accrual status with a fair value of approximately $4.1 million, or 0.6% of the fair value of our portfolio. At September 30, 2012, we had no portfolio company on non-accrual status.

 

Investment Classification

 

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.”

 

Valuation of Investments

 

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

 

The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on information obtained from the third-party valuation firms, the Company uses a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market discount yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company's assets and liabilities using an expected recovery model. We may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.

 

F-12
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

 

Our quarterly valuation process begins with each portfolio investment being initially valued by the investment professionals responsible for monitoring the portfolio investment;

 

Preliminary valuation conclusions are then documented and discussed with senior management; and

 

An independent valuation firm engaged by our board of directors prepares an independent valuation report for approximately one third of the portfolio investments each quarter on a rotating quarterly basis on non fiscal year-end quarters, such that each of these investments will be valued by independent valuation firms at least twice per annum when combined with the fiscal year end review of all the investments by independent valuation firms.

 

In addition, all of our investments are subject to the following valuation process:

 

Management reviews preliminary valuations and their own independent assessment;

 

The audit committee of our board of directors reviews the preliminary valuations of senior management and independent valuation firms; and

 

Our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of MCC Advisors, the respective independent valuation firms and the audit committee.

 

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.

 

Fair Value of Financial Instruments

 

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5.

 

Federal Income Taxes

  

The Company has elected to be treated as a RIC under subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

 

The Company is subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the calendar year ended December 31, 2011, the Company did not distribute at least 98% of its ordinary income and 98.2% of its capital gains and subsequently paid $35,501 in federal excise taxes. There is no provision for federal excise tax for 2012 accrued at June 30, 2013. 

 

F-13
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

 

The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statement of operations. There were no material uncertain income tax positions at June 30, 2013. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by the Internal Revenue Service.

 

Segments

 

The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s financial statements. See Note 3 for further information.

 

Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk

 

MCC Advisors has broad discretion in making investments for the Company. Investments will generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuate.

 

The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase materially. MCC Advisors may attempt to minimize this risk by maintaining low loan-to-liquidation values with each loan and the collateral underlying the loan.

 

The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.

 

Note 3. Investments

 

The composition of our investments as of June 30, 2013 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

 

F-14
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

   Investments at
Amortized
Cost
   Percentage   Investments at
Fair Value
   Percentage 
Senior Secured First Lien Term Loans  $336,222    48.3%  $327,836    47.8%
Senior Secured Second Lien Term Loans   272,449    39.2    271,441    39.5 
Senior Secured Notes   84,841    12.2    84,306    12.2 
Unsecured Debt   252    0.1    252    0.1 
Equity/Warrants   1,811    0.2    2,540    0.4 
Total  $695,575    100.0%  $686,375    100.0%

  

The composition of our investments as of September 30, 2012 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

 

   Investments at
Amortized
Cost
   Percentage   Investments at
Fair Value
   Percentage 
Senior Secured First Lien Term Loans  $187,753    46.6%  $186,841    46.5%
Senior Secured Second Lien Term Loans   158,076    39.2    157,015    39.0 
Senior Secured Notes   55,381    13.7    55,750    13.9 
Equity/Warrants   1,951    0.5    2,343    0.6 
Total  $403,161    100.0%  $401,949    100.0%

 

The following table shows the portfolio composition by industry grouping at fair value at June 30, 2013 (dollars in thousands):

 

   Investments at
Fair Value
   Percentage 
Personal, Food and Miscellaneous Services  $66,862    9.8%
Business Services   59,173    8.6 
Healthcare, Education and Childcare   56,267    8.2 
Personal and Nondurable Consumer Products (Manufacturing Only)   48,418    7.1 
Automobile   44,773    6.5 
Mining, Steel, Iron and Nonprecious Metals   43,221    6.3 
Finance   41,645    6.1 
Retail Stores   39,297    5.7 
Oil and Gas   36,515    5.3 
Restaurant & Franchise   31,943    4.7 
Aerospace & Defense   31,775    4.6 
Leisure, Amusement, Motion Pictures, Entertainment   26,411    3.8 
Hotels, Motels, Inns and Gaming   25,943    3.8 
Diversified/Conglomerate Service   25,644    3.7 
Diversified/Conglomerate Manufacturing   23,474    3.4 
Beverage, Food and Tobacco   16,668    2.4 
Telecommunications   12,481    1.8 
Cargo Transport   12,167    1.8 
Containers, Packaging and Glass   12,000    1.7 
Home and Office Furnishings, Housewares, and Durable Consumer Products   9,024    1.3 
Grocery   8,055    1.2 
Electronics   7,950    1.2 
Machinery (Nonagriculture, Nonconstruction, Nonelectric)   6,669    1.0 
Total  $686,375    100.0%

 

F-15
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

The following table shows the portfolio composition by industry grouping at fair value at September 30, 2012 (dollars in thousands):

 

