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EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) - Oaktree Strategic Income Corpfsfr-ex312_2013123110q.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) - Oaktree Strategic Income Corpfsfr-ex311_2013123110q.htm
EX-10.1 - ADMINISTRATION AGREEMENT BY AND BETWEEN FSFR AND FSC CT, INC. - Oaktree Strategic Income Corpfsfrex101administrationagr.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Oaktree Strategic Income Corpfsfr-ex322_2013123110q.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - Oaktree Strategic Income Corpfsfr-ex321_2013123110q.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2013
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
COMMISSION FILE NUMBER: 1-35999
Fifth Street Senior Floating Rate Corp.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
 
 
DELAWARE
 
61-1713295

(State or jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
10 Bank Street, 12th Floor
White Plains, NY
 
10606
(Address of principal executive office)
 
(Zip Code)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:
(914) 286-6800
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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   þ     NO   ¨
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
 
Accelerated filer  o
 
Non-accelerated filer  þ
 
Smaller reporting company  o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)    YES  ¨     NO  þ
The registrant had 6,666,768 shares of common stock outstanding as of February 12, 2014.
 

 




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Assets and Liabilities as of December 31, 2013 and September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Signatures
 
 

 



PART I – FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements.

Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Assets and Liabilities
(unaudited)

 
 
December 31,
2013
 
September 30,
2013
ASSETS
 
 
Investments at fair value:
 
 
 
 
Non-control/Non-affiliate investments (cost December 31, 2013: $135,665,544; cost September 30, 2013: $48,653,617)
 
$
135,371,106

 
$
48,653,617

Total investments at fair value (cost December 31, 2013: $135,665,544; cost September 30, 2013: $48,653,617)
 
135,371,106

 
48,653,617

Cash and cash equivalents
 
2,503,268

 
52,346,831

Interest and fees receivable
 
1,109,513

 
394,023

Due from portfolio company
 
182,768

 
8,333

Deferred financing costs
 
1,798,089

 

Other assets
 
74,542

 
47,240

Total assets
 
$
141,039,286

 
$
101,450,044

LIABILITIES AND NET ASSETS
 
 
Liabilities:
 
 
 
 
Accounts payable, accrued expenses and other liabilities
 
$
1,039,988

 
$
484,066

Base management fee payable
 
295,928

 
61,379

Due to FSC, Inc.
 
86,978

 
61,721

Interest payable
 
108,522

 

Dividend payable
 
1,333,354

 

Credit facility payable
 
37,500,000

 

Total liabilities
 
40,364,770

 
607,166

Commitments and contingencies (Note 3)
 
 
 
 
Net assets:
 
 
 
 
Common stock, $0.01 par value, 150,000,000 shares authorized, 6,666,768 shares issued and outstanding at December 31, 2013 and September 30, 2013
 
66,668

 
66,668

Additional paid-in-capital
 
99,934,852

 
99,934,852

Net unrealized depreciation on investments
 
(294,439
)
 

Net realized gain on investments
 
22,625

 

Accumulated undistributed net investment income
 
944,810

 
841,358

Total net assets (equivalent to $15.10 and $15.13 per common share at December 31, 2013 and September 30, 2013, respectively) (Note 12)
 
100,674,516

 
100,842,878

Total liabilities and net assets
 
$
141,039,286

 
$
101,450,044

See notes to Consolidated Financial Statements.




Fifth Street Senior Floating Rate Corp.
Consolidated Statement of Operations
For the three months ended December 31, 2013
(unaudited)

Interest income:
 
 
 
Non-control/Non-affiliate investments
 
$
1,303,079

 
Interest on cash and cash equivalents
 
2,020

 
Total interest income
 
1,305,099

 
Fee income:
 
 
 
Non-control/Non-affiliate investments
 
1,001,244

 
Total fee income
 
1,001,244

 
Total investment income
 
2,306,343

 
Expenses:
 
 
 
Base management fee
 
234,549

 
Professional fees
 
121,532

 
Board of Directors fees
 
54,250

 
Interest expense
 
141,033

 
Administrator expense
 
107,259

 
General and administrative expenses
 
144,247

 
Total expenses
 
802,870

 
Net investment income
 
1,503,473

 
Unrealized appreciation (depreciation) on investments:
 
 
 
  Non-control/Non-affiliate investments
 
(294,439
)
 
Net unrealized depreciation on investments
 
(294,439
)
 
Realized gain on investments:
 
 
 
  Non-control/Non-affiliate investments
 
22,625

 
Net realized gain on investments
 
22,625

 
Net increase in net assets resulting from operations
 
$
1,231,659

 
Net investment income per common share — basic and diluted
 
$
0.23

 
Earnings per common share — basic and diluted
 
$
0.18

 
Weighted average common shares outstanding — basic and diluted
 
6,666,768

 
See notes to Consolidated Financial Statements.

2



Fifth Street Senior Floating Rate Corp.
Consolidated Statement of Changes in Net Assets
For the three months ended December 31, 2013
(unaudited)
 
Operations:
 
 
 
Net investment income
 
$
1,503,473

 
Net unrealized depreciation on investments
 
(294,439
)
 
Net realized gain on investments
 
22,625

 
Net increase in net assets resulting from operations
 
1,231,659

 
Stockholder transactions:
 
 
 
Distributions to stockholders from ordinary income
 
(1,400,021
)
 
Net decrease in net assets from stockholder transactions
 
(1,400,021
)
 
Total decrease in net assets
 
(168,362
)
 
Net assets at beginning of period
 
100,842,878

 
Net assets at end of period
 
$
100,674,516

 
Net asset value per common share
 
$
15.10

 
Common shares outstanding at end of period
 
6,666,768

 


See notes to Consolidated Financial Statements.


3



Fifth Street Senior Floating Rate Corp.
Consolidated Statement of Cash Flows
For the three months ended December 31, 2013
(unaudited)
 
Cash flows from operating activities:
 
 
 
Net increase in net assets resulting from operations
 
$
1,231,659

 
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
 
 
 
Net unrealized depreciation on investments
 
294,439

 
Net realized gains on investments
 
(22,625
)
 
Accretion of original issue discount on investments
 
(4,464
)
 
Amortization of deferred financing costs
 
38,257

 
Changes in operating assets and liabilities:
 
 
 
Increase in interest and fees receivable
 
(715,490
)
 
Increase in due from portfolio company
 
(174,435
)
 
Increase in other assets
 
(27,302
)
 
Increase in accounts payable, accrued expenses and other liabilities
 
555,922

 
Increase in base management fee payable
 
234,549

 
Increase in due to FSC, Inc.
 
25,257

 
Increase in interest payable
 
108,522

 
Purchases of investments and net revolver activity, net of syndications
 
(92,166,667
)
 
Principal payments applied to investments (scheduled payments)
 
459,204

 
Proceeds from the sale of investments
 
4,722,625

 
Net cash used in operating activities
 
(85,440,549
)
 
Cash flows from financing activities:
 
 
 
Dividends paid in cash
 
(66,667
)
 
Borrowings under credit facility
 
37,500,000

 
Deferred financing costs paid
 
(1,836,347
)
 
Net cash provided by financing activities
 
35,596,986

 
Net decrease in cash and cash equivalents
 
(49,843,563
)
 
Cash and cash equivalents, beginning of period
 
52,346,831

 
Cash and cash equivalents, end of period
 
$
2,503,268

 
See notes to Consolidated Financial Statements.

4

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2013
(unaudited)


Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
Control Investments (3)
 
 
 
 
 
$

 
$

Affiliate Investments (4)
 
 
 
 
 
$

 
$

Non-Control/Non-Affiliate Investments (6)
 
 
 
 
 
 
 
 
Triple Point Group Holdings, Inc.
 
Application software
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% (1% floor) cash due 7/10/2020
 
 
 
$
4,987,500

 
4,871,428

 
4,535,277

 First Lien Revolver, LIBOR+4.25% (1% floor) cash due 7/10/2018
 
 
 


 

 

 
 
 
 
 
 
4,871,428

 
4,535,277

BioScrip, Inc.
 
Healthcare services
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2020
 
 
 
2,962,500

 
2,962,500

 
2,964,299

 
 
 
 
 
 
2,962,500

 
2,964,299

Blackhawk Specialty Tools, LLC
 
Oil & gas equipment & services
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 8/1/2019
 
 
 
4,937,500

 
4,937,500

 
4,972,054

 
 
 
 
 
 
4,937,500

 
4,972,054

New Trident Holdcorp, Inc.
 
Healthcare services
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2019
 
 
 
9,975,000

 
9,975,000

 
9,983,136

Second Lien Term Loan, LIBOR+9% (1.25% floor) cash due 7/31/2020
 
 
 
1,000,000

 
1,000,000

 
999,954

 
 
 
 
 
 
10,975,000

 
10,983,090

Bellisio Foods, Inc.
 
Packaged foods & meats
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+4.25% (1% floor) cash due 8/1/2019
 
 
 
4,436,739

 
4,436,739

 
4,441,341

 
 
 
 
 
 
4,436,739

 
4,441,341

Landslide Holdings, Inc.
 
Application software
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% (1% floor) cash due 8/9/2019
 
 
 
3,316,667

 
3,316,667

 
3,317,076

First Lien Revolver, LIBOR+4.25% (1% floor) cash due 8/9/2018
 
 
 
 
 

 

 
 
 
 
 
 
3,316,667

 
3,317,076

Smile Brands Group Inc.
 
Healthcare services
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+6.25% (1.25% floor) cash due 8/16/2019
 
 
 
9,975,000

 
9,975,000

 
9,978,698

 
 
 
 
 
 
9,975,000

 
9,978,698

NXT Capital, LLC
 
Diversified capital markets
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 9/4/2018
 
 
 
4,987,500

 
4,987,500

 
4,976,061

 
 
 
 
 
 
4,987,500

 
4,976,061

 American Auto Auction Group, LLC
 
Automotive retail
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1.25% floor) cash due 9/30/2016
 
 
 
9,812,500

 
9,812,500

 
9,812,500

 
 
 
 
 
 
9,812,500

 
9,812,500

 Quorum Business Solutions (USA), Inc.
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1.25% floor) cash due 11/8/2018
 
 
 
4,608,333

 
4,608,333

 
4,608,333

 First Lien Revolver, LIBOR+4.5% (1.25% floor) cash due 11/8/2018
 
 
 


 

 

 
 
 
 
 
 
4,608,333

 
4,608,333

 IG Investments Holdings, LLC
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.25% (1.25% floor) cash due 10/31/2019
 
 
 
4,987,406

 
4,987,406

 
4,987,406

 
 
 
 
 
 
4,987,406

 
4,987,406

 Vitera Healthcare Solutions, LLC
 
Healthcare technology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 11/4/2020
 
 
 
10,000,000

 
10,000,000

 
10,000,000

 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 11/4/2021
 
 
 
3,000,000

 
3,000,000

 
3,000,000

 
 
 
 
 
 
13,000,000

 
13,000,000

 The Active Network, Inc.
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 11/13/2020
 
 
 
4,400,000

 
4,400,000

 
4,400,000

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 11/15/2021
 
 
 
2,400,000

 
2,400,000

 
2,400,000

 
 
 
 
 
 
6,800,000

 
6,800,000


See notes to Consolidated Financial Statements.

5

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2013
(unaudited)



Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
 Accruent, LLC
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1.25% floor) cash due 11/25/2019
 
 
 
$
5,000,000

 
$
5,000,000

 
$
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

 Ascensus, Inc.
 
Human resources & employment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4% (1% floor) cash due 12/2/2019
 
 
 
3,500,000

 
3,500,000

 
3,500,000

 Second Lien Term Loan, LIBOR+8% (1% floor) cash due 12/2/2020
 
 
 
1,000,000

 
1,000,000

 
1,000,000

 
 
 
 
 
 
4,500,000

 
4,500,000

 GlobalLogic Holdings, Inc.
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 5/31/2019
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

 Travel Leaders Group, LLC
 
Hotels, resorts & cruise lines
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6% (1% floor) cash due 12/5/2018
 
 
 
10,000,000

 
10,000,000

 
10,000,000

 
 
 
 
 
 
10,000,000

 
10,000,000

 Pacific Architects and Engineers Incorporated
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4% (1% floor) cash due 7/17/2018
 
 
 
3,500,000

 
3,500,000

 
3,500,000

 
 
 
 
 
 
3,500,000

 
3,500,000

 Power Products, LLC
 
Electrical components & equipment
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 12/13/2019
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

 Survey Sampling International, LLC
 
Research & consulting services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 12/12/2019
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

 Therakos, Inc.
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.25% (1.25% floor) cash due 12/27/2017
 
 
 
1,994,971

 
1,994,971

 
1,994,971

 
 
 
 
 
 
1,994,971

 
1,994,971

 Answers Corporation
 
Internet software & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.5% (1% floor) cash due 12/20/2018
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 Second Lien Term Loan, LIBOR+10% (1% floor) cash due 6/19/2020
 
 
 
2,000,000

 
2,000,000

 
2,000,000

 
 
 
 
 
 
7,000,000

 
7,000,000

 Violin FinCo s.a.r.l. (7)
 
Human resources & employment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 12/20/2019
 
 
 
3,000,000

 
3,000,000

 
3,000,000

 
 
 
 
 
 
3,000,000

 
3,000,000

Total Non-Control/Non-Affiliate Investments (134.5% of net assets)
 
 
 
 
 
$
135,665,544

 
$
135,371,106

Total Portfolio Investments (134.5% of net assets)
 
 
 
 
 
$
135,665,544

 
$
135,371,106














See notes to Consolidated Financial Statements.

6

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
December 31, 2013
(unaudited)


(1)
All debt investments are income producing unless otherwise noted.
(2)
See Note 3 to the Financial Statements for portfolio composition by geographic region.
(3)
Control Investments are defined by the Investment Company Act of 1940 (“1940 Act”) as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(4)
Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
(5)
Principal amount is net of repayments, if any.
(6)
Non-Control/Non-Affiliate Investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
(7)
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act.


























See notes to Consolidated Financial Statements.


7

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2013





Portfolio Company/Type of Investment (1)(2)
 
Industry
 
Principal (5)

 
Cost
 
Fair Value
Control Investments (3)
 
 
 
 
 
$

 
$

Affiliate Investments (4)
 
 
 
 
 
$

 
$

Non-Control/Non-Affiliate Investments (6)
 
 
 
 
 
 
 
 
Triple Point Group Holdings, Inc.
 
Application software
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% (1% floor) cash due 7/10/2020
 
 
 
$
5,000,000

 
$
4,879,464

 
$
4,879,464

 
 
 
 
 

4,879,464

 
4,879,464

BioScrip, Inc.
 
Healthcare services
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2020
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

Blackhawk Specialty Tools, LLC
 
Oil & gas equipment & services
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.25% (1.25% floor) cash due 8/1/2019
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

New Trident Holdcorp, Inc.
 
Healthcare services
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+5.25% (1.25% floor) cash due 7/31/2019
 
 
 
10,000,000

 
10,000,000

 
10,000,000

Second Lien Term Loan, LIBOR+9% (1.25% floor) cash due 7/31/2020
 
 
 
1,000,000

 
1,000,000

 
1,000,000

 
 
 
 
 
 
11,000,000

 
11,000,000

Bellisio Foods, Inc.
 
Packaged foods & meats
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+4.25% (1% floor) cash due 8/1/2019
 
 
 
4,449,153

 
4,449,153

 
4,449,153

 
 
 
 
 
 
4,449,153

 
4,449,153

Landslide Holdings, Inc.
 
Application software
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% (1% floor) cash due 8/9/2019
 
 
 
3,325,000

 
3,325,000

 
3,325,000

First Lien Revolver, LIBOR+4.25% (1% floor) cash due 8/9/2018
 
 
 
 
 

 

 
 
 
 
 
 
3,325,000

 
3,325,000

Smile Brands Group Inc.
 
Healthcare services
 
 
 
 
 
 
First Lien Term Loan B, LIBOR+6.25% (1.25% floor) cash due 8/16/2019
 
 
 
10,000,000

 
10,000,000

 
10,000,000

 
 
 
 
 
 
10,000,000

 
10,000,000

NXT Capital, LLC
 
Diversified capital markets
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.25% (1% floor) cash due 9/4/2018
 
 
 
5,000,000

 
5,000,000

 
5,000,000

 
 
 
 
 
 
5,000,000

 
5,000,000

Total Non-Control/Non-Affiliate Investments (48.2% of net assets)
 
 
 
 
 
$
48,653,617

 
$
48,653,617

Total Portfolio Investments (48.2% of net assets)
 
 
 
 
 
$
48,653,617

 
$
48,653,617






















See notes to Consolidated Financial Statements.


8

Fifth Street Senior Floating Rate Corp.
Consolidated Schedule of Investments
September 30, 2013



(1)
All debt investments are income producing unless otherwise noted.
(2)
See Note 3 to the Financial Statements for portfolio composition by geographic region.
(3)
Control Investments are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(4)
Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
(5)
Principal amount is net of repayments, if any.
(6)
Non-Control/Non-Affiliate Investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
























See notes to Consolidated Financial Statements.


9

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


Note 1. Organization
Fifth Street Senior Floating Rate Corp. (the “Company”) was formed in May 2013 as a Delaware corporation and structured as an externally managed, closed-end, non-diversified management investment company, that has elected to be treated as a business development company under the Investment Company Act of 1940 (the “1940 Act”). The Company is managed by Fifth Street Management, LLC (the "Investment Adviser").
On July 17, 2013, the Company completed an initial public offering of 6,666,668 shares of its common stock at the public offering price of $15.00 per share. The proceeds of its initial public offering totaled $100.0 million and all offering costs were borne by the Company's Investment Adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses. The Company's common stock is listed on the NASDAQ Global Select Market, where it trades under the symbol “FSFR."
Note 2. Significant Accounting Policies
Basis of Presentation:
The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the Consolidated Financial Statements have been made. The financial results of the Company’s portfolio investments are not consolidated in the Company’s Consolidated Financial Statements.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions and conditions. The most significant estimates inherent in the preparation of the Company’s Financial Statements are the valuation of investments and revenue recognition.
The Consolidated Financial Statements include portfolio investments at fair value of $135.4 million and $48.7 million at December 31, 2013 and September 30, 2013, respectively. The portfolio investments represent 134.5% and 48.2% of net assets at December 31, 2013 and September 30, 2013, respectively, and their fair values have been determined by the Company’s Board of Directors in good faith in the absence of readily available market values. Because of the inherent uncertainty of valuation, the determined values may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
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 companies in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation; “Affiliate Investments” are defined as investments in companies in which the Company owns between 5% and 25% of the voting securities; and “Non-Control/Non-Affiliate Investments” are defined as investments that are neither Control Investments nor Affiliate Investments.
 
Fair Value Measurements:
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. 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 or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments’ complexity.
Assets recorded at fair value in the Company’s Consolidated Financial Statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
 

10

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Under ASC 820, the Company performs detailed valuations of its debt investments on an individual basis, using bond yield, market and income approaches as appropriate. In general, the Company utilizes the bond yield method in determining the fair value of its debt investments, as long as it is appropriate. If, in the Company’s judgment, the bond yield approach is not appropriate, it may use the market or income approach in determining the fair value of the Company’s investment in the portfolio company. In certain instances, the Company may use alternative methodologies, including an asset liquidation model, expected recovery model or other alternative approaches.
Under the bond yield approach, the Company uses bond yield models to determine the present value of the future cash flow streams of its debt investments. The Company reviews various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assesses the information in the valuation process.
Under the market approach, the Company estimates the enterprise value of the portfolio companies in which it invests. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which the Company derives a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, the Company analyzes various factors, including the portfolio company’s historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA (earnings before interest, taxes, depreciation and amortization), cash flows, net income, revenues, or in limited cases, book value. The Company generally requires portfolio companies to provide annual audited and quarterly and monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.
Under the income approach, the Company generally prepares and analyzes discounted cash flow models based on projections of the future free cash flows of the business.
The Company’s Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company’s investments:
The quarterly valuation process begins with each portfolio company or investment being initially valued by the Company’s finance department;
Preliminary valuations are then reviewed and discussed with principals of the Investment Adviser;
Separately, independent valuation firms are engaged by the Board of Directors to prepare preliminary valuations on a selected basis and submit the reports to the Company;
The finance department compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;
The finance department prepares a valuation report for the Audit Committee of the Board of Directors;
The Audit Committee of the Board of Directors is apprised of the preliminary valuations of the independent valuation firms;
The Audit Committee of the Board of Directors reviews the preliminary valuations with the portfolio managers of the Investment Adviser, and the finance department responds and supplements the preliminary valuations to reflect any comments provided by the Audit Committee;
The Audit Committee of the Board of Directors makes a recommendation to the Board of Directors regarding the fair value of the investments in the Company’s portfolio; and
The Board of Directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith.
The fair value of each of the Company’s investments at December 31, 2013 and September 30, 2013 was determined by the Board of Directors. The Board of Directors has authorized the engagement of independent valuation firms to provide valuation assistance. The Company will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of selected portfolio securities each quarter; however, the Board of Directors is ultimately and solely responsible for the

11

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and a consistently applied valuation process.
Investment Income:
Interest income, adjusted for accretion of original issue discount (“OID”) is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on investments when it is determined that interest is no longer collectible.
Distributions of earnings from portfolio companies are recorded as dividend income when the distribution is received.
The Company may invest in debt securities which contain payment-in-kind or “PIK” interest provisions. PIK interest is computed at the contractual rate specified in each investment agreement and added to the principal balance of the investment and recorded as income.
Fee income consists of the monthly servicing fees, advisory fees, structuring fees and prepayment fees that the Company receives in connection with its debt investments. These fees are recognized as earned.
Cash and Cash Equivalents:
Cash and cash equivalents consist of demand deposits and highly liquid investments with maturities of three months or less, when acquired. The Company places its cash and cash equivalents with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation insured limit. Included in cash and cash equivalents is $2.4 million that was held at U.S. Bank, National Association in connection with the Company’s Natixis facility (as defined in Note 6 — Line of Credit). The Company is restricted in terms of access to this cash until such time as the Company submits its required monthly and quarterly reporting schedules and Natixis, New York Branch verifies the Company’s compliance per the terms of the credit agreement with the Company.
Deferred Financing Costs:
Deferred financing costs consist of fees and expenses paid in connection with the closing or amending of the Company's credit facility, and are capitalized at the time of payment. Deferred financing costs are amortized using the straight line method over the term of the credit facility. This amortization expense is included in interest expense in the Company’s Consolidated Statement of Operations.
Income Taxes:
When the Company elects to be a RIC, the Company will not be subject to federal income tax on the portion of its taxable income and gains distributed to its stockholders as a dividend. The Company intends to distribute between 90% and 100% of its taxable income and gains, within the Subchapter M rules, and thus the Company anticipates that it will not incur any federal or state income tax at the RIC level. As a RIC, the Company will also be subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis. The Company anticipates timely distribution of its taxable income within the tax rules, but may incur a federal excise tax in future years.
ASC 740 Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company’s Consolidated 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 not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. The Company identifies its major tax jurisdictions as U.S. Federal and New York State, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
Recent Accounting Pronouncements
In June 2013, the FASB issued ASU 2013-08, “Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements,” which amends the criteria that define an investment company and clarifies the measurement guidance and requires new disclosures for investment companies. Under ASU 2013-08, an entity already regulated under the 1940 Act will be automatically deemed an investment company under the new GAAP definition. As such, the Company anticipates

12

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


no impact from adopting this standard on the Company’s financial results. The Company is currently assessing the additional disclosure requirements. ASU 2013-08 will be effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013.
Note 3. Portfolio Investments
At December 31, 2013, 134.5% of net assets or $135.4 million was invested in 23 portfolio investments and 2.5% of net assets or $2.5 million was invested in cash and cash equivalents. In comparison, at September 30, 2013, 48.2% of net assets or $48.7 million was invested in 8 portfolio investments and 51.9% of net assets or $52.3 million was invested in cash and cash equivalents. As of December 31, 2013 and September 30, 2013, 100.0% of the Company’s portfolio at fair value consisted of senior secured debt investments that bore interest at floating rates which are secured by first or second priority liens on the assets of the portfolio companies.
The following table presents the financial instruments carried at fair value as of December 31, 2013, by caption on the Company’s Consolidated Statement of Assets and Liabilities for each of the levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Investments in debt securities (senior secured)
 
$

 
$

 
$
135,371,106

 
$
135,371,106

Total investments at fair value
 
$

 
$

 
$
135,371,106

 
$
135,371,106

The following table presents the financial instruments carried at fair value as of September 30, 2013, by caption on the Company’s Consolidated Statement of Assets and Liabilities for each of the levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Investments in debt securities (senior secured)
 
$

 
$

 
$
48,653,617

 
$
48,653,617

Total investments at fair value
 
$

 
$

 
$
48,653,617

 
$
48,653,617

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the fact that the unobservable factors are the most significant to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated by external sources). Accordingly, the appreciation (depreciation) in the tables below includes changes in fair value due in part to observable factors that are part of the valuation methodology.
The following table provides a roll-forward in the changes in fair value from September 30, 2013 through December 31, 2013, for all investments for which the Company determines fair value using unobservable (Level 3) factors:
 
 
 
Senior Secured Debt
 
Total
Fair value at September 30, 2013
 
$
48,653,617

 
$
48,653,617

New investments & net revolver activity
 
92,166,667

 
92,166,667

Redemptions/repayments
 
(5,181,828
)
 
(5,181,828
)
Net realized gain on investments
 
22,625

 
22,625

Accretion of original issue discount
 
4,464

 
4,464

Net unrealized appreciation (depreciation)
 
(294,439
)
 
(294,439
)
Fair value as of December 31, 2013
 
$
135,371,106

 
$
135,371,106

Net unrealized depreciation relating to Level 3 assets still held at December 31, 2013 and reported within net unrealized depreciation on investments in the Consolidated Statement of Operations for the three months ended December 31, 2013
 
$
(294,439
)
 
$
(294,439
)
The Company generally utilizes a bond yield model to estimate the fair value of its debt investments when there is not a readily available market value (Level 3) which model is based on the present value of expected cash flows from the debt investments. The significant observable inputs into the model are market interest rates for debt with similar characteristics, which are adjusted for the portfolio company’s credit risk. The credit risk component of the valuation considers several factors including financial performance, business outlook, debt priority and collateral position. These factors are incorporated into the calculation of the capital structure premium, tranche specific risk premium/(discount), size premium and industry premium/(discount), which are significant unobservable inputs into the model.
Significant Unobservable Inputs for Level 3 Investments

13

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of December 31, 2013:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (b)
Senior secured debt
 
$
135,371,106

 
Bond yield approach
 
Capital structure premium
 
(a)
0.0
 %
-
2.0%
 
0.2%
 
 
 
 
 
 
Tranche specific risk premium / (discount)
 
(a)
(2.2
)%
-
4.9%
 
0.6%
 
 
 
 
 
 
Size premium
 
(a)
0.0
 %
-
1.5%
 
0.3%
 
 
 
 
 
 
Industry premium / (discount)
 
(a)
(0.7
)%
-
0.8%
 
0.3%
Total
 
$
135,371,106

 
 
 
 
 
 
 
 
 
 
 
_____________________
(a) Used when market participant would take into account this premium or discount when pricing the investment.
(b) Weighted averages are calculated based on fair value of investments.

Under the bond yield approach, the significant unobservable inputs used in the fair value measurement of the Company’s investments in debt securities are capital structure premium, tranche specific risk premium/(discount), size premium and industry premium/(discount). Significant increases or decreases in any of those inputs in isolation may result in a significantly lower or higher fair value measurement, respectively.
The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of September 30, 2013:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (a)
Senior secured debt
 
$
48,653,617

 
Recent market transactions
 
Market yield
 
 
5.4%
-
10.5%
 
6.8%
Total
 
$
48,653,617

 
 
 
 
 
 
 
 
 
 
 
_____________________
(a) Weighted average is calculated based on fair value of investments.
Financial Instruments Disclosed, But Not Carried, At Fair Value
The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of December 31, 2013 and the level of each financial liability within the fair value hierarchy: 
 
Carrying
 Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Credit facility payable
$
37,500,000

 
$
37,500,000

 
$

 
$

 
$
37,500,000

Total
$
37,500,000

 
$
37,500,000

 
$

 
$

 
$
37,500,000

The carrying values of credit facilities payable approximates their fair values and are included in Level 3 of the hierarchy.
Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements consisted of $10.3 million and $5.8 million of unfunded commitments to provide debt financing to its portfolio companies as of December 31, 2013 and September 30, 2013, respectively. Such commitments are subject to the portfolio companies’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statement of Assets and Liabilities and are not reflected in the Company’s Consolidated Statement of Assets and Liabilities.
A summary of the composition of the unfunded commitments (consisting of revolvers and term loans) as of December 31, 2013 and September 30, 2013 is shown in the table below:

14

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


 
December 31, 2013
 
September 30, 2013
Landslide Holdings, Inc.
$
5,000,000

 
$
5,000,000

Triple Point Group Holdings, Inc.
5,000,000

 

Quorum Business Solutions (USA), Inc.
333,333

 

Bellisio Foods, Inc.

 
800,847

Total
$
10,333,333

 
$
5,800,847

 The Company generally invests in portfolio companies located in North America. The following tables show the portfolio composition by geographic region at cost and fair value as a percentage of total investments. 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.
 
 
December 31, 2013
 
 
September 30, 2013
Cost:
 
 
 
 
 
 
 
 
 
Northeast U.S.
 
$
30,303,899

 
22.34
%
 
 
$
20,879,464

 
42.91
%
Southeast U.S.
 
46,299,906

 
34.13

 
 

 

Midwest U.S.
 
21,424,239

 
15.79

 
 
9,449,153

 
19.42

Southwest U.S.
 
14,545,833

 
10.72

 
 
5,000,000

 
10.28

West U.S.
 
20,091,667

 
14.81

 
 
13,325,000

 
27.39

Europe
 
3,000,000

 
2.21

 
 

 

Total
 
$
135,665,544

 
100.00
%
 
 
$
48,653,617

 
100.00
%
 
 
 
 
 
 
 
 
 
 
Fair Value:
 
 
 
 
 
 
 
 
 
Northeast U.S.
 
$
29,977,637

 
22.14
%
 
 
$
20,879,464

 
42.91
%
Southeast U.S.
 
46,299,906

 
34.20

 
 

 

Midwest U.S.
 
21,417,402

 
15.82

 
 
9,449,153

 
19.42

Southwest U.S.
 
14,580,387

 
10.78

 
 
5,000,000

 
10.28

West U.S.
 
20,095,774

 
14.84

 
 
13,325,000

 
27.39

Europe
 
3,000,000

 
2.22

 
 

 

Total
 
$
135,371,106

 
100.00
%
 
 
$
48,653,617

 
100.00
%
 

15

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


Summaries of the composition of the Company’s investment portfolio at cost and fair value as a percentage of total investments are shown in the following tables:
 
December 31, 2013
 
 
September 30, 2013
Cost:
 
 
 
 
 
 
 
 
Healthcare services
$
25,907,471

 
19.10
%
 
 
$
26,000,000

 
53.44
%
Internet software & services
18,800,000

 
13.86

 
 

 

IT consulting & other services
14,595,739

 
10.76

 
 

 

Healthcare technology
13,000,000

 
9.58

 
 

 

Hotels, resorts & cruise lines
10,000,000

 
7.37

 
 

 

Automotive retail
9,812,500

 
7.23

 
 

 

Application software
8,188,095

 
6.04

 
 
8,204,464

 
16.86

Human resources & employment services
7,500,000

 
5.53

 
 

 

Research & consulting services
5,000,000

 
3.69

 
 

 

Electrical components & equipment
5,000,000

 
3.69

 
 

 

Diversified capital markets
4,987,500

 
3.68

 
 
5,000,000

 
10.28

Oil & gas equipment & services
4,937,500

 
3.64

 
 
5,000,000

 
10.28

Packaged foods & meats
4,436,739

 
3.27

 
 
4,449,153

 
9.14

Diversified support services
3,500,000

 
2.56

 
 

 

Total
$
135,665,544

 
100.00
%
 
 
$
48,653,617

 
100.00
%
 
December 31, 2013
 
 
September 30, 2013
Fair Value:
 
 
 
 
 
 
 
 
Healthcare services
$
25,921,058

 
19.15
%
 
 
$
26,000,000

 
53.44
%
Internet software & services
18,800,000

 
13.89

 
 

 

IT consulting & other services
14,595,739

 
10.78

 
 

 

Healthcare technology
13,000,000

 
9.60

 
 

 

Hotels, resorts & cruise lines
10,000,000

 
7.39

 
 

 

Automotive retail
9,812,500

 
7.25

 
 

 

Application software
7,852,353

 
5.80

 
 
8,204,464

 
16.86

Human resources & employment services
7,500,000

 
5.54

 
 

 

Research & consulting services
5,000,000

 
3.69

 
 

 

Electrical components & equipment
5,000,000

 
3.69

 
 

 

Diversified capital markets
4,976,061

 
3.68

 
 
5,000,000

 
10.28

Oil & gas equipment & services
4,972,054

 
3.67

 
 
5,000,000

 
10.28

Packaged foods & meats
4,441,341

 
3.28

 
 

 

Diversified support services
3,500,000

 
2.59

 
 
4,449,153

 
9.14

Total
$
135,371,106

 
100.00
%
 
 
$
48,653,617

 
100.00
%
The Company’s investments are generally in middle market companies in a variety of industries. At December 31, 2013 and September 30, 2013, the Company had no single investment that represented greater than 10% of the total investment portfolio at fair value. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment and in any given year can be highly concentrated among several investments. For the three months ended December 31, 2013, no individual investment produced income that exceeded 10% of total investment income.
Note 4. Fee Income
The Company receives a variety of fees in the ordinary course of business including servicing, advisory, structuring and prepayment fees, which are classified as fee income and recognized as they are earned.
 Note 5. Share Data
On July 17, 2013, the Company completed an initial public offering of 6,666,668 shares of its common stock at the public offering price of $15.00 per share. The proceeds totaled $100.0 million and all offering costs were borne by the Company's Investment

16

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


Adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses. The Company's common stock is listed on the NASDAQ Global Select Market, where it trades under the symbol “FSFR."
The following sets forth the computation of basic and diluted earnings per share, pursuant to ASC 260-10 Earnings per Share, for the three months ended December 31, 2013:
Earnings per common share — basic and diluted:
 
 
Net increase in net assets resulting from operations
 
$
1,231,659

Weighted average common shares outstanding — basic and diluted
 
6,666,768

Earnings per common share — basic and diluted
 
$
0.18

The Company’s Board of Directors has declared the following distributions from inception to December 31, 2013:
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Amount of Distribution
October 8, 2013
 
October 21, 2013
 
October 31, 2013
 
$0.01
 
$66,667
October 8, 2013
 
December 16, 2013
 
January 31, 2014
 
0.20
 
1,333,354

Note 6. Line of Credit
On November 1, 2013, FS Senior Funding LLC, the Company's wholly-owned, special purpose financing subsidiary, entered into a $100 million revolving credit facility (the "Natixis facility") with the lenders referred to therein, Natixis, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent and custodian.
Borrowings under the Natixis facility are subject to certain customary advance rates and accrue interest at a rate equal to either the applicable commercial paper rate (subject to an overall cap) plus 1.90% in the case of a lender that is a commercial paper conduit or otherwise the three-month LIBOR plus 2.00% per annum. In addition, there is a commitment fee payable on the undrawn amount under the credit facility equal to 1.00% (or 0.50% for the first six months after the closing date) of such undrawn amount. Interest and commitment fees are payable quarterly in arrears. The reinvestment period under the credit facility ends 18 months after the closing date and the credit facility will mature on November 1, 2021.
As of December 31, 2013, the Company had $37.5 million of borrowings outstanding under the Natixis facility, which had a fair value of $37.5 million. The Company’s borrowings under the Natixis facility bore interest at a weighted average interest rate of 2.18% for the three months ended December 31, 2013. For the three months ended December 31, 2013, the Company recorded interest expense of $0.1 million related to the Natixis facility.
Note 7. Interest and Dividend Income
Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. In accordance with the Company’s policy, accrued interest is evaluated periodically for collectability. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. Distributions from portfolio companies are recorded as dividend income when the distribution is received.
As of December 31, 2013 and September 30, 2013, there were no investments on which the Company had stopped accruing cash interest or OID income. For the three months ended December 31, 2013, there were no income non-accrual amounts.
Note 8. Taxable/Distributable Income and Dividend Distributions
Taxable income may differ from net increase (decrease) in net assets resulting from operations primarily due to: (1) unrealized appreciation (depreciation) on investments, as investment gains and losses are not included in taxable income until they are realized; (2) origination and exit fees received in connection with investments in portfolio companies; (3) organizational and deferred offering costs; (4) recognition of interest income on certain loans; and/or (5) income or loss recognition on exited investments.
Listed below is a reconciliation of “net increase in net assets resulting from operations” to taxable income for the three months ended December 31, 2013:

17

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements



Net increase in net assets resulting from operations
$
1,231,659

Net unrealized depreciation on investments
294,439

Book/tax difference due to capital gains not recognized
(22,625
)
Other book/tax differences
37,451

Taxable/Distributable Income(1)
$
1,540,924

 
(1)
The Company’s taxable income for 2014 is an estimate and will not be finally determined until the Company files its tax return for the fiscal year ended September 30, 2014. Therefore, the final taxable income may be different than the estimate.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of RICs. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the Company is permitted to carry forward any net capital losses, if any, incurred in taxable years beginning after the date of enactment for an unlimited period.
Distributions to stockholders are recorded on the record date. The Company is required to distribute annually to its stockholders at least 90% of its net taxable income and net realized short-term capital gains in excess of net realized long-term capital losses for each taxable year in order to be eligible for the tax benefits allowed to a RIC under Subchapter M of the Code. The Company anticipates paying out as a dividend all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the Board of Directors and is based on management’s estimate of the Company’s annual taxable income. The Company maintains an “opt out” dividend reinvestment plan for its stockholders.
For income tax purposes, the Company estimates that its distributions for the calendar year 2013 will be composed primarily of ordinary income, and will be reflected as such on the Form 1099-DIV for the calendar year 2013.
As a RIC, the Company would also be subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis.
Note 9. Realized Gains or Losses and Net Unrealized Appreciation or Depreciation on Investments
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with the Company’s determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
Net unrealized appreciation or depreciation reflects the net change in the valuation of the portfolio pursuant to the Company’s valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation.
During the three months ended December 31, 2013, the Company received cash payments of $4.7 million in connection with the full or partial sales of debt investments in the open market and recorded a net realized gain of $22,625.
During the three months ended December 31, 2013, the Company recorded $0.3 million of net unrealized depreciation on its debt investments.
Note 10. Concentration of Credit Risks
The Company places its cash in financial institutions and at times such balances may be in excess of the FDIC insured limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.
Note 11. Related Party Transactions
The Company has entered into an investment advisory agreement with the Investment Adviser. Under the investment advisory agreement, the Company pays the Investment Adviser a fee for its services consisting of two components — a base management fee and an incentive fee.
Base management Fee

18

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


The base management fee is calculated at an annual rate of 1% of the Company’s gross assets, (i.e., total assets held before deduction of any liabilities), which includes any investments acquired with the use of leverage and excludes any cash and cash equivalents. The base management fee is calculated based on the average value of the Company's gross assets at the end of the two most recently completed quarters. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.
For the three months ended December 31, 2013, the base management fee was $0.2 million. At December 31, 2013, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $0.3 million, reflecting the unpaid portion of the base management fee payable to the Investment Adviser since inception.
Incentive Fee
The incentive fee portion of the investment advisory agreement has two parts. The first part is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding fiscal quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the fiscal quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Company’s administration agreement with FSC, Inc., and any interest expense and dividends paid on any issued and outstanding indebtedness or preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, 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 that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding fiscal quarter, will be compared to a “hurdle rate” of 1.5% per quarter (6% annualized), subject to a “catch-up” provision measured as of the end of each fiscal quarter. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of its gross assets used to calculate the 1% base management fee. The operation of the incentive fee with respect to the Company’s Pre-Incentive Fee Net Investment Income for each quarter is as follows:
No incentive fee is payable to the Investment Adviser in any fiscal quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.5% (the “preferred return” or “hurdle”);
50% of the Company's Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser. The Company refers to this portion of its Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) as the “catch-up.” The “catch-up” provision is intended to provide the Investment Adviser with an incentive fee of 20% on all of the Company's Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when the Company's Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal quarter; and
20% of the amount of the Company's Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any fiscal quarter (10% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved (20% of all Pre-Incentive Fee Net Investment Income thereafter is allocated to the Investment Adviser).
For the three months ended December 31, 2013, there was no incentive fee payable to the Investment Adviser under part one of the incentive fee calculation.
The second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date) and equals 20% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.
GAAP requires the Company to accrue for the theoretical capital gains incentive fee that would be payable after giving effect to the net realized and unrealized capital appreciation. It should be noted that a fee so calculated and accrued would not necessarily be payable under the investment advisory agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts ultimately paid under the investment advisory agreement will be consistent with the formula reflected in the investment advisory agreement. The Company does not currently accrue for capital gains incentive fees as the Company's accumulated realized gains since inception are offset by accumulated unrealized losses in the portfolio.
Indemnification

19

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, the Company’s Investment Adviser and its officers, managers, agents, employees, controlling persons, members (or their owners) and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Investment Adviser’s services under the investment advisory agreement or otherwise as the Company’s Investment Adviser.
Administration Agreement
The Company has also entered into an administration agreement with FSC, Inc. under which FSC, Inc. provides administrative services for the Company, including office facilities and equipment, and clerical, bookkeeping and recordkeeping services at such facilities. Under the administration agreement, FSC, Inc. also performs or oversees the performance of the Company’s required administrative services, which includes being responsible for the financial records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC. In addition, FSC, Inc. assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. For providing these services, facilities and personnel, the Company reimburses FSC, Inc. the allocable portion of overhead and other expenses incurred by FSC, Inc. in performing its obligations under the administration agreement, including rent and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s chief operating officer, chief financial officer and chief compliance officer and their staffs. Such reimbursement is at cost with no profit to, or markup by, FSC, Inc. FSC, Inc. may also provide, on the Company’s behalf, managerial assistance to the Company’s portfolio companies. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.
For the three months ended December 31, 2013, the Company accrued administrative expenses of $0.1 million. At December 31, 2013, $0.1 million was included in Due to FSC, Inc. in the Consolidated Statement of Assets and Liabilities.

20

Fifth Street Senior Floating Rate Corp.
Notes to Consolidated Financial Statements


Note 12. Financial Highlights
 
 
Three months ended December 31,
2013
Net asset value at beginning of period
 
$
15.13

Net investment income
 
0.23

Net realized and unrealized losses on investments
 
(0.05
)
Dividends recorded
 
(0.21
)
Net asset value at end of period
 
$
15.10

Per share market value at beginning of period
 
13.54

Per share market value at end of period
 
13.24

Total return(1)
 
(2.14
)%
Common shares outstanding at beginning of period
 
6,666,768

Common shares outstanding at end of period
 
6,666,768

Net assets at beginning of period
 
$
100,842,878

Net assets at end of period
 
$
100,674,516

Average net assets(2)
 
$
101,189,863

Ratio of net investment income to average net assets(3)
 
5.89
 %
Ratio of total expenses to average net assets(3)
 
3.15
 %
Ratio of portfolio turnover to average investments at fair value
 
0.76
 %
Weighted average outstanding debt(4)
 
$
5,135,870

Average debt per share
 
$
0.77

_______________
(1)
Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company's dividend reinvestment plan. Total return is not annualized during interim periods.
(2)
Calculated based upon the weighted average net assets for the period.
(3)
Interim periods are annualized.
(4)
Calculated based upon the weighted average of loans payable for the period.
Note 13. Subsequent Events
The Company’s management evaluated subsequent events through the date of issuance of these Consolidated Financial Statements. There have been no subsequent events that occurred during such period that would require disclosure in, or would be required to be recognized in, the Consolidated Financial Statements as of and for the three months ended December 31, 2013.



21




Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in connection with our Consolidated Financial Statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q.
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
 
our future operating results and dividend projections;
our business prospects and the prospects of our portfolio companies;
the impact of the investments that we expect to make;
the ability of our portfolio companies to achieve their objectives;
our expected financings and investments;
the adequacy of our cash resources and working capital; and
the timing of cash flows, if any, from the operations of our portfolio companies.
In addition, words such as “anticipate,” “believe,” “expect,” "seek," "plan," "should," estimate" “project,” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2013 and elsewhere in this quarterly report on Form 10-Q for the quarter ended December 31, 2013. Other factors that could cause actual results to differ materially include:
 
changes in the economy and the financial markets;
risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;
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, or RICs; and
other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
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, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Except as otherwise specified, references to the “Company,” “we,” “us,” and “our,” refer to Fifth Street Senior Floating Rate Corp.
All amounts are in dollars, except share amounts, percentages and as otherwise indicated.
Overview
We were formed in May 2013 as a Delaware corporation and structured as an externally managed, closed-end, non-diversified management investment company. We have elected to be treated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes we intend to elect to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our first taxable year ended September 30, 2013. Also, we are an “emerging growth company,” as defined in the JOBS Act, and intend to take advantage of the exemption for emerging growth companies allowing us to temporarily forego the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We do not intend to take advantage of other disclosure or reporting exemptions for emerging growth companies under the JOBS Act.
 On July 17, 2013, we completed an initial public offering of 6,666,668 shares of our common stock at the public offering price of $15.00 per share. The proceeds of our initial public offering totaled $100.0 million and all offering costs were borne by Fifth Street Management LLC, our investment adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses. Our common stock is listed on the NASDAQ Global Select Market, where it trades under the symbol “FSFR."

22



Market Conditions
The global economy has experienced economic uncertainty in recent years. Economic uncertainty impacts our business in many ways, including changing spreads, structures and purchase multiples as well as the overall supply of investment capital. See "Risk Factors - Risks Relating to Economic Conditions" in our annual report on Form 10-K for the year ended September 30, 2013.
Despite the economic uncertainty, our deal pipeline is robust, with high quality transactions backed by private equity sponsors in small to mid-sized companies. As always, we remain cautious in selecting new investment opportunities, and will only deploy capital in deals which we believe are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.
We expect to grow the investment portfolio by strategically investing in small and mid-sized companies when and where appropriate, as evidenced by our recent investment activities. Although we believe that we currently have sufficient capital available to fund investments, a prolonged period of market disruptions may cause us to reduce the volume of loans we originate and/or fund, which could have an adverse effect on our business, financial condition and results of operations. In this regard, because our common stock has at times traded at a price below our then current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we may be limited in our ability to raise equity capital.
Critical Accounting Policies
Basis of Presentation
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") requires management to make certain estimates and assumptions affecting amounts reported in the Financial Statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Investment Valuation
We are required to report our investments that are not publicly traded or for which current market values are not readily available at fair value. The fair value is deemed to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
In accordance with authoritative accounting guidance, we perform detailed valuations of our debt and equity investments on an individual basis, using bond yield, market and income approaches as appropriate. In general, we utilize a bond yield method for the majority of our investments, as long as it is appropriate. If, in our judgment, the bond yield approach is not appropriate, we may use the market approach, income approach, or, in certain cases, an alternative methodology potentially including market quotations, asset liquidation model, expected recovery model or other alternative approaches.
Under the bond yield approach, we use bond yield models to determine the present value of the future cash flow streams of our debt investments. We review various sources of transactional data, including private mergers and acquisitions involving debt investments with similar characteristics, and assess the information in the valuation process.
Under the market approach, we estimate the enterprise value of the portfolio companies in which we invest. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values from which we derive a single estimate of enterprise value. To estimate the enterprise value of a portfolio company, we analyze various factors, including the portfolio company’s historical and projected financial results. Typically, private companies are valued based on multiples of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), cash flows, net income or revenues. We generally require portfolio companies to provide annual audited and quarterly and monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year.
Under the income approach, we generally prepare and analyze discounted cash flow models based on our projections of the future free cash flows of the business.
 
Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:

23



The quarterly valuation process begins with each portfolio company or investment being initially valued by our finance department;
Preliminary valuations are then reviewed and discussed with principals of the investment adviser;
Separately, independent valuation firms are engaged by our Board of Directors to prepare preliminary valuations on a selected basis and submit the reports to us;
Our finance department compares and contrasts its preliminary valuations to the preliminary valuations of the independent valuation firms;
Our finance department prepares a valuation report for the Audit Committee of our Board of Directors;
The Audit Committee of our Board of Directors is apprised of the preliminary valuations of the independent valuation firms;
The Audit Committee of the Board of Directors reviews the preliminary valuations with the portfolio managers of the Investment Adviser, and the finance department responds and supplements the preliminary valuations to reflect any comments provided by the Audit Committee;
The Audit Committee of our Board of Directors makes a recommendation to the Board of Directors regarding the fair value of the investments in our portfolio; and
Our Board of Directors discusses the valuations and determines the fair value of each investment in our portfolio in good faith.
The fair value of all of our investments at December 31, 2013 and September 30, 2013, was determined by our Board of Directors. Our Board of Directors has engaged independent valuation firms to provide us with valuation assistance; however, our Board of Directors is ultimately and solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process.
A portion of the portfolio valued by an independent third party is on a quarterly basis, with a substantial portion being valued over the course of each fiscal year. The percentage of our portfolio, at fair value, valued by independent valuation firms as of December 31, 2013 was 34.1%.
As of December 31, 2013 and September 30, 2013, approximately 96.0% and 48.0%, respectively, of our total assets represented investments in portfolio companies valued at fair value.
Revenue Recognition
Interest and Dividend Income
Interest income, adjusted for accretion of original issue discount, or OID, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that interest is no longer collectible. Distributions from portfolio companies are recorded as dividend income when the distribution is received.
Fee Income
We receive a variety of fees in the ordinary course of business including servicing, advisory, structuring and prepayment fees which are classified as fee income and recognized as they are earned.
Payment-in-Kind (PIK) Interest
Although none of our investments bore PIK interest as of December 31, 2013, a portion of our loans may contain contractual PIK interest provisions in the future. The PIK interest, which represents contractually deferred interest, will be added to the loan balance that is generally due at the end of the loan term, and would generally be recorded on the accrual basis to the extent such amounts are expected to be collected. We would generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest would involve subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; monthly and quarterly financial statements and financial projections for the portfolio company; our assessment of the portfolio company’s business development success, including product development, profitability and the portfolio company’s overall adherence to its business plan; information obtained by us in connection with periodic formal update interviews with the portfolio company’s management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates.

24



Based on this and other information, we would determine whether to cease accruing PIK interest on a loan or debt security. Our determination to cease accruing PIK interest on a loan or debt security would generally be made well before our full write-down of such loan or debt security.
For a discussion of risks we are subject to if we were to acquire loans that bear PIK interest, see “Risk Factors — Risks Relating to Our Business and Structure — We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income,” “— We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive” and “— Our incentive fee may induce our investment adviser to make speculative investments” in our Form 10-K for our fiscal year ended September 30, 2013. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of our loans or debt securities would decline by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments would increase the recorded cost basis of these investments in our financial statements and, as a result, would increase the cost basis of these investments for purposes of computing the capital gains incentive fee payable by us to our Investment Adviser.
To qualify as a RIC, PIK income must be paid out to our stockholders in the form of dividends even though we have not yet collected the cash and may never collect the cash relating to the PIK interest. We did not have any accumulated PIK interest as of December 31, 2013 and September 30, 2013.
Portfolio Composition
Our investments principally consist of senior secured loans in privately-held companies. Our loans are typically secured by a first or second lien on the assets of the portfolio company and generally have terms of up to six years (but an expected average life of between three and four years). We are currently focusing our origination efforts on a prudent mix of first lien and second lien loans which we believe will provide superior risk-adjusted returns while maintaining adequate credit protection. The mix may change over time based on market conditions and management’s view of where the best risk-adjusted returns are available.
As of December 31, 2013 and September 30, 2013, 100.0% of our investment portfolio (at cost and fair value) was invested in senior secured debt investments that bore interest at floating rates.
The industry composition of our portfolio at cost and fair value as a percentage of total investments was as follows:

 
 
December 31, 2013
 
September 30, 2013
Cost:
 
 
 
 
Healthcare services
 
19.10
%
 
53.44
%
Internet software & services
 
13.86

 

IT consulting & other services
 
10.76

 

Healthcare technology
 
9.58

 

Hotels, resorts & cruise lines
 
7.37

 

Automotive retail
 
7.23

 

Application software
 
6.04

 
16.86

Human resources & employment services
 
5.53

 

Research & consulting services
 
3.69

 

Electrical components & equipment
 
3.69

 

Diversified capital markets
 
3.68

 
10.28

Oil & gas equipment & services
 
3.64

 
10.28

Packaged foods & meats
 
3.27

 
9.14

Diversified support services
 
2.56

 

Total
 
100.00
%
 
100.00
%

25



Fair value:
 
December 31, 2013
 
September 30, 2013
Healthcare services
 
19.15
%
 
53.44
%
Internet software & services
 
13.89

 

IT consulting & other services
 
10.78

 

Healthcare technology
 
9.60

 

Hotels, resorts & cruise lines
 
7.39

 

Automotive retail
 
7.25

 

Application software
 
5.80

 
16.86

Human resources & employment services
 
5.54

 

Research & consulting services
 
3.69

 

Electrical components & equipment
 
3.69

 

Diversified capital markets
 
3.68

 
10.28

Oil & gas equipment & services
 
3.67

 
10.28

Packaged foods & meats
 
3.28

 

Diversified support services
 
2.59

 
9.14

Total
 
100.00
%
 
100.00
%
Portfolio Asset Quality
We employ a ranking system to assess and monitor the credit risk of our investment portfolio. We rank all investments on a scale from 1 to 4. The system is intended to reflect the performance of the borrower’s business, the collateral coverage of the loan, and other factors considered relevant to making a credit judgment. We have determined that there should be an individual ranking assigned to each tranche of securities in the same portfolio company where appropriate. This may arise when the perceived risk of loss on the investment varies significantly between tranches due to their respective seniority in the capital structure.
Investment Ranking 1 is used for investments that are performing above expectations and/or capital gains are expected.
Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risks at the time of the original or restructured investment. All new investments are initially ranked 2.
Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original or restructured investment. The portfolio company may be out of compliance with debt covenants and may require closer monitoring. To the extent that the underlying agreement has a PIK interest provision, investments with a ranking of 3 are generally those on which we are not accruing PIK interest.
Investment Ranking 4 is used for investments that are performing substantially below our expectations and for which risk has increased substantially since the original or restructured investment. Investments with a ranking of 4 are those for which some loss of principal is expected and are generally those on which we are not accruing cash interest.
The following table shows the distribution of our investments on the 1 to 4 investment ranking scale at fair value as of December 31, 2013 and September 30, 2013:
 
December 31, 2013
 
September 30, 2013
 
 
Fair Value
 
% of Portfolio
 
 
Leverage Ratio
 
Fair Value
 
 
% of Portfolio
 
 
Leverage Ratio
 
1






 

 
 

 


 
2
$
135,371,106


100.00
%


4.29

 
$
48,653,617

 
 
100.00
%
 

4.32

 
3






 

 
 

 


 
4






 

 
 

 


 
Total
$
135,371,106


100.00
%


4.29

 
$
48,653,617

 
 
100.00
%
 

4.32

 
We may from time to time modify the payment terms of our investments, either in response to current economic conditions and their impact on certain of our portfolio companies or in accordance with tier pricing provisions in certain loan agreements. Such modified terms may include increased PIK interest provisions and reduced cash interest rates. Any future modifications to our loan agreements, may limit the amount of interest income that we recognize from the modified

26



investments, which may, in turn, limit our ability to make distributions to our stockholders. As of December 31, 2013 and September 30, 2013, we had not modified the payment terms of any investments.
Loans and Debt Securities on Non-Accrual Status
As of December 31, 2013 and September 30, 2013, there were no investments on which we had stopped accruing interest income. For the three months ended December 31, 2013, there were no income non-accrual amounts.
 Discussion and Analysis of Results and Operations
Results of Operations
The principal measure of our financial performance is the 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 is the difference between our income from interest, dividends, fees and other investment income and total expenses. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment portfolio.
Three months ended December 31, 2013
Total Investment Income
Total investment income includes interest and dividend income on our investments, fee income and other investment income. Fee income consists principally of loan and arrangement fees, administrative fees, unused fees, amendment fees, advisory fees, structuring fees, exit fees, prepayment fees and waiver fees.
Total investment income for the three months ended December 31, 2013 was $2.3 million and primarily consisted of $1.3 million of interest income from portfolio investments and $1.0 million of fee income. The weighted average yield on our debt investments at December 31, 2013 was 6.64%.
Expenses
Expenses for the three months ended December 31, 2013 were $0.8 million and primarily consisted of the base management fee, interest expense, professional fees and general and administrative expenses.
Net Investment Income
As a result of the $2.3 million total investment income as compared to the $0.8 million in total expenses, net investment income for the three months ended December 31, 2013 was $1.5 million.
Realized Gain on Investments
During the three months ended December 31, 2013, we received cash payments of $4.7 million in connection with the full or partial sales of debt investments in the open market and recorded a net realized gain of $22,625.
Net Unrealized Depreciation on Investments
Net unrealized appreciation or depreciation is the net change in the fair value of our investments during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
During the three months ended December 31, 2013, we recorded $0.3 million of net unrealized depreciation on our debt investments.
Financial Condition, Liquidity and Capital Resources
Cash Flows
We have a number of alternatives available to fund the growth of our investment portfolio and our operations, including, but not limited to, raising equity, increasing debt and funding from operational cash flow. Additionally, we may reduce investment size by syndicating a portion of any given transaction. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or credit facilities, as we deem appropriate.

27



For the three months ended December 31, 2013, we experienced a net decrease in cash and cash equivalents of $49.8 million. During that period, we used $85.4 million of cash in operating activities, primarily for the funding of $92.2 million of investments and net revolvers, partially offset by $5.2 million of amortization payments and proceeds from the sale of investments and $1.5 million of net investment income. During the same period, cash provided by financing activities was $35.6 million, primarily consisting of $37.5 million of borrowings under our credit facility, net of $1.8 million of deferred financing costs paid.
As of December 31, 2013, we had $2.5 million of cash and cash equivalents, portfolio investments (at fair value) of $135.4 million, $1.1 million of interest and fees receivable, dividend payable of $1.3 million, $37.5 million of borrowings under our credit facility and unfunded commitments of $10.3 million.
As of September 30, 2013, we had $52.3 million of cash and cash equivalents, portfolio investments (at fair value) of $48.7 million, $0.4 million of interest and fees receivable and unfunded commitments of $5.8 million.
Other Sources of Liquidity
We intend to continue to generate cash primarily from cash flows from operations, including interest earned, future borrowings and future offerings of securities. Our primary use of funds is investments in our targeted asset classes and cash distributions to holders of our common stock.
Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan, and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, because our common stock has at times traded at a price below our then-current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we may be limited in our ability to raise equity capital.
In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. See “Regulated Investment Company Status and Distributions” below. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
Also, as a business development company, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. As of December 31, 2013, we were in compliance with this requirement. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of shares of our common stock and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on favorable terms, if at all.
Significant Capital Transactions That Have Occurred Since Inception
The following table reflects the dividend distributions per share that our Board of Directors has declared on our common stock since inception:
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash
Distribution
October 8, 2013
 
October 21, 2013
 
October 31, 2013
 
$0.01
 
$66,667
October 8, 2013
 
December 16, 2013
 
January 31, 2014
 
0.20
 
1,333,354
January 3, 2014
 
March 31, 2014
 
April 15, 2014
 
0.23
 
 
February 11, 2014
 
June 30, 2014
 
July 15, 2014
 
0.27
 
 
On July 17, 2013, we completed an initial public offering of 6,666,668 shares of our common stock at the public offering price of $15.00 per share. The proceeds totaled $100.0 million and all offering costs were borne by Fifth Street Management LLC, our investment adviser, including $5.3 million of underwriting commissions and $0.4 million of other offering related expenses. Our common stock is listed on the NASDAQ Global Select Market, where it trades under the symbol "FSFR."

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Borrowings
On November 1, 2013, FS Senior Funding LLC, our wholly-owned, special purpose financing subsidiary entered into a $100 million revolving credit facility (the "Natixis facility") with the lenders referred to therein, Natixis, New York Branch, as administrative agent, and U.S. Bank National Association, as collateral agent and custodian.
Borrowings under the Natixis facility are subject to certain customary advance rates and accrue interest at a rate equal to either the applicable commercial paper rate (subject to an overall cap) plus 1.90% in the case of a lender that is a commercial paper conduit or otherwise the three-month LIBOR plus 2.00% per annum. In addition, there is a commitment fee payable on the undrawn amount under the credit facility equal to 1.00% (or 0.50% for the first six months after the closing date) of such undrawn amount. Interest and commitment fees are payable quarterly in arrears. The reinvestment period under the credit facility ends 18 months after the closing date and the credit facility will mature on November 1, 2021.
As of December 31, 2013, we had $37.5 million of borrowings outstanding under the Natixis facility, which had a fair value of $37.5 million. Our borrowings under the Natixis facility bore interest at a weighted average interest rate of 2.18% for the three months ended December 31, 2013. For the three months ended December 31, 2013, we recorded interest expense of $0.1 million related to the Natixis facility.
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. As of December 31, 2013 and September 30, 2013, our only off-balance sheet arrangements consisted of $10.3 million and $5.8 million, respectively, of unfunded commitments to provide debt financing to certain of our portfolio companies. Such commitments are subject to our portfolio companies’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Statement of Assets and Liabilities and are not reflected on our Consolidated Statement of Assets and Liabilities.
A summary of the composition of unfunded commitments (consisting of revolvers & term loans) as of December 31, 2013 and September 30, 2013 is shown in the table below:
 
December 31, 2013
 
September 30, 2013
Landslide Holdings, Inc.
$
5,000,000

 
$
5,000,000

Triple Point Group Holdings, Inc.
5,000,000

 

Quorum Business Solutions (USA), Inc.
333,333

 

Bellisio Foods, Inc.

 
800,847

Total
$
10,333,333

 
$
5,800,847

Regulated Investment Company Status and Dividends
We intend to elect to be treated as a RIC under Subchapter M of the Code, commencing with our first taxable year ended September 30, 2013. As long as 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). As a RIC, we would also subject to a federal excise tax, based on distributive requirements of our taxable income on a calendar year basis (e.g., calendar year 2013). We anticipate timely distribution of our taxable income within the tax rules; however, we may incur a federal excise tax in future years.
We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be

29



eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our dividends for that fiscal year, a portion of those dividend distributions may be deemed a return of capital to our stockholders.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and due to provisions in our credit facilities. If we do not distribute a certain percentage of our taxable income annually, we will suffer adverse tax consequences, including possible loss of our status as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.
In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these Treasury regulations or private letter rulings.
Related Party Transactions
We have entered into an investment advisory agreement with Fifth Street Management LLC, our investment adviser. Fifth Street Management LLC is controlled by Leonard M. Tannenbaum, its managing member and the chairman of our Board of Directors and our chief executive officer. Pursuant to the investment advisory agreement, fees payable to our investment adviser will be equal to (a) a base management fee of 1.0% of the average value of our gross assets at the end of the two most recently completed quarters, which includes any borrowings for investment purposes and excludes cash and cash equivalents, and (b) an incentive fee based on our performance. The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of our “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter, subject to a preferred return, or “hurdle,” and a “catch up” feature. The second part is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement) and equals 20% of our “Incentive Fee Capital Gains,” which equals our realized capital gains on a cumulative basis from inception through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee. The investment advisory agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other. During the three months ended December 31, 2013, we incurred fees of $0.2 million under the investment advisory agreement.
Pursuant to the administration agreement with FSC, Inc., which is controlled by Mr. Tannenbaum, FSC, Inc. will furnish us with the facilities and administrative services necessary to conduct our day-to-day operations, including equipment, clerical, bookkeeping and recordkeeping services at such facilities. In addition, FSC, Inc. will assist us in connection with the determination and publishing of our net asset value, the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders. We will pay FSC, Inc. our allocable portion of overhead and other expenses incurred by it in performing its obligations under the administration agreement, including a portion of the rent and the compensation of our chief operating officer, chief financial officer and chief compliance officer and their respective staffs. The administration agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other. During the three months ended December 31, 2013, we incurred expenses of $0.1 million under the administration agreement.
We have also entered into a license agreement with Fifth Street Capital LLC pursuant to which Fifth Street Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name “Fifth Street.” Under this agreement, we will have a right to use the “Fifth Street” name for so long as Fifth Street Management LLC or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “Fifth Street” name. Fifth Street Capital LLC is controlled by Mr. Tannenbaum, its managing member.

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Recent Developments
On January 1, 2014, we entered into an administration agreement with a new administrator, FSC CT, Inc., under substantially similar terms as our prior administration agreement with FSC, Inc. Similar to FSC, Inc., FSC CT, Inc. is controlled by Mr. Tannenbaum.
On January 3, 2014, our Board of Directors declared a dividend of $0.23 per share, payable on April 15, 2014 to stockholders of record on March 31, 2014.
On January 8, 2014, we announced the following management promotions:
Bernard D. Berman has been promoted to Chairman of the Board of Directors, and has stepped down as President. Mr. Berman remains in his current roles at Fifth Street Finance as President and Secretary, and a member of its Board of Directors. Mr. Berman has been affiliated with our investment adviser since 2004.
Ivelin M. Dimitrov has been promoted to President in addition to his current responsibilities as Chief Investment Officer. Mr. Dimitrov remains in his current roles at Fifth Street Finance Corp. as Chief Investment Officer and a member of its Board of Directors. Mr. Dimitrov has been affiliated with our investment adviser since 2005.
Leonard M. Tannenbaum remains Chief Executive Officer and has transitioned from Chairman to Vice Chairman of the Board of Directors. Mr. Tannenbaum remains in his current roles at Fifth Street Finance Corp. as Chairman of the Board of Directors and Chief Executive Officer.
On February 11, 2014, our Board of Directors declared a quarterly dividend of $0.27 per share, payable on July 15, 2014 to stockholders of record on June 30, 2014.
Recently Issued Accounting Standards
See Note 2 to the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and the anticipated impact on the Financial Statements. 

Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle funds investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment income will be affected by changes in various interest rates, including commercial paper, LIBOR and prime rates, to the extent our debt investments include floating interest rates. In addition, our investments are carried at fair value as determined in good faith by our Board of Directors in accordance with the 1940 Act (See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Investment Valuation”). Our valuation methodology utilizes discount rates in part in valuing our investments, and changes in those discount rates may have an impact on the valuation of our investments.
As of December 31, 2013, 100.0% of our debt investment portfolio (at cost and fair value) bore interest at floating rates and had interest rate floors between 1% and 2%.
Based on our Consolidated Statement of Assets and Liabilities as of December 31, 2013, the following table shows the approximate annualized increase in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure.
 
Basis point increase(1)
 
Interest Income
Interest Expense
Net Increase (Decrease)
 
500
 
$
5,276,591

$
(1,875,000
)
$
3,401,591

 
400
 
3,922,880

(1,500,000
)
2,422,880

 
300
 
2,569,169

(1,125,000
)
1,444,169

 
200
 
1,215,458

(750,000
)
465,458

 
100
 

(375,000
)
(375,000
)
 
 __________________

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(1)
A decline in interest rates would not have a material impact on our Consolidated Financial Statements.
We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The following table shows a comparison of the interest rate base for our interest-bearing cash and outstanding investments, at principal as of December 31, 2013 and September 30, 2013:
 
 
December 31, 2013
 
September 30, 2013
 
 
 
Interest Bearing Cash & Investments
Borrowings
 
Interest Bearing Cash & Investments
Borrowings
 
Money market rate
 
$
2,503,268

$

 
$
52,346,831

$

 
Prime rate
 
1,543


 


 
Commercial paper rate
 

37,500,000

 


 
LIBOR:
 
 
 
 
 
 
 
30 day
 
4,952,841


 
9,449,153


 
90 day
 
120,839,731


 
29,229,464


 
  180 day
 
9,987,500


 
9,975,000


 
Fixed rate
 


 


 
Total
 
$
138,284,883

$
37,500,000

 
$
101,000,448

$

 

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Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
 As of December 31, 2013 (the end of the period covered by this report), management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at the end of such period, our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b) Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33



PART II — OTHER INFORMATION


Item 1.     Legal Proceedings
Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.
Item 1A. Risk Factors
There have been no material changes during the three months ended December 31, 2013 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2013.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 5.    Other Information
None.

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Item 6.    Exhibits.
Exhibit
Number
  
Description of Exhibit
 
 
10.1*
 
Administration Agreement by and between Registrant and FSC CT, Inc. dated as of January 1, 2014.
 
 
 
 
 
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 Financial 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 Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




35



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.
 
 
 
 
FIFTH STREET SENIOR FLOATING RATE CORP.
 
 
 
 
By:
 
/s/    Leonard M. Tannenbaum
 
 
 
Leonard M. Tannenbaum
 
 
 
Vice Chairman and Chief Executive Officer
 
 
 
 
By:
 
/s/    Steven M. Noreika
 
 
 
Steven M. Noreika
 
 
 
Chief Financial Officer
 
Date: February 12, 2014

 


36



EXHIBIT INDEX
Exhibit
Number
  
Description of Exhibit
 
 
10.1*
 
Administration Agreement by and between Registrant and FSC CT, Inc. dated as of January 1, 2014.
 
 
 
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 Financial 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 Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


37