   Investments at
Fair Value
   Percentage 
Healthcare, Education and Childcare  $59,974    14.9%
Oil and Gas   35,345    8.8 
Finance   33,438    8.3 
Leisure, Amusement, Motion Pictures, Entertainment   31,780    7.9 
Aerospace & Defense   30,626    7.6 
Personal and Nondurable Consumer Products (Manufacturing Only)   29,786    7.4 
Business Services   25,095    6.2 
Personal, Food and Miscellaneous Services   24,997    6.2 
Diversified/Conglomerate Service   19,347    4.8 
Mining, Steel, Iron and Nonprecious Metals   16,755    4.2 
Restaurant & Franchise   14,003    3.5 
Cargo Transport   11,858    3.0 
Containers, Packaging and Glass   10,000    2.5 
Electronics   9,740    2.4 
Hotels, Motels, Inns and Gaming   9,510    2.4 
Machinery (Nonagriculture, Nonconstruction, Nonelectric)   8,662    2.2 
Home and Office Furnishings, Housewares, and Durable Consumer Products   8,208    2.0 
Grocery   7,960    2.0 
Telecommunications   7,114    1.8 
Automobile   6,217    1.5 
Chemicals, Plastics and Rubber   1,534    0.4 
Total  $401,949    100.0%

 

The Company invests in portfolio companies principally located in North America. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business. The following table shows the portfolio composition by geographic location at fair value at June 30, 2013 (dollars in thousands):

 

   Investments at
Fair Value
   Percentage 
Midwest  $225,515    32.9%
West   177,409    25.9 
Southwest   102,239    14.9 
Northeast   62,570    9.1 
Mid-Atlantic   59,895    8.7 
Southeast   49,723    7.2 
International   9,024    1.3 
Total  $686,375    100.0%

 

The following table shows the portfolio composition by geographic location at fair value at September 30, 2012 (dollars in thousands):

 

   Investments at
Fair Value
   Percentage 
Midwest  $119,473    29.7%
West   101,098    25.2 
Mid-Atlantic   59,549    14.8 
Northeast   42,526    10.6 
Southeast   35,750    8.9 
Southwest   35,345    8.8 
International   8,208    2.0 
Total  $401,949    100.0%

  

Transactions With Affiliated Companies

 

During the nine months ended June 30, 2013, the Company had investments in portfolio companies designated as affiliates under the 1940 Act. Transactions with affiliates were as follows:

 

Name of Investment   Fair Value at
September 30, 2012
    Purchases (Sales)
of/Advances
(Distributions) to
Affiliates
    Transfers
In/(Out) of
Affiliates
    Income
Earned
    Fair Value at
June 30, 2013
    Capital Loss  
Non-Controlled Affiliates                                                
Cymax Stores, Inc.   $ 8,208,006     $     $     $ 1,112,503     $ 9,024,065     $  
Total Non-Controlled Affiliates   $ 8,208,006     $     $     $ 1,112,503     $ 9,024,065     $  

  

F-16
 

 

MEDLEY CAPITAL CORPORATION

Notes to Consolidated Financial Statements (Continued)

 

During the nine months ended June 30, 2012, the Company had investments in portfolio companies designated as affiliates under the 1940 Act. Transactions with affiliates were as follows:

 

Name of Investment  Fair Value at
September 30, 2011
   Purchase (Sales)
of/Advances
(Distributions) to
Affiliates
   Transfers
In/(Out) of
Affiliates
   Income
Earned
   Fair Value at
June 30, 2012
   Capital Loss 
Non-Controlled Affiliates                              
Cymax Stores, Inc. 1  $   $2,419,901   $6,782,696   $459,390   $8,058,646   $ 
Allied Cash Holdings LLC 2   20,000,000        (20,000,000)   1,191,205         
Applied Natural Gas Fuels, Inc. 2   15,663,762        (15,663,762)   698,588         
Bennu Glass, Inc. 2   10,157,220        (10,133,291)   347,887         
Total Non-Controlled Affiliates  $45,820,982   $2,419,901   $(39,014,357)  $2,697,070   $8,058,646   $ 

   

1Became a non-controlled affiliate on January 30, 2012.

2Became a non-controlled/non-affiliated investment on February 23, 2012.

  

Purchases (sales) of/advances (distributions) to affiliates are included in the purchases and sales presented on the consolidated statements of cash flows for the nine months ended June 30, 2013 and June 30, 2012, respectively. Transfers in/(out) of affiliates represents the fair value for the month an investment became or was removed as an affiliated investment. Income received from affiliates is included in total investment income on the consolidated statements of operations for the nine months ended June 30, 2013 and June 30, 2012, respectively.

 

Loan Participations

 

In August of 2012 and during the six months ended June 30, 2013, the Company sold portions of certain investments via participation agreements in an aggregate amount of approximately $47.2 million. Under the terms of the participation agreements, the Company will make periodic payments to the sub-participant equal to the sub-participant's proportionate share of any principal and interest payments received by the Company from the underlying investee companies.

  

Note 4. Fair Value Measurements

 

The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows: