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EX-21 - SUBSIDIARIES OF THE REGISTRANT - Business Development Corp of Americabdca331201410qex21listofsu.htm
EX-10.25 - 405 TRS CONFIRMATION LETTER - Business Development Corp of Americav377891_ex10-25.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Business Development Corp of Americabdca331201410qex311.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - Business Development Corp of Americabdca331201410qex312.htm
EX-32 - WRITTEN STATEMENT PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS - Business Development Corp of Americabdca331201410qex32.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-54251
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
27-2614444
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
405 Park Avenue, 3rd Floor
New York, New York
 
10022
(Address of Principal Executive Office)
 
(Zip Code)

(212) 415-6500
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o
No x

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 x
 
Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
 Yes o No x
The number of shares of the registrant's common stock, $0.001 par value, outstanding as of May 15, 2014 was 113,463,363.



BUSINESS DEVELOPMENT CORPORATION OF AMERICA
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2014
TABLE OF CONTENTS
 
 
 
 
Page
PART I
  
Notes to Consolidated Financial Statements as of March 31, 2014 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II
 



PART I
Item 1. Consolidated Financial Statements.

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands except share and per share data)
 
March 31,
 
December 31,
 
2014
 
2013
ASSETS
(Unaudited)
 
 
Investments, at fair value:
 
 
 
Control Investments, at fair value (amortized cost of $57,840 and $34,132, respectively)
$
57,761

 
$
34,132

Affiliate Investments, at fair value (amortized cost of $240,165 and $150,729, respectively)
241,153

 
154,209

Non-affiliate Investments, at fair value (amortized cost of $645,732 and $501,416, respectively)
650,751

 
507,435

Investments, at fair value (amortized cost of $943,737 and $686,277, respectively)
949,665

 
695,776

Cash and cash equivalents
56,552

 
12,995

Cash collateral on deposit with custodian
78,995

 
76,874

Interest receivable
9,216

 
7,527

Dividend receivable
844

 
738

Receivable for unsettled trades
15,938

 
36,158

Receivable due on total return swap
3,394

 
4,053

Unrealized gain on total return swap
3,278

 
3,180

Deferred credit facility financing costs, net
2,969

 
2,278

Prepaid expenses and other assets
1,186

 
1,003

Due from affiliate

 
1,059

Total assets
$
1,122,037

 
$
841,641

 
 
 
 
LIABILITIES
 

 
 

Revolving credit facility
$
154,687

 
$
132,687

Interest and credit facility fees payable
1,047

 
715

Payable for unsettled trades
20,363

 
67,003

Stockholder distributions payable
6,695

 
4,578

Management fees payable
3,426

 
2,689

Accrued capital gains incentive fees
2,645

 
2,802

Subordinated income incentive fees payable
778

 
2,577

Payable for common stock repurchases
1,102

 
88

Accounts payable and accrued expenses
614

 
599

Due to affiliate
264

 

Total liabilities
$
191,621

 
$
213,738

 
 
 
 
Commitments and contingencies (Note 7)
 
 
 
 
 
 
 
NET ASSETS
 
 
 
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding
$

 
$

Common stock, $.001 par value, 450,000,000 shares authorized, 94,132,120 and 63,671,644 shares issued and outstanding, respectively
94

 
64

Capital in excess of par value
914,009

 
611,703

Accumulated over distributed net investment income
(1,348
)
 
(509
)
Accumulated under distributed realized gains
8,455

 
3,966

Net unrealized appreciation on investments and total return swap
9,206

 
12,679

Net assets
930,416

 
627,903

 
 
 
 
Total liabilities and net assets
$
1,122,037

 
$
841,641

 
 
 
 
Net asset value per share
$
9.88

 
$
9.86

The accompanying notes are an integral part of these statements.

1



BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
(Unaudited)
 
 
For the three months ended March 31,
 
 
2014
 
2013
Investment income:
 
 
 
 
Interest from investments
 
 
 
 
Control investments
 
$
966

 
$

Affiliate investments
 
4,289

 

Non-control/non-affiliate investments
 
11,521

 
4,235

Total interest from investments
 
16,776

 
4,235

Interest from cash and cash equivalents
 
5

 
1

Total interest income
 
16,781

 
4,236

Other income
 
1,709

 
119

Total investment income
 
18,490

 
4,355

 
 
 
 
 
Operating expenses:
 
 

 
 

Interest and credit facility financing expenses
 
1,294

 
302

Management fees
 
3,631

 
827

Subordinated income incentive fees
 
778

 
729

Capital gains incentive fees
 
(19
)
 
330

Professional fees
 
743

 
238

Insurance
 
58

 
54

Directors fees
 
17

 
16

Other administrative
 
42

 
58

Expenses before expense waivers and reimbursements from Adviser
 
6,544

 
2,554

Waiver of management and incentive fees
 

 
(406
)
Total expenses net of expense waivers and reimbursements from Adviser
 
6,544

 
2,148

 
 
 
 
 
Net investment income
 
11,946

 
2,207

 
 
 
 
 
Realized and unrealized gain on investments and total return swap:
 
 
 
 
Net realized gain from investments
 
3,476

 
996

Net realized gain from total return swap
 
5,451

 
1,796

Net change in unrealized appreciation (depreciation) on investments
 
(3,571
)
 
658

Net change in unrealized appreciation on total return swap
 
98

 
2,283

Net realized and unrealized gain on investments and total return swap
 
5,454

 
5,733

 
 
 
 
 
Net increase in net assets resulting from operations
 
$
17,400

 
$
7,940

 
 
 
 
 
Per share information - basic and diluted
 
 
 
 
Net investment income
 
$
0.15

 
$
0.12

Net increase in net assets resulting from operations
 
$
0.22

 
$
0.42

Weighted average shares outstanding
 
78,450

 
18,939



The accompanying notes are an integral part of these statements.

2


BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands except share and per share data)
(Unaudited)

 
For the Three Months Ended March 31,
 
2014
 
2013
Operations:
 
 
 
Net investment income
$
11,946

 
$
2,207

Net realized gain from investments
3,476

 
996

Net realized gain from total return swap
5,451

 
1,796

Net change in unrealized appreciation (depreciation) on investments
(3,571
)
 
658

Net change in unrealized appreciation on total return swap
98

 
2,283

Net increase in net assets from operations
17,400

 
7,940

Stockholder distributions:
 

 
 

Distributions from net investment income
(11,946
)
 
(2,207
)
Distributions from net realized gain from investments and total return swap
(4,933
)
 
(1,713
)
Net decrease in net assets from stockholder distributions
(16,879
)
 
(3,920
)
Capital share transactions:
 

 
 

Issuance of common stock, net of issuance costs
296,166

 
69,176

Reinvestment of stockholder distributions
6,789

 
1,143

Repurchases of common stock
(963
)
 
(156
)
Net increase in net assets from capital share transactions
301,992

 
70,163

 
 
 
 
Total increase in net assets
302,513

 
74,183

Net assets at beginning of period
627,903

 
140,685

Net assets at end of period
$
930,416

 
$
214,868

 
 
 
 
Net asset value per common share
$
9.88

 
$
9.63

Common shares outstanding at end of period
94,132,120

 
22,323,260

 
 
 
 
Accumulated under/ (over) distributed net investment income
$
(1,348
)
 
$
1,775

Accumulated under distributed realized gains
$
8,455

 
$




The accompanying notes are an integral part of these statements.

3

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)

 
For the Three Months Ended March 31,
 
2014
 
2013
Operating activities:
 
 
 
Net increase in net assets from operations
$
17,400

 
$
7,940

Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:
 
 
 
Paid-in-kind interest income
(774
)
 
(90
)
Net accretion of discount on investments
(374
)
 
(118
)
Amortization of deferred financing costs
159

 
51

Sales and repayments of investments
153,490

 
70,702

Purchase of investments
(406,327
)
 
(113,787
)
Net realized gain from investments
(3,476
)
 
(996
)
Net unrealized (appreciation) depreciation on investments
3,571

 
(658
)
Net unrealized appreciation on total return swap
(98
)
 
(2,283
)
(Increase) decrease in operating assets:
 
 
 
Cash collateral on deposit with custodian
(2,122
)
 
(19,758
)
Interest receivable
(1,689
)
 
(1,340
)
Dividend receivable
(106
)
 

Receivable due on total return swap
659

 
(117
)
Prepaid expenses and other assets
(183
)
 
(106
)
Receivable for unsettled trades
20,220

 
(645
)
Increase (decrease) in operating liabilities:
 
 
 
Payable for unsettled trades
(46,640
)
 
472

Management and incentive fees payable
(1,218
)
 
934

Interest and credit facility fees payable
332

 
39

Accounts payable and accrued expenses
15

 
10

Payable for common stock repurchases
1,014

 

Net cash used in operating activities
(266,147
)
 
(59,750
)
 
 
 
 
Financing activities:
 

 
 

Proceeds from issuance of shares of common stock, net
296,166

 
69,176

Repurchases of common stock
(963
)
 
(282
)
Decrease (increase) in deferred offering costs receivable
909

 
268

Proceeds from revolving credit facility
22,000

 
2,000

Payments on revolving credit facility
(850
)
 
(4,720
)
Payments of financing cost
414

 

Payments to (proceeds from) affiliate

 
232

Stockholder distributions
(7,972
)
 
(2,266
)
Net cash provided by financing activities
309,704

 
64,408

 
 
 
 
Net increase (decrease) in cash and cash equivalents
43,557

 
4,658

Cash and cash equivalents, beginning of period
12,995

 
14,180

Cash and cash equivalents, end of period
$
56,552

 
$
18,838

 
 
 
 

4

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)

 
For the Three Months Ended March 31,
 
2014
 
2013
Supplemental information:
 

 
 

Interest paid during the period
$
609

 
$
210

Supplemental non-cash information:
 
 
 
Payable for common stock repurchases
$
1,102

 
$
50

DRIP distribution payable
$
3,196

 
$
1,008

Cash distribution payable
$
3,499

 
$
525

DRIP distribution paid
$
6,789

 
$
1,143


The accompanying notes are an integral part of these statements.

5

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien Debt - 49.4% (b)
 
 
 
 
 
 
 
 
 
 
 
 
ABRA, Inc. (j)
 
Automotive
 
L+6.00% (7.25%), 5/10/2018
 
$
10,652

 
$
10,547

 
$
10,546

 
1.1
%
Adventure Interactive Corp.
 
Media
 
L+6.75% (8.00%), 3/22/2018
 
19,873

 
19,607

 
19,571

 
2.1
%
American Importing Company, Inc.
 
Food Products
 
L+5.75% (7.00%), 5/23/2018
 
10,918

 
10,827

 
10,906

 
1.2
%
Answers.com
 
Internet Software & Services
 
L+5.50% (6.50%), 12/20/2018
 
14,813

 
14,670

 
14,757

 
1.6
%
AP Gaming I, LLC
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 12/20/2020
 
9,975

 
9,686

 
9,900

 
1.1
%
Avaya, Inc.
 
Communications Equipment
 
L+5.50% (6.50%), 3/31/2018
 
3,921

 
3,623

 
3,925

 
0.4
%
BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50% (7.75%), 6/4/2019
 
5,940

 
5,887

 
5,990

 
0.6
%
Chicken Soup for the Soul Publishing, LLC
 
Publishing
 
L+6.00% (7.25%), 1/8/2019
 
30,000

 
29,641

 
29,624

 
3.2
%
Collision Holding Company, LLC
 
Automotive
 
L+6.00% (7.25%), 5/10/2018
 
2,352

 
2,329

 
2,329

 
0.3
%
Creative Circle, LLC
 
Professional Services
 
L+5.25% (6.50%), 9/28/2017
 
7,079

 
6,971

 
7,114

 
0.8
%
ECI Acquisition Holdings, Inc. (k)
 
Technology - Enterprise Solutions
 
L+5.25% (8.50%), 3/11/2019
 
12,413

 
12,352

 
12,351

 
1.3
%
Epic Health Services, Inc.
 
Health Care Providers & Services
 
L+5.25% (6.50%), 10/16/2018
 
13,825

 
13,699

 
13,725

 
1.5
%
Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
L+5.00% (6.00%), 11/2/2020
 
7,383

 
7,314

 
7,411

 
0.8
%
Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25% (7.50%), 12/26/2018
 
7,940

 
7,800

 
7,999

 
0.9
%
EZE Trucking, Inc. (d) (n)
 
Road & Rail
 
L+11.75% (12.00%), 7/31/2018
 
12,443

 
12,390

 
12,053

 
1.3
%
Flexera Software LLC
 
Electronic Equipment, Instruments & Components
L+3.50% (4.50%), 4/2/2020
 
2,000

 
1,990

 
1,990

 
0.2
%
Global Telecom & Technology, Inc.
 
Internet Software & Services
 
L+5.50% (6.50%), 3/31/2016
 
7,400

 
7,326

 
7,395

 
0.8
%
HIG Integrity Nutraceuticals
 
Food Products
 
L+8.75% (9.75%), 12/17/2018
 
26,000

 
25,631

 
25,665

 
2.8
%
ILC Dover LP
 
Aerospace & Defense
 
L+5.50% (6.50%), 3/19/2020
 
15,000

 
14,925

 
14,925

 
1.6
%
InMotion Entertainment Group, LLC
 
Retailers (except food & drug)
 
L+7.75% (9.00%), 3/12/2019
 
10,000

 
9,827

 
9,825

 
1.0
%
Jackson Hewitt, Inc.
 
Diversified Consumer Services
 
L+8.50% (10.00%), 10/16/2017
 
12,407

 
12,365

 
12,314

 
1.3
%
K2 Pure Solutions NoCal, L.P.
 
Chemicals
 
L+6.00% (7.00%), 8/19/2019
 
10,000

 
9,820

 
9,794

 
1.1
%
Kahala US OpCo LLC (d) (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
19,543

 
19,543

 
19,543

 
2.1
%
Med-Data Incorporated
 
Health Care Providers & Services
 
L+7.25% (8.25%), 11/22/2018
 
14,906

 
14,684

 
14,683

 
1.6
%
Medpace Holdings, Inc
 
Health Care Providers & Services
 
L+4.00% (5.00%), 3/31/2021
 
5,000

 
4,975

 
4,975

 
0.5
%
Miller Heiman, Inc.
 
Media
 
L+5.75% (6.75%), 9/30/2019
 
15,155

 
14,736

 
14,599

 
1.6
%
National Technical Systems, Inc. (v)
 
Professional Services
 
L+5.50% (6.75%), 11/22/2018
 
18,750

 
18,603

 
18,615

 
2.0
%

6

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
NextCare, Inc. (m)
 
Health Care Providers & Services
 
L+5.50% (6.75%), 10/10/2017
 
$
16,853

 
$
16,629

 
$
16,649

 
1.8
%
North Atlantic Trading Company, Inc.
 
Food Products
 
L+6.50% (7.75%), 1/13/2020
 
11,971

 
11,855

 
12,061

 
1.3
%
NXT Capital, LLC
 
Commercial Banks
 
L+5.25% (6.25%), 9/4/2018
 
9,950

 
9,861

 
10,000

 
1.1
%
Park Ave RE Holdings, LLC (d) (o)
 
Real Estate Management & Development
 
L+8.00% (13.00%), 12/31/2017
 
24,088

 
24,088

 
24,088

 
2.6
%
PeopLease Holdings, LLC
 
Commercial Services & Supplies
 
L+10.00% (11.00%), 12/26/2018
 
10,000

 
9,810

 
9,779

 
1.1
%
Premier Dental Services, Inc.
 
Health Care Providers & Services
 
L+7.00% (8.25%), 11/1/2018
 
14,992

 
14,845

 
15,011

 
1.6
%
Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00% (6.25%), 7/1/2019
 
6,791

 
6,732

 
6,850

 
0.7
%
Seaton Acquisition Corp.
 
Business Equipment & Services
 
L+5.75% (6.75%), 1/29/2019
 
5,000

 
4,951

 
4,950

 
0.5
%
The Tennis Channel Holdings, Inc. (d)
 
Media
 
L+8.50% (8.81%), 5/29/2017
 
15,366

 
14,996

 
14,955

 
1.6
%
Trimark USA, LLC
 
Food Products
 
L+6.25% (7.25%), 5/11/2019
 
13,500

 
13,367

 
13,365

 
1.4
%
United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25% (7.50%), 10/9/2018
 
3,950

 
3,823

 
3,891

 
0.4
%
WBL SPE I., LLC (l)
 
Consumer Finance
 
15.00%, 9/30/2016
 
4,500

 
4,455

 
4,500

 
0.5
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
457,180

 
$
458,623

 
49.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt - 13.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Boston Market Corporation
 
Hotels, Restaurants & Leisure
 
L+7.75% (8.75%), 12/16/2018
 
$
25,000

 
$
24,647

 
$
24,597

 
2.6
%
CPX Interactive Holdings, LP
 
Publishing
 
L+10.00% (11.00%), 3/26/2018
 
20,000

 
18,668

 
18,663

 
2.0
%
CREDITCORP
 
Consumer Finance
 
12.00%, 7/15/2018
 
13,250

 
13,172

 
13,714

 
1.5
%
Flexera Software LLC
 
Electronic Equipment, Instruments & Components
L+7.00% (8.00%), 4/2/2021
 
2,000

 
1,990

 
1,990

 
0.2
%
H.D. Vest, Inc.
 
Diversified Consumer Services
 
L+8.00% (9.25%), 6/18/2019
 
8,750

 
8,655

 
8,641

 
0.9
%
Interblock USA L.C.
 
Electronic Equipment, Instruments & Components
L+8.75% (9.75%), 3/28/2018
 
23,000

 
22,541

 
22,540

 
2.4
%
Linc Energy Finance USA, Inc.
 
Oil, Gas & Consumable Fuels
 
12.50%, 10/31/2017
 
9,000

 
8,873

 
9,837

 
1.1
%
MBLOX Inc.
 
Internet Software & Services
 
10.75%, 9/28/2016
 
7,000

 
6,972

 
7,038

 
0.8
%
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75% (11.00%), 10/1/2018
 
7,960

 
7,815

 
7,920

 
0.9
%
SkyCross, Inc.
 
Electronic Equipment, Instruments & Components
11.85%, 4/1/2017
 
5,000

 
4,978

 
4,835

 
0.5
%
Zimbra, Inc.
 
Software
 
10.75%, 7/1/2016
 
6,000

 
5,975

 
6,140

 
0.6

Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
124,286

 
$
125,915

 
13.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 6.2% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Gold, Inc. (d)
 
Textiles, Apparel & Luxury Goods
 
15.00%, 12/31/2017
 
$
12,163

 
$
11,945

 
$
11,974

 
1.3
%

7

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
S.B. Restaurant Co., Inc. - Senior Subordinated Debt (e) (t)
 
Hotels, Restaurants & Leisure
 
1/10/2018
 
$
134

 
$
88

 
$

 
%
S.B. Restaurant Co., Inc. (d) (e) (t)
 
Hotels, Restaurants & Leisure
 
14.00%, 1/10/2018
 
4,050

 
3,974

 

 
%
The SAVO Group, Ltd.
 
Internet Software & Services
 
10.95%, 4/1/2017
 
5,000

 
4,979

 
5,014

 
0.5
%
Varel International Energy Mezzanine Funding Corp. (d)
 
Oil, Gas & Consumable Fuels
 
14.00%, 1/15/2018
 
10,499

 
10,420

 
11,390

 
1.2
%
Vestcom Acquisition, Inc.
 
Media
 
12.00%, 6/26/2019
 
7,500

 
7,436

 
7,573

 
0.8
%
Visionary Integration Professionals, LLC
 
IT Services
 
13.00%, 12/3/2018
 
11,072

 
9,943

 
9,962

 
1.1
%
Xplornet Communications, Inc.
 
Diversified Telecommunication Services
 
13.00%, 10/25/2020
 
10,000

 
10,000

 
9,962

 
1.1
%
Zimbra, Inc.
 
Software
 
12.00%, 7/10/2018
 
2,000

 
2,000

 
2,000

 
0.2
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
$
60,785

 
$
57,875

 
6.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - 16.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Apidos XVI CLO, LTD. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
1/19/2025
 
$
15,000

 
$
13,650

 
$
13,584

 
1.5
%
CVP Cascade CLO, LTD. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
12/20/2020
 
31,000

 
24,843

 
24,843

 
2.7
%
Garrison Funding 2013 - 1 Ltd. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
9/30/2023
 
15,000

 
15,000

 
15,000

 
1.6
%
MidOcean Credit Fund Management LP (p)
 
Diversified Investment Vehicles
 
1/15/2024
 
37,600

 
34,058

 
34,058

 
3.7
%
OFSI Fund VI, Ltd. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
3/20/2025
 
38,000

 
32,895

 
32,895

 
3.5
%
Related Fee Agreements (s)
 
Diversified Investment Vehicles
 
 
 

 
6,684

 
6,797

 
0.7
%
Shackleton 2014-V CLO, LTD. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
1/30/2015
 
26,250

 
26,250

 
26,250

 
2.8
%
Sub Total Collateralized Securities
 
 
 
 
 
 
 
$
153,380

 
$
153,427

 
16.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 16.4% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Carlyle GMS Finance, Inc. (i)
 
Diversified Investment Vehicles
 
 
 
$
2,371

 
$
2,371

 
$
2,371

 
0.3
%
CPX Interactive Holdings, LP - Warrants (e) (u)
 
Publishing
 
 
 
317

 
1,087

 
1,087

 
0.1
%
CPX Interactive Holdings, LP - Series A Convertible Preferred Stock (d) (e) (u)
 
Publishing
 
8.00%
 
6

 
6,000

 
6,000

 
0.6
%
Crowley Holdings, Inc. - Series A Preferred Stock (d)
 
Marine
 
12.00%
 
25

 
25,137

 
25,228

 
2.7
%
Fifth Street Senior Loan Fund I, LLC (e) (p)
 
Diversified Investment Vehicles
 
 
 
$
14,455

 
14,455

 
14,455

 
1.6
%
HIG Integrity Neutraceuticals (e)
 
Food Products
 
 
 
$
850

 
850

 
895

 
0.1
%
Kahala Aviation Holdings, LLC - Preferred Stock (e) (o) (x)
 
Aerospace & Defense
 
13.00%
 
$
6,321

 
6,321

 
6,321

 
0.7

Kahala Aviation Holdings, LLC (e) (o) (r) (x)
 
Aerospace & Defense
 
 
 

 

 

 
%
MBLOX Inc. - Warrants (e)
 
Internet Software & Services
 
 
 
1,531

 

 
777

 
0.1
%
NewStar Arlington Fund LLC (p)
 
Diversified Investment Vehicles
 
 
 
$
30,000

 
30,000

 
30,000

 
3.2
%

8

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Park Ave RE, Inc. (e) (o) (w)
 
Real Estate Management & Development
 
 
 
$
79

 
$
79

 
$

 
%
Park Ave RE, Inc. - Preferred Stock (e) (o) (w)
 
Real Estate Management & Development
 
8.00%
 
$
7,809

 
7,809

 
7,809

 
0.8
%
PennantPark Credit Opportunity Fund, LP (g) (p)
 
Diversified Investment Vehicles
 
 
 
$
10,000

 
10,000

 
10,791

 
1.2
%
Precision Dermatology, Inc. - Warrants (e)
 
Pharmaceuticals
 
 
 
218

 

 

 
%
S.B. Restaurant Co., Inc. - Warrants (e)
 
Hotels, Restaurants & Leisure
 
 
 

 

 

 
%
SkyCross Inc. - Warrants (e)
 
Electronic Equipment, Instruments & Components
 
 
2,254

 

 
450

 
%
South Grand MM CLO I, LLC (p)
 
Diversified Investment Vehicles
 
 
 
$
22,209

 
21,903

 
22,209

 
2.4
%
Tennenbaum Waterman Fund, L.P. (e) (f)
 
Diversified Investment Vehicles
 
 
 
$
5,535

 
5,535

 
5,935

 
0.6
%
The SAVO Group, Ltd. - Warrants (e)
 
Internet Software & Services
 
 
 
138

 

 
1,301

 
0.1
%
THL Credit Greenway Fund II LLC (h) (p)
 
Diversified Investment Vehicles
 
 
 
$
11,899

 
11,899

 
11,938

 
1.3
%
Visionary Integration Professionals, LLC - Warrants (e) (u)
 
IT Services
 
 
 
657

 
910

 
921

 
0.1
%
World Business Lenders, LLC (e)
 
Consumer Finance
 
 
 
$
3,750

 
3,750

 
3,750

 
0.4
%
Xplornet Communications Inc. - Warrants (e)
 
Diversified Telecommunication Services
 
 
 
10

 

 

 
%
Zimbra, Inc. - Warrants (Second Lien Debt) (e)
 
Software
 
 
 
535

 

 
255

 
%
Zimbra, Inc. - Warrants (Third Lien Bridge Note) (e)
 
Software
 
 
 
1,000

 

 
1,332

 
0.1
%
Sub Total Equity/Other
 
 
 
 
 
 
 
$
148,106

 
$
153,825

 
16.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 102.0% (b)
 
 
 
 
 
 
 
$
943,737

 
$
949,665

 
102.0
%

9

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)



______________

(a)
All of the Company's investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Apidos XVI CLO, LTD. Subordinated Notes, Carlyle GMS Finance, Inc., CVP Cascade CLO, LTD. Subordinated Notes, Fifth Street Senior Loan Fund I, LLC, Garrison Funding 2013-1 Ltd. Subordinated Notes, MidOcean Credit Fund Management LP, NewStar Arlington Fund, LLC, NXT Capital LLC, OFSI Fund VI, Ltd. Subordinated Notes, PennantPark Credit Opportunity Fund LP, Related Fee Agreements, Shackleton 2014-V CLO, LTD. Subordinated Notes, South Grand MM CLO I, LLC, Tennenbaum Waterman Fund, L.P., THL Credit Greenway Fund II LLC, and Xplornet Communications, Inc.
(b)
Percentages are based on net assets of $930,416 thousand as of March 31, 2014.
(c)
Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by the Company's board of directors as required by the 1940 Act. (See Note 3 to the financial statements).
(d)
Terms of loan include PIK interest.
(e)
Non-income producing at March 31, 2014.
(f)
The Company has committed to fund $10.0 million in Tennenbaum Waterman Fund, L.P. over a period ending no later than September 2015. The remaining commitment as of March 31, 2014 was $4.5 million.
(g)
The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)
The Company has committed to fund $20.0 million in THL Credit Greenway II LLC over a period ending no later than March 2015. The remaining commitment as of March 31, 2014 was $8.1 million.
(i)
The Company has committed to fund $10.0 million in Carlyle GMS Finance, Inc. The remaining commitment as of March 31, 2014 was $7.6 million.
(j)
The Company has committed to fund a delayed draw term loan of $2.4 million in ABRA, Inc. The remaining commitment as of March 31, 2014 was $0.3 million.
(k)
The Company has committed to fund a delayed draw term loan of $2.6 million in ECI Acquisition Holdings, Inc. The remaining commitment as of March 31, 2014 was $2.6 million.
(l)
The Company has committed to fund a delayed draw term loan of $15.0 million in WBL SPE I, LLC. The remaining commitment as of March 31, 2014 was $10.5 million.
(m)
The Company has committed to fund a delayed draw term loan of $7.8 million in NextCare, Inc. The remaining commitment as of March 31, 2014 was $7.7 million.
(n)
The Company has committed to fund a delayed draw term loan of $2.0 million in EZE Trucking, Inc. The remaining commitment as of March 31, 2014 was $2.0 million.
(o)
The Company's investments are classified in accordance with the requirements of the Investment Company Act of 1940. Under the Investment Company Act of 1940, “Control Investments” are defined as investments in companies in which the Company owns more than 25% of the voting securities, maintains greater than 50% of the board representation or has the power to exercise control over the management or policies of such portfolio company.
(p)
The Company's investments are classified in accordance with the requirements of the Investment Company Act of 1940. Under the Investment Company Act of 1940, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities.
(q)
The Company's investments are classified in accordance with the requirements of the Investment Company Act of 1940. Under the Investment Company Act of 1940, "Non-affiliated Investments" are defined as investments that are neither Control Investments nor Affiliated Investments: The Company classifies all investments within the Consolidated Schedule of Investments which are not classified as Control Investments or Affiliated Investments as Non-affiliated Investments.
(r)
In accordance with subscription agreement executed with Kahala Aviation Holdings, LLC, dated December 23, 2013, the Company owns 84 common units of shares.
(s)
Related Fee Agreements consists of one investment with a fair value of $1,667 thousand that is classified as a "Non-affiliated Investment" and two investments with a total fair value of $5,130 thousand that are classified as "Affiliated Investments".
(t)
The investment is on non-accrual status as of March 31, 2014.
(u)
Investments are held in the taxable wholly-owned, consolidated subsidiary, 54th Street Equity Holdings, Inc.
(v)
The Company has committed to fund a delayed draw term loan of $7.5 million in National Technical Systems, Inc. The remaining commitment as of March 31, 2014 was $1.3 million.
(w)
Park Ave RE, Inc. owns 100% of the equity of an operating company, Park Ave RE Holdings, LLC.
(x)
Through a taxable entity, Kahala Aviation Holdings, LLC owns 100% of the equity in an operating company, Kahala US OpCo LLC.






10

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


The following table shows the portfolio composition by industry grouping based on fair value at March 31, 2014 (dollars in thousands):

 
At March 31, 2014
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Diversified Investment Vehicles
$
251,126

 
26.5
%
Health Care Providers & Services
65,043

 
6.9
%
Food Products
62,892

 
6.7
%
Media
56,698

 
6.0
%
Publishing
55,374

 
5.8
%
Aerospace & Defense
40,789

 
4.3
%
Electronic Equipment, Instruments & Components
39,216

 
4.1
%
Internet Software & Services
36,282

 
3.8
%
Hotels, Restaurants & Leisure
34,497

 
3.6
%
Real Estate Management & Development
31,897

 
3.4
%
Consumer Finance
29,884

 
3.1
%
Diversified Consumer Services
27,805

 
2.9
%
Oil, Gas & Consumable Fuels
27,217

 
2.9
%
Professional Services
25,729

 
2.7
%
Marine
25,228

 
2.7
%
Commercial Services & Supplies
13,670

 
1.4
%
Automotive
12,875

 
1.4
%
Technology - Enterprise Solutions
12,351

 
1.3
%
Road & Rail
12,053

 
1.3
%
Textiles, Apparel & Luxury Goods
11,974

 
1.3
%
IT Services
10,883

 
1.1
%
Commercial Banks
10,000

 
1.1
%
Diversified Telecommunication Services
9,962

 
1.0
%
Retailers (except food & drug)
9,825

 
1.0
%
Chemicals
9,794

 
1.0
%
Software
9,727

 
1.0
%
Paper & Forest Products
7,999

 
0.8
%
Business Equipment & Services
4,950

 
0.5
%
Communications Equipment
3,925

 
0.4
%
Pharmaceuticals

 
%
Total
$
949,665

 
100.0
%
















11

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien Debt - 53.2% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Adventure Interactive Corp.
 
Media
 
L+6.75% (8.00%), 3/22/2018
 
$
19,873

 
$
19,590

 
$
19,575

 
3.1
%
American Dental Partners, Inc.
 
Health Care Providers & Services
 
L+5.00% (6.00%), 2/9/2018
 
3,895

 
3,836

 
3,817

 
0.6
%
American Importing Company, Inc.
 
Food Products
 
L+5.75% (7.00%), 5/23/2018
 
10,945

 
10,849

 
10,933

 
1.7
%
Answers.com
 
Internet Software & Services
 
L+5.50% (6.50%), 12/20/2018
 
15,000

 
14,850

 
14,850

 
2.4
%
AP Gaming I, LLC
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 12/18/2020
 
10,000

 
9,700

 
9,700

 
1.5
%
Avaya, Inc.
 
Communications Equipment
 
L+4.50% (4.79%), 10/26/2017
 
3,933

 
3,616

 
3,842

 
0.6
%
BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50% (7.75%), 6/4/2019
 
5,955

 
5,900

 
5,985

 
1.0
%
Creative Circle, LLC
 
Professional Services
 
L+5.25% (6.50%), 9/28/2017
 
7,697

 
7,573

 
7,735

 
1.2
%
CST Industries, Inc.
 
Machinery
 
L+6.25% (7.75%), 5/23/2017
 
3,700

 
3,667

 
3,608

 
0.6
%
Epic Health Services
 
Health Care Providers & Services
 
L+5.25% (6.50%), 10/16/2018
 
14,000

 
13,865

 
13,899

 
2.2
%
Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
 
L+5.00% (6.00%), 10/25/2020
 
7,402

 
7,329

 
7,433

 
1.2
%
Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25% (7.50%), 7/28/2018
 
7,960

 
7,812

 
8,040

 
1.3
%
EZE Trucking, Inc. (d) (n)
 
Road & Rail
 
L+11.75% (12.00%), 7/31/2018
 
12,411

 
12,354

 
12,147

 
1.9
%
FairPay Solutions Inc. Term Loan A
 
Health Care Providers & Services
 
L+5.75% (7.00%), 1/16/2015
 
2,350

 
2,337

 
2,350

 
0.4
%
FairPay Solutions Inc. Term Loan B
 
Health Care Providers & Services
 
L+6.50% (8.00%), 1/16/2015
 
7,500

 
7,459

 
7,500

 
1.2
%
Global Telecom & Technology, Inc.
 
Internet Software & Services
 
L+5.50% (6.50%), 3/31/2016
 
7,600

 
7,524

 
7,559

 
1.2
%
HIG Integrity Neutraceuticals
 
Food Products
 
L+8.75% (9.75%), 12/17/2018
 
23,000

 
22,658

 
22,655

 
3.6
%
Ikaria Acquisitions, Inc.
 
Biotechnology
 
L+6.00% (7.25%), 7/31/2018
 
5,850

 
5,769

 
5,876

 
0.9
%
Jackson Hewitt, Inc.
 
Diversified Consumer Services
 
L+8.50% (10.00%), 10/16/2017
 
13,328

 
13,254

 
13,195

 
2.1
%
K2 Pure Solutions NoCal, L.P.
 
Chemicals
 
L+6.00% (7.00%), 8/19/2019
 
10,000

 
9,812

 
9,728

 
1.5
%
Kahala US OpCo LLC (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
15,860

 
15,860

 
15,860

 
2.5
%
Miller Heiman
 
Media
 
L+5.75% (6.75%), 9/30/2018
 
15,250

 
14,810

 
15,174

 
2.4
%
Mitel Networks Corp.
 
Communications Equipment
 
L+5.75% (7.00%), 2/27/2019
 
3,570

 
3,538

 
3,570

 
0.6
%
National Technical Systems, Inc.
 
Professional Services
 
L+5.50% (6.75%), 11/22/2018
 
12,500

 
12,378

 
12,375

 
2.0
%
NextCare, Inc. (m)
 
Health Care Providers & Services
 
L+5.50% (6.75%), 10/10/2017
 
17,492

 
17,246

 
17,272

 
2.8
%
NXT Capital LLC
 
Commercial Banks
 
L+5.25% (6.25%), 9/4/2018
 
9,975

 
9,881

 
9,875

 
1.6
%
Park Ave RE Holdings, LLC (o)
 
Real Estate Management & Development
 
L+8.00% (13.00%), 12/31/2017
 
9,750

 
9,750

 
9,750

 
1.6
%

12

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
PeopLease Holdings, LLC
 
Commercial Services & Supplies
 
L+10.00% (11.00%), 12/26/2018
 
$
10,000

 
$
9,801

 
$
9,800

 
1.6
%
Premier Dental Services Inc.
 
Health Care Providers & Services
 
L+7.00% (8.25%), 11/1/2018
 
3,960

 
3,861

 
3,985

 
0.6
%
Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00% (6.25%), 7/1/2019
 
7,313

 
7,247

 
7,354

 
1.2
%
Riverboat Corp. of Mississippi
 
Hotels, Restaurants & Leisure
 
L+8.75% (10.00%), 11/29/2016
 
10,000

 
9,846

 
10,025

 
1.6
%
Source Refrigeration & HVAC, Inc.
 
Commercial Services & Supplies
 
L+5.25% (6.75%), 4/30/2017
 
2,783

 
2,752

 
2,735

 
0.4
%
The Tennis Channel Holdings, Inc. (d)
 
Media
 
L+8.50% (8.81%), 5/23/2017
 
15,209

 
14,814

 
14,787

 
2.4
%
Trinity Consultants Holdings, Inc.
 
Commercial Services & Supplies
 
L+5.00% (6.25%), 4/15/2018
 
3,082

 
3,062

 
3,079

 
0.5
%
United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25% (7.50%), 10/12/2018
 
3,960

 
3,827

 
3,762

 
0.6
%
WBL SPE I., LLC (l)
 
Consumer Finance
 
15.00%, 9/30/2016
 
3,750

 
3,713

 
3,750

 
0.6
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
332,140

 
$
333,580

 
53.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt - 14.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Boston Market
 
Hotels, Restaurants & Leisure
 
L+7.75% (8.75%), 12/13/2018
 
$
25,000

 
$
24,628

 
$
24,625

 
3.9
%
CREDITCORP
 
Consumer Finance
 
12.00%, 7/15/2018
 
13,250

 
13,168

 
13,250

 
2.1
%
Eureka Hunter Holdings, LLC
 
Oil, Gas & Consumable Fuels
 
12.50%, 8/16/2018
 
5,000

 
5,000

 
4,969

 
0.8
%
H.D. Vest, Inc.
 
Diversified Consumer Services
 
L+8.00% (9.25%), 6/18/2019
 
8,750

 
8,650

 
8,641

 
1.4
%
Linc Energy Finance USA, Inc.
 
Oil, Gas & Consumable Fuels
 
12.50%, 10/31/2017
 
9,000

 
8,866

 
9,853

 
1.6
%
MBLOX Inc.
 
Internet Software & Services
 
10.75%, 9/28/2016
 
7,000

 
6,970

 
7,011

 
1.1
%
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75% (11.00%), 9/25/2015
 
7,980

 
7,827

 
7,940

 
1.3
%
SkyCross, Inc.
 
Electronic Equipment, Instruments & Components
 
11.85%, 4/1/2017
 
5,000

 
4,976

 
4,979

 
0.8
%
Teleflex Marine, Inc. (d)
 
Marine
 
13.50%, 8/24/2017
 
3,332

 
3,272

 
3,399

 
0.5
%
Zimbra, Inc.
 
Software
 
10.75%, 7/11/2016
 
6,000

 
5,974

 
6,137

 
1.0
%
Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
89,331

 
$
90,804

 
14.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 9.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Gold, Inc. (d)
 
Textiles, Apparel & Luxury Goods
 
15.00%, 12/31/2017
 
$
12,163

 
$
11,938

 
$
11,977

 
1.9
%
S.B. Restaurant Co., Inc. - Senior Subordinated Debt (d) (e)
 
Hotels, Restaurants & Leisure
 
1/10/2018
 
134

 
88

 
88

 
%
S.B. Restaurant Co., Inc. (d) (e) (r)
 
Hotels, Restaurants & Leisure
 
14.00%, 1/10/2018
 
4,050

 
3,974

 
2,024

 
0.3
%
The SAVO Group, Ltd.
 
Internet Software & Services
 
10.95%, 3/28/2017
 
5,000

 
4,978

 
5,005

 
0.8
%
Varel International Energy Mezzanine Funding Corp. (d)
 
Oil, Gas & Consumable Fuels
 
14.00%, 1/15/2018
 
10,395

 
10,311

 
11,251

 
1.8
%

13

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Vestcom Acquisition, Inc.
 
Media
 
12.00%, 6/26/2019
 
$
7,500

 
$
7,434

 
$
7,525

 
1.2
%
Visionary Integration Professionals, LLC
 
IT Services
 
13.00%, 12/3/2018
 
11,017

 
9,844

 
9,831

 
1.6
%
Xplornet Communications, Inc.
 
Diversified Telecommunication Services
 
13.00%, 12/25/2020
 
10,000

 
10,000

 
10,000

 
1.6
%
Zimbra, Inc.
 
Software
 
12.00%, 7/10/2018
 
2,000

 
2,000

 
2,000

 
0.3
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
$
60,567

 
$
59,701

 
9.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - 16.9% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Apidos XVI CLO, LTD. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
1/19/2025
 
$
15,000

 
$
13,650

 
$
13,650

 
2.2
%
Catamaran CLO 2013-1 Ltd. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
1/27/2025
 
19,500

 
17,940

 
20,404

 
3.2
%
CVP Cascade CLO-1, LTD. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
12/20/2020
 
31,000

 
28,086

 
28,086

 
4.5
%
Garrison Funding 2013 - 1 Ltd. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
9/30/2023
 
15,000

 
15,000

 
15,000

 
2.4
%
JMP Credit Advisors CLO II Ltd. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
4/30/2023
 
6,000

 
5,700

 
6,099

 
1.0
%
MC Funding Ltd. Preferred Shares
 
Diversified Investment Vehicles
 
12/20/2020
 
4,000

 
3,366

 
2,163

 
0.3
%
MidOcean Credit CLO II, Ltd. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
1/15/2024
 
20,543

 
20,543

 
20,543

 
3.3
%
Sub Total Collateralized Securities
 
 
 
 
 
 
 
$
104,285

 
$
105,945

 
16.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 16.7% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Carlyle GMS Finance, Inc. (e) (i)
 
Diversified Investment Vehicles
 
 
 
$
2,221

 
$
2,221

 
$
2,173

 
0.3
%
Crowley Holdings Preferred, LLC - Series A Preferred Shares (d)
 
Marine
 
12.00%
 
25

 
25,000

 
25,000

 
4.0
%
HIG Integrity Neutraceuticals
 
Food Products
 
 
 
$
850

 
850

 
850

 
0.1
%
Kahala Aviation Holdings, LLC (e) (o) (j) (t)
 
Aerospace & Defense
 
 
 

 

 

 
%
Kahala Aviation Holdings, LLC - Preferred Shares (e) (o) (t)
 
Aerospace & Defense
 
13.00%
 
$
5,271

 
5,271

 
5,271

 
0.8
%
MBLOX Inc. - Warrants (e)
 
Internet Software & Services
 
 
 
1,531

 

 
705

 
0.1
%
NewStar Arlington Fund LLC (p)
 
Diversified Investment Vehicles
 
 
 
$
30,000

 
30,000

 
30,000

 
4.8
%
Park Ave RE, Inc. (e) (o) (s)
 
Real Estate Management & Development
 
 
 
$
33

 
33

 
33

 
%
Park Ave RE, Inc. - Preferred Shares (e) (o) (s)
 
Real Estate Management & Development
 
8.00%
 
$
3,218

 
3,218

 
3,218

 
0.5
%
PennantPark Credit Opportunities Fund, LP (g) (p)
 
Diversified Investment Vehicles
 
 
 
$
10,000

 
10,000

 
10,550

 
1.7
%

14

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Precision Dermatology, Inc. - Warrants (e)
 
Pharmaceuticals
 
 
 
$
218

 
$

 
$

 
%
S.B. Restaurant Co., Inc. - Warrants (e)
 
Hotels, Restaurants & Leisure
 
 
 

 

 

 
%
SkyCross, Inc. - Warrants (e)
 
Electronic Equipment, Instruments & Components
 
 
 
1,127

 

 
450

 
0.1
%
South Grand MM CLO I, LLC (e) (p)
 
Diversified Investment Vehicles
 
 
 
$
872

 
872

 
872

 
0.1
%
Tennenbaum Waterman Fund, L.P. (e) (f)
 
Diversified Investment Vehicles
 
 
 
$
8,891

 
8,891

 
9,611

 
1.5
%
The SAVO Group, Ltd. - Warrants (e)
 
Internet Software & Services
 
 
 
138

 

 
1,302

 
0.2
%
THL Credit Greenway Fund II LLC (h) (p)
 
Diversified Investment Vehicles
 
 
 
$
8,938

 
8,938

 
9,005

 
1.4
%
Visionary Integration Professionals, LLC - Warrants (e)
 
IT Services
 
 
 
657

 
910

 
910

 
0.1
%
World Business Lenders, LLC (e)
 
Consumer Finance
 
 
 
$
3,750

 
3,750

 
3,751

 
0.6
%
Xplornet Communications Inc. - Warrants (e)
 
Diversified Telecommunication Services
 
 
 
10

 

 

 
%
Zimbra, Inc. - Warrants (Second Lien Debt) (e)
 
Software
 
 
 
535

 

 
447

 
0.1
%
Zimbra, Inc. - Warrants (Third Lien Bridge Note) (e)
 
Software
 
 
 
1,000

 

 
1,598

 
0.3
%
Sub Total Equity/Other
 
 
 
 
 
 
 
$
99,954

 
$
105,746

 
16.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 110.8% (b)
 
 
 
 
 
 
 
$
686,277

 
$
695,776

 
110.8
%
     

15

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


______________

(a)
All of the Company's investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Apidos XVI CLO, LTD. Subordinated Notes, Carlyle GMS Finance, Inc., Catamaran CLO 2013-1 Ltd. Subordinated Notes, CVP Cascade CLO-1, LTD. Subordinated notes, Garrison Funding 2013-1 Ltd. Subordinated Notes, JMP Credit Advisors CLO II Ltd. Subordinated Notes, MC Funding Ltd. Preferred Shares, MidOcean Credit CLO II, Ltd., Mitel Networks Corp., NewStar Arlington Fund, LLC, NXT Capital LLC, PennantPark Credit Opportunities Fund LP, South Grand MM CLO I, LLC, Tennenbaum Waterman Fund, L.P., THL Credit Greenway Fund II LLC, and Xplornet Communications, Inc.
(b)
Percentages are based on net assets of $627,903 thousand as of December 31, 2013.
(c)
Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by the Company's board of directors as required by the Investment Company Act of 1940. (See Note 3 to the financial statements).
(d)
Terms of loan include PIK interest.
(e)
Non-income producing at December 31, 2013.
(f)
The Company has committed to fund $10.0 million in Tennenbaum Waterman Fund, L.P. over a period ending no later than September 2015. The remaining commitment as of December 31, 2013 was $1.1 million.
(g)
The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)
The Company has committed to fund $20.0 million in THL Credit Greenway II LLC over a period ending no later than March 2015. The remaining commitment as of December 31, 2013 was $11.1 million.
(i)
The Company has committed to fund $10.0 million in Carlyle GMS Finance, Inc. The remaining commitment as of December 31, 2013 was $7.8 million.
(j)
In accordance with subscription agreement executed with Kahala Aviation Holdings, LLC, dated December 23, 2013, the Company owns 84 common units of shares.
(k)
The Company has committed to fund a delayed draw term loan of $7.5 million in National Technical Systems, Inc. The remaining commitment as of December 31, 2013 was $7.5 million.
(l)
The Company has committed to fund a delayed draw term loan of $15.0 million in WBL SPE I, LLC. The remaining commitment as of December 31, 2013 was $11.3 million.
(m)
The Company has committed to fund a delayed draw term loan of $10.9 million in NextCare, Inc. The remaining commitment as of December 31, 2013 was $4.8 million.
(n)
The Company has committed to fund a delayed draw term loan of $2.0 million in EZE Trucking, Inc. The remaining commitment as of December 31, 2013 was $2.0 million.
(o)
The Company's investments are classified 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, maintains greater than 50% of the board representation or has the power to exercise control over the management or policies of such portfolio company.
(p)
The Company's investments are classified in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities.
(q)
The Company's investments are classified in accordance with the requirements of the 1940 Act. Under the 1940 Act, "Non-affiliated Investments" are defined as investments that are neither Control Investments nor Affiliated Investments. The Company classifies all investments within the Consolidated Schedule of Investments which are not classified as Control Investments or Affiliated Investments as Non-affiliated Investments.
(r)
The investment is on non-accrual status as of December 31, 2013.
(s)
Park Ave RE, Inc. owns 100% of the equity of an operating company, Park Ave RE Holdings, LLC.
(t)
Through a taxable entity, Kahala Aviation Holdings, LLC owns 100% of the equity in an operating company, Kahala US OpCo LLC.




    

16

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2013 (dollars in thousands):

 
At December 31, 2013
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Diversified Investment Vehicles
$
168,156

 
24.2
%
Media
57,061

 
8.2

Health Care Providers & Services
48,823

 
7.0

Hotels, Restaurants & Leisure
46,462

 
6.7

Internet Software & Services
36,432

 
5.2

Food Products
34,438

 
4.9

Oil, Gas & Consumable Fuels
32,058

 
4.6

Diversified Consumer Services
29,190

 
4.2

Consumer Finance
28,691

 
4.1

Marine
28,399

 
4.1

Aerospace & Defense
21,131

 
3.0

Professional Services
20,110

 
2.9

Commercial Services & Supplies
19,376

 
2.8

Real Estate Management & Development
13,001

 
1.9

Electronic Equipment, Instruments & Components
12,862

 
1.9

Road & Rail
12,147

 
1.8

Textiles, Apparel & Luxury Goods
11,977

 
1.7

IT Services
10,741

 
1.5

Software
10,182

 
1.5

Diversified Telecommunication Services
10,000

 
1.4

Commercial Banks
9,875

 
1.4

Chemicals
9,728

 
1.4

Paper & Forest Products
8,040

 
1.2

Communications Equipment
7,412

 
1.1

Biotechnology
5,876

 
0.8

Machinery
3,608

 
0.5

Total
$
695,776

 
100.0
%
























17

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


Note 1 — Organization and Basis of Presentation

Business Development Corporation of America (the “Company”), incorporated in Maryland on May 5, 2010, is an externally managed, non-diversified closed-end investment company that elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2011 and that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is, therefore, required to comply with certain regulatory requirements as promulgated under the 1940 Act. The Company is managed by BDCA Adviser, LLC (the “Adviser”) pursuant to the terms of the Investment Advisory and Management Services Agreement, as amended (the “Investment Advisory Agreement”). The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Adviser oversees the management of the Company's activities and is responsible for making investment decisions for its portfolio.

On January 25, 2011, the Company commenced its initial public offering (the “IPO”) on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, at an initial offering price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form N-2 (File No. 333-166636) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended. The Company sold 22,222 shares of common stock to its Adviser, an entity wholly owned by AR Capital, LLC (formerly known as American Realty Capital II, LLC) (the “Sponsor”) on July 8, 2010 at $9.00 per share, which represents the initial public offering price of $10.00 per share minus selling commissions of $0.70 per share and dealer manager fees of $0.30 per share.  On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO and commenced operations as of that date. As of March 31, 2014, the Company had issued 94.1 million shares of common stock for gross proceeds of $1.0 billion including the shares purchased by the Sponsor and shares issued under the Company's distribution reinvestment plan ("DRIP"). As of March 31, 2014, the Company had repurchased 0.3 million shares of common stock for payments of $2.6 million.
    
On July 13, 2012, the Company, through a wholly-owned, consolidated subsidiary, 405 TRS I, LLC (“405 Sub”), entered into a total return swap agreement (“TRS”) with Citibank, N.A. (“Citi”), which was subsequently amended on October 17, 2012, December 7, 2012, May 10, 2013, July 18, 2013 and October 15, 2013 increasing the maximum possible exposure under the TRS to $350.0 million. The 405 Sub is included within the Company's consolidated financial statements. The consolidated financial statements include both the Company's account and the account of 405 Sub. All significant intercompany transactions have been eliminated in consolidation.

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, BDCA Funding I, LLC (“Funding I”), entered into a revolving credit facility (the “Wells Fargo Credit Facility”) with Wells Fargo Bank, National Association, as lender, Wells Fargo Securities, as administrative agent (together, “Wells Fargo”) and U.S. Bank National Association, as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013 and September 9, 2013, provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months.

On February 21, 2014, the Company, through a newly-formed, wholly-owned, consolidated special purpose financing subsidiary, BDCA 2L Funding I, LLC ("2L Funding I"), entered into a revolving credit facility with Deutsche Bank AG, New York Branch as administrative agent and U.S. Bank National Association as collateral agent and collateral custodian (the "Deutsche Bank Credit Facility"). The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million on a committed basis, with a 36 month term.

The Company has formed and expects to continue to form taxable wholly-owned, consolidated subsidiaries (the “Taxable Consolidated Subsidiaries”). These Taxable Consolidated Subsidiaries are taxed as corporations for federal income tax purposes and allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

18

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The Company's investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. The Company anticipates that during its offering period it will invest largely in first and second lien senior secured loans and mezzanine debt issued by middle market companies. The Company may also purchase, directly or through the TRS, interests in loans through secondary market transactions in the "over-the-counter" market for institutional loans. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. The Company defines middle market companies as those with annual revenues between $10 million and $1 billion. The Company may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities”). Structurally, Collateralized Securities are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities are limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. The Company expects that each investment will range between approximately $1 million and $25 million, although this investment size will vary proportionately with the size of its capital base. As the Company increases its capital base during the offering period, it intends to have a substantial portion of its assets invested in customized direct loans to and equity securities of middle market companies. In most cases, companies to whom the Company provides customized financing solutions will be privately held at the time the Company invests in them.
 
The Company has entered into a fund administration servicing agreement and a fund accounting servicing agreement with U.S. Bancorp Fund Services, LLC (the “Administrator”). The Administrator provides services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary for the Company to operate. On August 13, 2012, the Company entered into a custody agreement with U.S. Bank National Association (“U.S. Bank”). Under the custody agreement, U.S. Bank holds all of the portfolio securities and cash of the Company for certain of its subsidiaries, and transfers such securities or cash pursuant to the Company’s instructions. The custody agreement is terminable by either party, without penalty, on not less than ninety days prior notice to the other party.

Realty Capital Securities, LLC (the “Dealer Manager”), an entity under common ownership with the Sponsor, serves as the dealer manager of the Company’s IPO. The Adviser and the Dealer Manager are related parties and receive compensation and fees for services related to the IPO and for the investment and management of the Company’s assets. The Adviser receives fees during the offering, operational and liquidation stages, and the Dealer Manager receives fees during the offering stage.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, ("U.S. GAAP").

The Company consolidates its wholly-owned subsidiaries, Funding I, 2L Funding I, Taxable Consolidated Subsidiaries, and 405 Sub. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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


19

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Valuation of Portfolio Investments

Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of Financial Accounting Standards Board, ("FASB"), Accounting Standards Codification, ("ASC"), Topic 946, Financial Services-Investment Companies, as of the Company's measurement date. However, in determining the fair value of the Company's investment, the Company may make adjustments to the net asset value per share in certain circumstances, based on the Company's analysis of any restrictions on redemption of the shares of the investment as of the measurement date.
    
The value of our TRS is primarily based on the increase or decrease in the value of the loans underlying the TRS, as determined by Citi based upon indicative pricing by an independent third-party pricing service.

For investments in Collateralized Securities, the Company models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Company considers broker quotations and/or quotations provided by pricing services as an input to determining fair value when available. 

As part of the Company's quarterly valuation process the Adviser may be assisted by an independent valuation firm engaged by the Company's board of directors. The audit committee of the Company's board of directors reviews each preliminary valuation and the Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. The board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of the Adviser, the independent valuation firm (to the extent applicable) and the audit committee of the board of directors.


20

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.
    
Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, "control" is defined as the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. In addition, any person "who owns beneficially, either directly or through one or more controlled companies, more than 25 per centum of the voting securities of a company shall be presumed to control such company. Any person who does not so own more than 25 per centum of the voting securities of any company shall be presumed not to control such company". Using this definition, the Company has determined to treat “Control Investments” as investments in companies in which the Company owns more than 25% of the voting securities, maintains greater than 50% of the board representation or has the power to exercise control over the management or policies of such portfolio company. Consistent with the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities. Consistent with the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Where appropriate, prior period financial statements have been reclassified to disclose the Company's Control Investments and Affiliate Investments as defined above. In addition, prior period financial statements have been reclassified to present investment industry classifications in a consistent manner with the current year.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value. Per Section 12(d)(1)(A) of the 1940 Act, the Company may not invest in another registered investment company, including a money market fund, if any of the following occur:

the Company owns more than 3% of the money market fund;

the Company holds securities in the money market fund having an aggregate value in excess of 5% of the value of the total assets of the Company; or

the Company holds securities in money market funds and other registered investment companies having an aggregate value in excess of 10% of the value of the total assets of the Company.

Offering Costs

The Company has incurred certain costs in connection with the registration of shares of its common stock. These costs principally relate to professional fees, printing fees, fees paid to the SEC and fees paid to the Financial Industry Regulatory Authority. Offering costs are recorded as a reduction to contributed capital.

Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for offering costs to the extent that together with all prior offering costs the amounts exceed 1.5% of the aggregate gross proceeds from the Company’s on-going offering.


21

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Deferred Financing Costs

Financing costs incurred in connection with the Company’s revolving credit facilities with Wells Fargo and Deutsche Bank are capitalized and amortized into expense using the straight-line method over the life of the respective facility. See Note 5 - Borrowings - for details on the credit facilities.

Distributions

The Company has declared and paid cash distributions to stockholders on a monthly basis since it commenced operations. The amount of each such distribution will be subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company will calculate each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. From time to time, the Company may also pay interim distributions, including capital gains distributions, at the discretion of the Company’s board of directors. The Company’s distributions may exceed earnings, especially during the period before it has substantially invested the proceeds from the offering. As a result, a portion of the distributions made by the Company may represent a return of capital for U.S. federal income tax purposes. A return of capital is a return of each stockholder’s investment rather than earnings or gains derived from the Company’s investment activities.

The Company may fund cash distributions to stockholders from any sources of funds available to the Company, including expense payments from the Adviser that are subject to reimbursement, as well as offering proceeds and borrowings. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

Distribution Reinvestment Program

The Company has adopted an “opt in” DRIP pursuant to which investors may elect to have the full amount of their cash distributions reinvested in additional shares of the Company’s common stock. Participants in the Company’s DRIP are free to elect or revoke reinstatement in the DRIP within a reasonable time as specified in the plan. If an investor does not elect to participate in the plan, the investor will automatically receive any distributions the Company declares in cash. The Company expects to coordinate distribution payment dates so that the same price that is used for the closing date immediately following such distribution payment date will be used to calculate the purchase price for purchasers under the DRIP. The investors’ reinvested distributions will purchase shares at a price equal to 90% of the price that shares are sold in the offering at the closing immediately following the distribution payment date.

Revenue Recognition

Interest Income

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

The Company has a number of investments in Collateralized Securities. Interest income from investments in the "equity" class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly.
Payment-in-Kind Interest

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis.


22

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Non-accrual income

Investments are placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

Gains or losses on the sale of investments are calculated using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Income Taxes

The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a RIC is exempt from federal income taxes if it distributes to stockholders at least 90% of ‘‘Investment Company Taxable Income,’’ as defined in the Code, each year. Distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. The Company will generally endeavor each year to avoid any federal excise taxes.

Share Repurchase Program

The Company’s board of directors has adopted a Share Repurchase Program (“SRP”) that enables the Company’s stockholders to sell their shares to the Company in limited circumstances. On September 12, 2012, the Company commenced its first quarterly tender offer pursuant to the SRP. The Company intends to conduct tender offers on a quarterly basis on such terms as may be determined by its board of directors in its complete and absolute discretion unless, in the judgment of the independent directors of its board of directors, such repurchases would not be in the Company’s best interests or would violate applicable law.

The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the sale of shares under its DRIP. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable period to repurchase shares. In addition, as of the date of this filing, the Company will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares that the Company offers to repurchase may be less in light of the limitations noted above. The Company will offer to repurchase such shares on each date of repurchase at a price equal to 92.5% of the share price in effect on each date of repurchase, which will be determined in the same manner that the Company determined the offering price per share for purposes of its continuous public offering. The Company’s board of directors may amend, suspend or terminate the repurchase program at any time upon 30 days’ notice.

As of March 31, 2014, the Company had repurchased 0.3 million shares of common stock for payments of $2.6 million. As of March 31, 2013, the Company had repurchased 0.04 million shares of common stock for payments of $0.4 million.

23

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


New Accounting Pronouncements

In June 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-08, Financial Services – Investment Companies (ASC Topic 946), which affects the scope, measurement and disclosure requirements for investment companies under U.S. GAAP. The amendments: (i) change the approach to the investment company assessment in ASC Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment company; (ii) require an investment company to measure non-controlling ownership interests in other investment companies at fair value rather than the equity method of accounting; and (iii) require the following additional disclosures (a) the fact that the entity is an investment company and is applying the guidance in ASC Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. This guidance is effective for interim an annual reporting periods beginning on or after December 15, 2013. Management has reviewed the impact of this accounting pronouncement but does not believe it has a material impact on the Company.

 Note 3 — Fair Value of Financial Instruments

Accounting guidance establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

All of the Company’s investment portfolio at March 31, 2014 was comprised of debt and equity instruments for which Level 1 inputs, such as quoted prices, were not available. Therefore, at March 31, 2014, the investments were valued at fair value as determined in good faith using the valuation policy approved by the board of directors using Level 2 and Level 3 inputs. The Company evaluates the source of inputs, including any markets in which the Company's investments are trading, in determining fair value. Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s investment portfolio at March 31, 2014 may differ materially from values that would have been used had a ready market for the securities existed.


24

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors. Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis the Company performs an analysis of each investment to determine fair value as described below.

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, Financial Services-Investment Companies, as of the Company's measurement date. However, in determining the fair value of the Company's investment, the Company may make adjustments to the net asset value per share in certain circumstances, based on the Company's analysis of any restrictions on redemption of the shares of the investment as of the measurement date. The value of our TRS is primarily based on the increase or decrease in the value of the loans underlying the TRS, as determined by Citi based upon indicative pricing by an independent third-party pricing service.

For investments in Collateralized Securities, the Company models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Company considers broker quotations and/or quotations provided by pricing services as an input to determining fair value when available. 

As part of the Company's quarterly valuation process, the Adviser may be assisted by an independent valuation firm engaged by the Company's board of directors. The audit committee of the board of directors reviews each preliminary valuation and the Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. The board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of the Adviser, the independent valuation firm (to the extent applicable) and the audit committee of the board of directors.

Determination of fair values involves subjective judgments and estimates. Accordingly, the notes to the consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations on the consolidated financial statements.


25

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

As of March 31, 2014, the Company had one portfolio company, which represented two portfolio investments, on non-accrual status with a total principal amount of $4.2 million, amortized cost of $4.1 million, and no fair value which represented 0.4% and 0.4% of the investment portfolio total principal and amortized cost, respectively. The Company did not have any portfolio investments on non-accrual status as of March 31, 2013. Refer to Note 2 - Summary of Significant Accounting Policies - in the consolidated financial statements included in this report for additional details regarding the Company’s non-accrual policy.

For discussion of the fair value measurement of the Company's borrowings, refer to Note 5 - Borrowings - in the consolidated financial statements included in this report.

The following table presents fair value measurements of investments, by major class, as of March 31, 2014, according to the fair value hierarchy (dollars in thousands):
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Debt
$

 
$
157,102

 
$
301,521

 
$
458,623

Senior Secured Second Lien Debt

 
42,102

 
83,813

 
125,915

Subordinated Debt

 

 
57,875

 
57,875

Collateralized Securities

 

 
153,427

 
153,427

Equity/Other

 

 
153,825

 
153,825

Total Return Swap

 
3,278

 

 
3,278

Total
$

 
$
202,482

 
$
750,461

 
$
952,943


The following table presents fair value measurements of investments, by major class, as of December 31, 2013, according to the fair value hierarchy (dollars in thousands):

 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Debt
$

 
$
137,825

 
$
195,755

 
$
333,580

Senior Secured Second Lien Debt

 
39,684

 
51,120

 
90,804

Subordinated Debt

 

 
59,701

 
59,701

Collateralized Securities

 

 
105,945

 
105,945

Equity/Other

 

 
105,746

 
105,746

Total Return Swap

 
3,180

 

 
3,180

Total
$

 
$
180,689

 
$
518,267

 
$
698,956


    

26

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended March 31, 2014 (dollars in thousands):

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Subordinated Debt
 
Collateralized Securities
 
Equity/Other
 
Total
Balance as of December 31, 2013
$
195,755

 
$
51,120

 
$
59,701

 
$
105,945

 
$
105,746

 
$
518,267

Net unrealized gains
(139
)
 
(268
)
 
(2,044
)
 
(1,613
)
 
(75
)
 
(4,139
)
Purchases and other adjustments to cost
147,286

 
41,233

 
218

 
95,741

 
52,461

 
336,939

Sales and redemptions
(41,479
)
 
(8,332
)
 

 
(49,283
)
 
(4,503
)
 
(103,597
)
Net realized gain
98

 
60

 

 
2,637

 
196

 
2,991

Net transfers in and/or out

 

 

 

 

 

Balance as of March 31, 2014
$
301,521

 
$
83,813

 
$
57,875

 
$
153,427

 
$
153,825

 
$
750,461

Unrealized gains (losses) for the
     period relating to those Level 3
     assets that were still held by
     the Company at the end of the
     period:
 
 
 
 
 
 
 
 
 
 
 
          Net change in unrealized
             gain:
$
(58
)
 
$
(170
)
 
$
(2,044
)
 
$
1,249

 
$
(75
)
 
$
(1,098
)

Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

For the three months ended March 31, 2014, there were no transfers out of Level 1, Level 2, or Level 3.

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.


27

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended December 31, 2013 (dollars in thousands):

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Subordinated Debt
 
Collateralized Securities
 
Equity/Other
 
Total
Balance as of December 31, 2012
$
25,190

 
$
8,258

 
$
3,939

 
$
8,533

 
$
6,112

 
$
52,032

Net unrealized gains (losses)
(236
)
 
300

 
(880
)
 
1,637

 
5,434

 
6,255

Purchases and other adjustments to cost
215,368

 
42,562

 
56,642

 
135,289

 
97,293

 
547,154

Sales and redemptions
(35,197
)
 

 

 
(41,066
)
 
(3,093
)
 
(79,356
)
Net realized gain
418

 

 

 
1,552

 

 
1,970

Net transfers in and/or out
(9,788
)
 

 

 

 

 
(9,788
)
Balance as of December 31, 2013
$
195,755

 
$
51,120

 
$
59,701

 
$
105,945

 
$
105,746

 
$
518,267

Unrealized gains (losses) for the
     period relating to those Level 3
     assets that were still held by
     the Company at the end of the
     period:
 
 
 
 
 
 
 
 
 
 

          Net change in unrealized
             gain (loss):
$
(110
)
 
$
300

 
$
(880
)
 
$
1,899

 
$
5,434

 
$
6,643


Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

For the year ended December 31, 2013, there were no transfers out of Level 1 to Level 2 or out of Level 2 to Level 3.

For the year ended December 31, 2013, an investment in 1 portfolio company was transferred from Level 3 to Level 2 as the number and/or reliability of market quotes became available for this investment and has been subsequently used for valuation purposes.

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.

The composition of the Company’s investments as of March 31, 2014, at amortized cost and fair value, were as follows (dollars in thousands):

 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
457,180

 
$
458,623

 
48.3
%
Senior Secured Second Lien Debt
124,286

 
125,915

 
13.3
%
Subordinated Debt
60,785

 
57,875

 
6.1
%
Collateralized Securities
153,380

 
153,427

 
16.1
%
Equity/Other
148,106

 
153,825

 
16.2
%
Total
$
943,737

 
$
949,665

 
100.0
%

28

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The composition of the Company’s investments as of December 31, 2013, at amortized cost and fair value, were as follows (dollars in thousands):

 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
332,140

 
$
333,580

 
47.9
%
Senior Secured Second Lien Debt
89,331

 
90,804

 
13.1

Subordinated Debt
60,567

 
59,701

 
8.6

Collateralized Securities
104,285

 
105,945

 
15.2

Equity/Other
99,954

 
105,746

 
15.2

Total
$
686,277

 
$
695,776

 
100.0
%

Significant Unobservable Inputs

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of March 31, 2014 (dollars in thousands). The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.
 
 
 
 
Range
 
 
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Unobservable Inputs
 
Minimum
 
Maximum
 
Weighted Average (a)
Senior Secured First Lien Debt (b)
 
$
207,241

 
Yield Analysis
 
Market Yield
 
6.50
%
 
15.00
%
 
10.60
%
Senior Secured Second Lien Debt (c)
 
42,611

 
Yield Analysis
 
Market Yield
 
9.25
%
 
15.25
%
 
10.64
%
Subordinated Debt
 
57,875

 
Yield Analysis
 
Market Yield
 
11.50
%
 
17.00
%
 
13.68
%
Collateralized Securities (d)
 
69,439

 
Discounted Cash Flow
 
Market Yield
 
10.81
%
 
15.22
%
 
14.35
%
Equity/Other (e)
 
49,039

 
Market Multiple Analysis
 
EBITDA Multiple
 
0.8x

 
6.9x

 
4.4x

Equity/Other (e)
 
52,209

 
Discounted Cash Flow
 
Market Yield
 
12.58
%
 
14.46
%
 
13.38
%
 
 
$
478,414

 
 
 
 
 
 
 
 
 
 
______________
    
(a)
Weighted averages are calculated based on fair value of investments.

(b) 
The remaining $94.3 million of senior secured first lien debt were valued at their respective acquisition prices as the investments closed near the period ending March 31, 2014.

(c) 
The remaining $41.2 million of senior secured second lien debt were valued at their respective acquisition prices as the investments closed near the period ending March 31, 2014.

(d) 
The remaining $84.0 million of collateralized securities were valued based on recent transactions close to the period ending March 31, 2014.

(e) 
The remaining $52.6 million of equity/other investments consisted of $7.1 million which were valued at their respective acquisition prices as the investments closed near the period ending March 31, 2014 and $45.5 million which were valued based on the net asset values published by the respective fund.

29

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2013 (dollars in thousands). The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.

 
 
 
 
Range
 
 
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Unobservable Inputs
 
Minimum
 
Maximum
 
Weighted Average (a)
Senior Secured First Lien Debt (b)
 
$
105,740

 
Yield Analysis
 
Market Yield
 
6.25
%
 
15.00
%
 
8.46
%
Senior Secured Second Lien Debt (c)
 
26,495

 
Yield Analysis
 
Market Yield
 
10.75
%
 
13.50
%
 
12.23
%
Subordinated Debt (d)
 
39,870

 
Yield Analysis
 
Market Yield
 
11.50
%
 
14.00
%
 
12.47
%
Collateralized Securities (e)
 
6,099

 
Discounted Cash Flow
 
Market Yield
 
11.00
%
 
11.00
%
 
11.00
%
Equity/Other (f)
 
7,803

 
Market Multiple Analysis
 
EBITDA Multiple
 
1.2x

 
6.9x

 
1.8x

Equity/Other (f)
 
30,000

 
Discounted Cash Flow
 
Market Yield
 
12.58
%
 
12.58
%
 
12.58
%
 
 
$
216,007

 
 
 
 
 
 
 
 
 
 
______________
    
(a) 
Weighted averages are calculated based on fair value of investments.

(b) 
The remaining $90.0 million of senior secured first lien debt were valued at their respective acquisition prices as the investments closed near year end.

(c) 
The remaining $24.6 million of senior secured second lien debt were valued at their respective acquisition prices as the investments closed near year end.

(d) 
The remaining $19.8 million of subordinated debt were valued at their respective acquisition prices as the investments closed near year end.

(e) 
The remaining $99.8 million of collateralized securities were valued based on recent transactions close to year end.

(f) 
The remaining $68.0 million of equity/other investments consisted of $36.6 million which were valued at their respective acquisition prices as the investments closed near year end and $31.4 million which were valued based on the net asset values published by the respective fund.

Significant increases or decreases in any of the above unobservable inputs in isolation would result in a significantly lower or higher fair value measurement for such assets.
    
    

Note 4 — Related Party Transactions and Arrangements

The Sponsor, including its wholly owned subsidiary, the Adviser, owns 0.16 million shares of the Company’s outstanding common stock as of March 31, 2014.


30

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Management and Incentive Fee Compensation to the Adviser
 
The Adviser and its affiliates receive fees for services relating to the investment and management of the Company’s assets. The Adviser is entitled to an annual base management fee calculated at an annual rate of 1.5% of the Company’s average gross assets. The management fee is payable quarterly in arrears, and shall be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters. All or any part of the management fee not taken as to any quarter shall be deferred without interest and may be taken in such other quarter as the Adviser will determine. The management fee for any partial month or quarter will be appropriately prorated. In addition, any management fees waived by the Adviser are not subject to recoupment at a later date.
 
The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on 20% of “pre-incentive fee net investment income” but only after the payment of a certain preferred return rate to investors, as defined in the Investment Advisory Agreement, for the immediately preceding quarter of 1.75% per quarter, or an annualized rate of 7.0%, subject to a "catch-up" feature. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the Company’s portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar 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. Incentive fees waived by the Adviser are not subject to recoupment at a later date.

For the three months ended March 31, 2014, the Company incurred $3.6 million of management fees, $0.8 million of subordinated incentive fees on income, and $(0.02) million of capital gains incentive fees under the Investment Advisory Agreement, of which the Adviser did not waive any portion of such fees.
    
For the three months ended March 31, 2013, the Company incurred $0.8 million of management fees, $0.7 million of subordinated incentive fees on income, and $0.3 million of capital gains incentive fees under the Investment Advisory Agreement, of which the Adviser waived $0.4 million of such fees.
    
For accounting purposes only, the Company is required under U.S. GAAP to also accrue a theoretical capital gains incentive fee based upon unrealized capital appreciation on investments held at the end of each period. The accrual of this theoretical capital gains incentive fee assumes all unrealized capital appreciation and depreciation is realized in order to reflect a capital gains incentive fee that would theoretically be payable to the Adviser. For the three months ended March 31, 2014 and March 31, 2013, the Company incurred $(0.4) million and $0.2 million of theoretical capital gains incentive fees, respectively. The amounts actually paid to the Adviser will be consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital appreciation.

As a result of discussions with the SEC staff, the Company has determined to no longer include TRS earnings in the computation of subordinated incentive fees on a prospective basis effective January 1, 2014.

Expense Support Agreement

The Adviser and its affiliates may incur and pay costs and fees on behalf of the Company. The Company and its Adviser have entered into the Expense Support Agreement, whereby the Adviser may pay the Company up to 100% of all operating expenses (“Expense Support Payment”) for any period beginning on the effective date of the Registration Statement, until the Adviser and the Company mutually agree otherwise. The Expense Support Payment for any month shall be paid by the Adviser to the Company in any combination of cash or other immediately available funds and/or offsets against amounts due from the Company to the Adviser.

Operating expenses subject to this agreement include expenses as defined by U.S. GAAP, including, without limitation, advisory fees payable and interest on indebtedness for such period, if any.


31

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Pursuant to the Expense Support Agreement, the Company will reimburse the Adviser for Expense Support Payments within three years of the date that the expense support payment obligation was incurred by the Adviser, subject to the conditions described below. The amount of any reimbursement during any calendar quarter will be limited to an amount that does not cause the Company's other operating expenses to exceed 1.5% of its net assets attributable to common shares after taking such reimbursement payment into account.
     
In addition, the Company will only make reimbursement payments if its “operating expense ratio” (as described in footnote 1 to the table below) is equal to or less than its operating expense ratio at the time the corresponding expense payment was incurred and if the annualized rate of the Company's regular cash distributions to stockholders is equal to or greater than the annualized rate of its regular cash distributions to stockholders at the time the corresponding expense payment was incurred.

Below is a table that provides information regarding expense support payment obligations incurred by the Adviser pursuant to the Expense Support Agreement as well as other information relating to the Company's ability to reimburse the Adviser for such payments. The amounts presented in the first column below are subject to reimbursement to the Adviser pursuant to the terms of the Expense Support Agreement (dollars in thousands):

Quarter Ended
 
Amount of Expense Payment Obligation
 
Operating Expense Ratio as of the Date Expense Payment Obligation Incurred(1)
 
Annualized Distribution Rate as of the Date Expense Payment Obligation Incurred (2)
 
Eligible for Reimbursement Through
March 31, 2011
 
$

 
%
 
%
 
N/A
June 30, 2011
 

 

 

 
N/A
September 30, 2011
 
571

 
2.88

 
8.11

 
September 30, 2014
December 31, 2011
 
131

 
1.97

 
7.90

 
December 31, 2014
March 31, 2012
 
78

 
0.90

 
7.88

 
March 31, 2015
June 30, 2012
 
189

 
0.30

 
7.75

 
June 30, 2015
______________

(1)
"Operating Expense Ratio" is expressed as a percentage of net assets and includes all expenses borne by the Company, except for organizational and offering expenses, base management and incentive fees owed to our Adviser and interest expense.

(2) 
"Annualized Distribution Rate" equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by our Adviser. "Annualized Distribution Rate" does not include special cash or stock distributions paid to stockholders.

(3) 
"N/A"- Not Applicable

If an Expense Support Payment has not been reimbursed within three years of the date such Expense Support Payment was incurred, the Company’s obligation to pay such Expense Support Payment shall automatically terminate and be of no further effect.
 
The Company has recorded $1.1 million as due from affiliate and $0.3 million as due to affiliate on the consolidated statements of assets and liabilities as of March 31, 2014 and December 31, 2013, respectively, which reflect the netting of amounts due from the Adviser and affiliates and amounts due from the Company. On August 24, 2012, the Adviser made a payment to the Company in the amount of $0.8 million for $1.0 million of operating expenses pursuant to the Expense Support Agreement netted against $0.2 million due from the Company to the Adviser as reimbursement for payments made by the Adviser on behalf of the Company. As of March 31, 2014, the Adviser had assumed on a cumulative basis, $1.0 million of operating expenses pursuant to the Expense Support Agreement.


32

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Offering Costs

Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for offering expenses to the extent that, together with all prior offering expenses, the amounts exceed 1.5% of the aggregate gross proceeds from the Company’s on-going offering. As of March 31, 2014, offering costs in the amount of $0.8 million have been incurred in excess of the 1.5% limit and are the responsibility of the Adviser; however, the Company may, but is not obligated to, pay certain amounts back to the Adviser over time. As of December 31, 2013, offering costs in the amount of $1.6 million have been incurred in excess of the 1.5% limit and are the responsibility of the Adviser.

Other Affiliates

The Company's transfer agent, American National Stock Transfer, LLC, is an entity under common ownership with the Sponsor. The business was formed on November 2, 2012 and began providing certain transfer agency services for the Company on March 15, 2013.

The Dealer Manager, an entity under common ownership with the Sponsor, serves as the dealer manager of the Company's IPO. The Dealer Manager receives fees for services related to the IPO during the offering stage. The investment banking and capital markets division of the Dealer Manager provides strategic advisory services and earns fees for these services.

The following table reflects the fees incurred and payable to our Dealer Manager, the Adviser and transfer agent as of and for the three months ended March 31, 2014 (dollars in thousands):

 
 
Incurred for the Three Months Ended
 
Payable as of
 
 
March 31, 2014
 
March 31, 2014
Selling commissions and dealer manager fees (1)
 
$
28,237

 
$

Offering costs
 
3,328

 
428

Management and incentive fees
 
4,391

 
6,850

Investment banking advisory fees (2)
 
164

 

Total related party fees
 
$
36,120

 
$
7,278


The following table reflects the fees incurred and unpaid to our Dealer Manager, the Adviser and transfer agent as of and for the year ended December 31, 2013 (dollars in thousands):

 
 
Incurred for the Year Ended
 
Payable as of
 
 
December 31, 2013
 
December 31, 2013
Selling commissions and dealer manager fees (1)
 
$
45,000

 
$

Offering costs
 
4,198

 
198

Management and incentive fees
 
13,549

 
8,068

Investment banking advisory fees (2)
 
548

 

Total related party fees
 
$
63,295

 
$
8,266

______________

(1)
Selling commissions and dealer manager fees are not reflected in the Company's financial statements

(2) 
Investment banking advisory fees were paid to the Dealer Manager for strategic advisory services provided to the Company


33

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Note 5 — Borrowings

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank, as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months.

The Company may contribute cash or loans to Funding I from time to time to retain a residual interest in any assets contributed through its ownership of Funding I or will receive fair market value for any loans sold to Funding I. Funding I may purchase additional loans from various sources. Funding I has appointed the Company as servicer to manage its portfolio of loans. Funding I's obligations under the Wells Fargo Credit Facility are secured by a first priority security interest in substantially all of the assets of Funding I, including its portfolio of loans. The obligations of Funding I under the Wells Fargo Credit Facility are non-recourse to the Company.

The Wells Fargo Credit Facility will be priced at the one month maturity London Interbank Offered Rate ("LIBOR"), with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I will be subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum for the first six months is 0.50%; thereafter, the non-usage fee per annum is 0.50% for the first 20% of the unused balance and 2.0% for the portion of the unused balance that exceeds 20%. For the three months ended March 31, 2014 and March 31, 2013, the Company incurred $0.1 million, and $0.05 million, respectively, of non-usage fees. Any amounts borrowed under the Wells Fargo Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable in April 2018.

Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. As of March 31, 2014, the Company was in compliance with regards to the Wells Fargo Credit Facility covenants. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs. In the event that the Wells Fargo Credit Facility is terminated prior to the first anniversary, an additional amount is payable to Wells Fargo equal to 2.00% of the maximum amount of the Wells Fargo Credit Facility.

The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate the rights, obligations, power and authority of the Company, in its capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to the Company that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

Borrowings of Funding I will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to BDCs.

On February 21, 2014, the Company, through 2L Funding I, entered into the Deutsche Bank Credit Facility with Deutsche Bank, as lender and as administrative agent and U.S. Bank, as collateral agent and collateral custodian.

34

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million with a term of 36 months. The Deutsche Bank Credit Facility will be priced at LIBOR plus 4.25%, with no LIBOR floor. The undrawn rate is 0.75%. 2L Funding Sub I will be subject to a minimum utilization of 50% of the loan amount in the first 12-months and 65% of the loan amount thereafter, measured quarterly. If the utilized portion of the loan amount is less than the foregoing thresholds, such shortfalls shall bear interest at LIBOR plus 4.25%. For the three months ended March 31, 2014, the Company incurred $0.1 million of non-usage fees. The Company did not incur any non-usage fees for the three months ended March 31, 2013 as the Company had not entered into the Deutsche Bank Credit Facility as of March 31, 2013. The Deutsche Bank Credit Facility provides for monthly interest payments for each drawn loan. Any amounts borrowed under the Deutsche Bank Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, in January 2017. 2L Funding I paid a structuring fee and incurred certain other customary costs and expenses in connection with obtaining the Deutsche Bank Credit Facility.

Borrowings under the Deutsche Bank Credit Facility are subject to compliance with a borrowing base. The Deutsche Bank Credit Facility may be prepaid in whole or in part, subject to a prepayment fee. The Deutsche Bank Credit Facility contains customary default provisions including, but not limited to, non-payment of principal, interest or other obligations under the Deutsche Bank Credit Facility, insolvency, defaults of certain financial covenants and other events with respect to us that may be adverse to Deutsche Bank and the secured parties under the facility.

In connection with the Deutsche Bank Credit Facility, 2L Funding I has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. Upon the occurrence and during the continuation of an event of default, subject, in certain instances, to applicable cure periods, Deutsche Bank may declare the outstanding advances and all other obligations under the Deutsche Bank Credit Facility immediately due and payable. During the continuation of an event of default, 2L Funding I must pay interest at a default rate.

Borrowings of 2L Funding I will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to business development companies.
    
As of March 31, 2014 , the Company had gross deferred financing costs of $2.7 million, net of accumulated amortization of $0.6 million in connection with the Wells Fargo Credit Facility and $0.9 million, net of accumulated amortization of $0.03 million in connection with the Deutsche Bank Credit Facility. As of December 31, 2013, the Company had gross deferred financing costs of $2.3 million, net of accumulated amortization of $0.4 million in connection with the Wells Fargo Credit Facility. At March 31, 2014, $154.7 million was drawn on the Wells Fargo Credit Facility and no funds were drawn on the Deutsche Bank Credit Facility. At December 31, 2013, $132.7 million was drawn on the Wells Fargo Credit Facility. For the three months ended March 31, 2014, the Company incurred interest expense related to the outstanding borrowings on the Wells Fargo Credit Facility in the amount of $0.9 million. For the year ended December 31, 2013, the Company incurred interest expense related to the outstanding borrowings on the Wells Fargo Credit Facility in the amount of $1.2 million.

The weighted average annualized interest cost for all borrowings for the three months ended March 31, 2014 and March 31, 2013 was 2.42% and 2.61%, respectively. The average debt outstanding for the three months ended March 31, 2014 and March 31, 2013 was $152.1 million and $30.0 million, respectively. The maximum debt outstanding for the three months ended March 31, 2014 and March 31, 2013 was $154.7 million and $33.9 million, respectively.


35

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying statements of assets and liabilities due to their short-term nature. The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying statements of assets and liabilities are reported below (amounts in thousands):

 
Level
 
Carrying Amount at March 31, 2014
 
Fair Value at March 31, 2014
Wells Fargo Credit Facility
3
 
$
154,687

 
$
154,687

Deutsche Bank Credit Facility
3
 
$

 
$


 
Level
 
Carrying Amount at December 31, 2013
 
Fair Value at December 31, 2013
Wells Fargo Credit Facility
3
 
$
132,687

 
$
132,687


Note 6 — Total Return Swap

On July 13, 2012, the Company, through its wholly-owned subsidiary, 405 Sub, entered into a TRS with Citi, which was most recently amended on October 15, 2013, to increase the aggregate market value of the portfolio of loans selected by 405 Sub.
 
A total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. The TRS effectively adds leverage to the Company's portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. The TRS enables the Company, through its ownership of 405 Sub, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citi.

The obligations of 405 Sub under the TRS are non-recourse to the Company and the Company's exposure to the TRS is limited to the amount that it contributes to 405 Sub in connection with the TRS. Generally, that amount will be the amount that 405 Sub is required to post as cash collateral for each loan (which in most instances is approximately 25% of the market value of a loan at the time that such loan is purchased). The cash collateral on deposit as of March 31, 2014 was $79.0 million. The cash collateral on deposit as of December 31, 2013 was $76.9 million. As amended, the TRS provides that 405 Sub may select a portfolio of loans with a maximum aggregate market value (determined at the time such loans become subject to the TRS) of $350.0 million.

405 Sub pays interest to Citi for each loan at a rate equal to one-month LIBOR plus 1.20% per annum. Upon the termination or repayment of any loan selected by 405 Sub under the Agreement, 405 Sub may deduct the appreciation of such loan's value from any interest owed to Citi or pay the depreciation amount to Citi in addition to remaining interest payments.

Citi may terminate any individual loan on or after July 13, 2015. However, if at any time, any particular loan fails to meet certain criteria set forth in the TRS, and such failure continues for 30 days, Citi will have the right to terminate that loan or the entire agreement with at least 10 days' notice and 405 Sub would be required to pay certain breakage costs to Citi. 405 Sub may terminate the TRS prior to July 13, 2015 but would be required to pay certain termination fees.
    

36

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

At March 31, 2014, the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):

 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
4,117

 
$
5,467

TRS interest expense
(801
)
 
(1,029
)
Gains on TRS asset sales
78

 
1,013

Net realized gain from TRS
$
3,394

 
$
5,451


At March 31, 2013, the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):

 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
1,696

 
$
2,127

TRS interest expense
(300
)
 
(375
)
Gains on TRS asset sales
7

 
44

Net realized gain from TRS
$
1,403

 
$
1,796

    
The Company valued its TRS in accordance with the agreements between 405 Sub and Citi, which collectively established the TRS and are collectively referred to herein as the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued by Citi. Citi bases its valuation primarily on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The Company's management reviews and approves the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis as part of their quarterly valuation process. To the extent the Company's management has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuations will be discussed or challenged pursuant to the terms of the TRS.

The fair value of the TRS is reflected as an unrealized gain or loss on the total return swap on the consolidated statements of assets and liabilities. The change in value of the TRS is reflected in the consolidated statements of operations as net unrealized appreciation (depreciation) on the total return swap.

As of March 31, 2014 and December 31, 2013, the fair value of the TRS was $3.3 million and $3.2 million, respectively.

As of March 31, 2014, 405 Sub had exposure to 29 underlying loans with a total notional amount of $305.9 million and posted $79.0 million in cash collateral held by Citi, which is reflected in cash collateral on deposit with custodian on the consolidated statements of assets and liabilities. As of December 31, 2013, 405 Sub had exposure to 32 underlying loans with a total notional amount of $293.0 million and posted $76.9 million in cash collateral held by Citibank, which is reflected in cash collateral on deposit with custodian on the consolidated statements of assets and liabilities.
    
For purposes of the asset coverage ratio test applicable to the Company as a BDC, the Company has agreed with the staff of the SEC to treat the outstanding notional amount of the TRS, less the initial amount of any cash collateral posted by 405 Sub under the TRS, as a senior security for the life of that instrument. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

Further, for purposes of Section 55(a) under the 1940 Act, the Company has agreed with the staff of the SEC to treat each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

37

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The following is a summary of the underlying loans subject to the TRS as of March 31, 2014 (dollars in thousands):
Underlying Loan (a)
 
Industry
 
Investment Coupon Rate/Maturity Date
 
Principal
 
Notional Amount
 
Market Value
 
Unrealized Appreciation (Depreciation)
Senior Secured First Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
AM General LLC
 
Aerospace & Defense
 
L+9.00%, 3/22/2018
 
$
6,475

 
$
6,281

 
$
5,730

 
$
(551
)
Amneal Pharmaceuticals LLC
 
Biotechnology
 
L+4.75%, 11/1/2019
 
11,940

 
11,821

 
11,985

 
164

Avaya Inc.
 
Communications Equipment
 
L+5.50%, 3/31/2018
 
14,956

 
14,881

 
14,972

 
91

BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50%, 6/4/2019
 
18,810

 
18,686

 
18,969

 
283

Caesar's Entertainment Resort Properties, LLC
 
Hotels, Restaurants & Leisure
 
L+6.00%, 10/11/2020
 
11,970

 
11,731

 
12,115

 
384

Clover Technologies Group, LLC (aka 4L Holdings)
 
Commercial Services & Supplies
 
L+5.50%, 5/7/2018
 
11,182

 
11,125

 
11,155

 
30

Corner Investment Propco, LLC
 
Hotels, Restaurants & Leisure
 
L+9.75%, 11/2/2019
 
9,000

 
8,932

 
9,225

 
293

Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
 
L+5.00%, 11/2/2020
 
17,228

 
17,056

 
17,292

 
236

Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25%, 12/16/2018
 
6,948

 
6,809

 
7,000

 
191

Hearthside Food Solutions, LLC
 
Food Products
 
L+5.25%, 6/7/2018
 
5,360

 
5,335

 
5,360

 
25

Ikaria Inc.
 
Biotechnology
 
L+6.00%, 7/31/2018
 
17,500

 
17,413

 
17,603

 
190

Jackson Hewitt Inc.
 
Diversified Consumer Services
 
L+8.50%, 10/16/2017
 
8,625

 
8,386

 
8,560

 
174

Liquidnet Holdings, Inc
 
Capital Markets
 
L+8.00%, 5/8/2017
 
8,075

 
7,994

 
8,065

 
71

MCS AMS Sub-Holdings LLC
 
Real Estate Management & Development
 
L+6.00%, 10/15/2019
 
15,000

 
14,550

 
14,550

 

Miller Heiman, Inc.
 
Media
 
L+5.75%, 9/30/2019
 
13,664

 
13,254

 
13,163

 
(91
)
North Atlantic Trading Company Inc
 
Food Products
 
L+6.50%, 1/13/2020
 
7,981

 
7,901

 
8,040

 
139

NXT Capital, LLC
 
Commercial Banks
 
L+5.25%, 9/4/2018
 
9,950

 
9,851

 
10,000

 
149

Premier Dental Services, Inc.
 
Health Care Providers & Services
 
L+7.00%, 11/1/2018
 
9,975

 
9,925

 
9,987

 
62

Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00%, 7/1/2019
 
11,784

 
11,669

 
11,887

 
218

RedPrairie Corp.
 
Software
 
L+10.00%, 12/21/2018
 
17,456

 
17,456

 
17,383

 
(73
)
St. George's University Scholastic Services LLC
 
Diversified Consumer Services
 
L+7.00%, 12/20/2017
 
5,977

 
5,857

 
6,022

 
165

STG-Fairway Acquisitions, Inc.
 
Professional Services
 
L+5.00%, 2/28/2019
 
11,905

 
11,786

 
11,935

 
149

SunGard Availability Services Capital, Inc.
 
Business Equipment & Services
 
L+5.00%, 3/31/2019
 
10,000

 
9,950

 
10,013

 
63

Therakos, Inc.
 
Biotechnology
 
L+6.25%, 12/27/2017
 
7,462

 
7,425

 
7,506

 
81

United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25%, 10/9/2018
 
4,938

 
4,740

 
4,863

 
123

US Shipping LLC
 
Marine
 
L+7.75%, 4/30/2018
 
11,910

 
11,828

 
12,148

 
320

Varel International Ind., LP
 
Oil, Gas & Consumable Fuels
 
L+7.75%, 7/17/2017
 
4,781

 
4,686

 
4,817

 
131

Vestcom International, Inc.
 
Media
 
L+5.75%, 12/26/2018
 
8,925

 
8,806

 
8,925

 
119

Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
296,134

 
$
299,270

 
$
3,136

 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75%, 10/1/2018
 
$
9,950

 
$
9,751

 
$
9,900

 
$
149

Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
9,751

 
$
9,900

 
$
149

Total
 
 
 
 
 
 
 
$
305,885

 
$
309,170

 
$
3,285


38

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

______________

(a)
All of the companies that issued the underlying loans that are subject to the TRS are eligible portfolio companies, as defined in the Investment Company Act of 1940, except Caesar's Entertainment Resort Properties, LLC, NXT Capital LLC, and St. George's University Scholastic Services LLC.

The following is a summary of the underlying loans subject to the TRS as of December 31, 2013 (dollars in thousands):
Underlying Loan (a)
 
Industry
 
Investment Coupon Rate/Maturity Date
 
Principal
 
Notional Amount
 
Market Value
 
Unrealized Appreciation (Depreciation)
Senior Secured First Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
AM General LLC
 
Aerospace & Defense
 
L+9.00%, 3/22/2018
 
$
6,650

 
$
6,451

 
$
5,752

 
$
(699
)
American Dental Partners, Inc.
 
Health Care Providers & Services
 
L+5.00%, 2/9/2018
 
3,388

 
3,184

 
3,320

 
136

Amneal Pharmaceuticals LLC
 
Biotechnology
 
L+4.75%, 11/1/2019
 
11,970

 
11,850

 
12,030

 
180

BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50%, 6/4/2019
 
18,858

 
18,733

 
18,952

 
219

Caesar's Entertainment Resort Properties, LLC
 
Hotels, Restaurants & Leisure
 
L+6.00%, 10/11/2020
 
12,000

 
11,760

 
11,925

 
165

Clover Technologies Group, LLC (aka 4L Holdings)
 
Commercial Services & Supplies
 
L+5.50%, 5/7/2018
 
11,330

 
11,272

 
11,273

 
1

Corner Investment Propco, LLC
 
Hotels, Restaurants & Leisure
 
L+9.75%, 11/2/2019
 
9,000

 
8,932

 
9,135

 
203

Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
 
L+5.00%, 11/2/2020
 
17,271

 
17,098

 
17,343

 
245

Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25%, 12/21/2018
 
6,965

 
6,826

 
7,035

 
209

Hearthside Food Solutions, LLC
 
Food Products
 
L+5.25%, 6/7/2018
 
5,444

 
5,418

 
5,444

 
26

Ikaria Acquisitions, Inc.
 
Biotechnology
 
L+6.00%, 7/3/2018
 
13,650

 
13,445

 
13,710

 
265

Jackson Hewitt, Inc.
 
Diversified Consumer Services
 
L+8.50%, 10/16/2017
 
9,266

 
9,008

 
9,173

 
165

Jacobs Entertainment, Inc.
 
Hotels, Restaurants & Leisure
 
L+5.00%, 10/29/2018
 
3,950

 
3,891

 
3,930

 
39

Keystone Automotive Operations Inc
 
Distributors
 
L+5.75%, 8/8/2019
 
9,975

 
9,825

 
10,000

 
175

Liquidnet Holdings, Inc.
 
Capital Markets
 
L+8.00%, 5/8/2017
 
8,181

 
8,100

 
8,058

 
(42
)
MCS AMS Sub-Holdings LLC
 
Real Estate Management & Development
 
L+6.00%, 10/15/2019
 
15,000

 
14,550

 
14,475

 
(75
)
Miller Heiman
 
Media
 
L+5.75%, 9/30/2018
 
13,750

 
13,338

 
13,681

 
343

Mitel Networks Corp.
 
Communications Equipment
 
L+5.75%, 2/27/2019
 
5,355

 
5,301

 
5,355

 
54

NXT Capital LLC
 
Commercial Banks
 
L+5.25%, 9/4/2018
 
10,000

 
9,900

 
9,900

 

Plato Learning, Inc.
 
Diversified Consumer Services
 
L+4.75%, 5/17/2018
 
2,400

 
2,392

 
2,392

 

Premier Dental Services Inc.
 
Health Care Providers & Services
 
L+7.00%, 11/1/2018
 
4,950

 
4,802

 
4,981

 
179

Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00%, 7/1/2019
 
12,690

 
12,567

 
12,762

 
195

RedPrairie Corp.
 
Software
 
L+10.00%, 12/21/2018
 
17,500

 
17,500

 
17,549

 
49

St. George's University Scholastic Services LLC
 
Diversified Consumer Services
 
L+7.00%, 12/20/2017
 
6,517

 
6,387

 
6,550

 
163

STG-Fairway Acquisitions, Inc.
 
Professional Services
 
L+5.00%, 2/28/2019
 
11,965

 
11,845

 
11,943

 
98


39

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Underlying Loan (a)
 
Industry
 
Investment Coupon Rate/Maturity Date
 
Principal
 
Notional Amount
 
Market Value
 
Unrealized Appreciation (Depreciation)
Therakos, Inc.
 
Biotechnology
 
L+6.25%, 12/27/2017
 
$
7,481

 
$
7,444

 
$
7,487

 
43

United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25%, 10/9/2018
 
4,950

 
4,752

 
4,702

 
$
(50
)
US Shipping LLC
 
Marine
 
L+7.75%, 4/30/2018
 
11,940

 
11,858

 
12,209

 
351

Varel International Ind., LP
 
Oil, Gas & Consumable Fuels
 
L+7.75%, 7/17/2017
 
4,850

 
4,753

 
4,923

 
170

Vestcom International, Inc.
 
Media
 
L+5.75%, 12/26/2018
 
7,444

 
7,332

 
7,453

 
121

Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
280,514

 
$
283,442

 
$
2,928

 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75%, 10/1/2018
 
$
9,975

 
$
9,776

 
$
9,925

 
$
149

RedPrairie Corp.
 
Software
 
L+10.00%, 12/14/2019
 
3,000

 
2,690

 
2,793

 
103

Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
12,466


$
12,718


$
252

Total
 
 
 
 
 
 
 
$
292,980


$
296,160


$
3,180

______________

(a) 
All of the companies that issued the underlying loans that are subject to the TRS are eligible portfolio companies, as defined in the Investment Company Act of 1940, except Caesar's Entertainment Resort Properties, LLC, Mitel Networks Corp., NXT Capital LLC, and St. George's University Scholastic Services LLC.

Note 7 — Commitments and Contingencies

Commitments

In the ordinary course of business, the Company may enter into future funding commitments. As of March 31, 2014, the Company had unfunded commitments on delayed draw term loans of $24.4 million and unfunded equity commitments of $20.2 million. As of December 31, 2013, the Company had unfunded commitments on delayed draw term loans of $25.6 million and unfunded equity commitments of $20.0 million. The unfunded commitments are disclosed in the Company's Consolidated Schedule of Investments.

Litigation
 
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.
 
Indemnifications

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

Note 8 — Economic Dependency
 
Under various agreements, the Company has engaged or will engage the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations.
  

40

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

Note 9 — Common Stock

On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO and through March 31, 2014, the Company had sold 94.1 million shares of common stock for gross proceeds of $1.0 billion, including shares purchased by the Sponsor and shares issued under the DRIP. As of March 31, 2014, the Company had repurchased 0.3 million shares of common stock for payments of $2.6 million.

The following table reflects the common stock activity for the three months ended March 31, 2014 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
29,879,459

 
$
329,461

Shares Issued through DRIP
 
673,532

 
6,789

Share Repurchases
 
(92,514
)
 
(963
)
 
 
30,460,477

 
$
335,287


The following table reflects the common stock activity for the three months ended March 31, 2013 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
7,277,096

 
$
77,543

Shares Issued through DRIP
 
118,354

 
1,143

Share Repurchases
 
(15,405
)
 
(156
)
 
 
7,380,045

 
$
78,530

    
Note 10 — Share Repurchase Program

The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:

 
the effect of such repurchases on the Company's qualification as a RIC (including the consequences of any
 
 
necessary asset sales);
 
the liquidity of the Company's assets (including fees and costs associated with disposing of assets);
 
the Company's investment plans and working capital requirements;
 
the relative economies of scale with respect to the Company's size;
 
the Company's history in repurchasing shares or portions thereof; and
 
the condition of the securities markets.
    

41

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the sale of shares under its DRIP. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares. In addition, as of September 30, 2013, the Company will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares that the Company offers to repurchase may be less in light of the limitations noted above. The Company will offer to repurchase such shares on each date of repurchase at a price equal to 92.5% of the public offering price in effect on each date of repurchase, which will be determined in the same manner that the Company determined the public offering price per share for purposes of its continuous public offering. The Company’s board of directors may amend, suspend or terminate the repurchase program at any time upon 30 days’ notice. The first quarterly tender offer commenced on September 12, 2012 and was completed on October 8, 2012. Upon completion of its first quarterly tender offer, on October 8, 2012, the Company repurchased 0 shares at the offered price of $9.7125 per share for aggregate consideration totaling $0. The second quarterly tender offer commenced on December 13, 2012 and was completed on January 15, 2013. Upon completion of this tender offer on January 15, 2013, the Company repurchased 10,732 shares at the offered price of $9.8975 per share for aggregate consideration totaling $0.1 million. The third quarterly tender offer commenced on March 27, 2013, which was completed on April 25, 2013. Upon completion of this tender offer, the Company repurchased 29,625 shares at the offered price of $10.18 per share for aggregate consideration totaling $0.3 million. The fourth quarterly tender offer commenced on July 15, 2013, which was completed on August 13, 2013. Upon completion of this tender offer, the Company repurchased 30,365 shares at the offered price of $10.18 per share for aggregate consideration totaling $0.3 million. The fifth quarterly tender offer commenced on October 22, 2013, and was completed on November 21, 2013. Upon completion of this tender offer, the Company repurchased 55,255 shares at the offer price of $10.36 per share for aggregate consideration totaling $0.6 million. The sixth quarterly tender offer commenced on February 4, 2013, and was completed on March 6, 2014. The consideration for the repurchased shares was $0.7 million based on the repurchase of 68,969 shares at $10.36 which is 92.5% of the current public offering price of $11.20.
    

Note 11 — Net Increase in Net Assets

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company had no potentially dilutive securities as of March 31, 2014 and 2013.

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the three months ended March 31, 2014, and March 31, 2013 (dollars in thousands except share and per share amounts):

 
 
For the three months ended March 31,
 
For the three months ended March 31,
 
 
2014
 
2013
Basic and diluted
 
 
 
 
Net increase in net assets from operations
 
$
17,400

 
$
7,940

Weighted average common shares outstanding
 
78,450,124

 
18,939,009

Net increase in net assets resulting from operations per share - basic and diluted
 
$
0.22

 
$
0.42

    

42

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The table below shows changes in our offering price and distribution rates since the commencement of our public offering.
Announcement Date
 
New Public Offering Price
 
Effective Date
 
Daily Distribution Amount per share
 
Annualized Distribution Rate
November 14, 2011
 
$
10.26

 
November 16, 2011
 
0.002221920
 
7.90
%
May 1, 2012
 
$
10.44

 
June 1, 2012
 
0.002215850
 
7.75
%
August 14, 2012
 
$
10.50

 
September 4, 2012
 
0.002246575
 
7.81
%
September 24, 2012
 
$
10.60

 
October 16, 2012
 
0.002246575
 
7.74
%
October 15, 2012
 
$
10.70

 
November 1, 2012
 
0.002273973
 
7.76
%
February 5, 2013
 
$
10.80

 
February 18, 2013
 
0.002293151
 
7.75
%
February 25, 2013
 
$
10.90

 
March 1, 2013
 
0.002314384
 
7.75
%
April 3, 2013
 
$
11.00

 
April 16, 2013
 
0.002335616
 
7.75
%
August 15, 2013
 
$
11.10

 
August 16, 2013
 
0.002356849
 
7.75
%
October 29, 2013
 
$
11.20

 
November 1, 2013
 
0.002378082
 
7.75
%

Note 12 — Distributions

The Company has declared and paid cash distributions to stockholders on a monthly basis since it commenced operations. From time to time, the Company may also pay interim distributions at the discretion of its board of directors. The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. The Company’s distributions may exceed its earnings, especially during the period before the Company has substantially invested the proceeds from its IPO. As a result, a portion of the distributions the Company will make may represent a return of capital for tax purposes. As of March 31, 2014, the Company had accrued $6.7 million in stockholder distributions that were unpaid. As of December 31, 2013, the Company had accrued $4.6 million in stockholder distributions that were unpaid.
    
The following table reflects the cash distributions per share that we have paid on our common stock to date (dollars in thousands except per share amounts):
Record Date
Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
2011:
 
 
 
 
 
 
 
 
 
September 30, 2011
October 3, 2011
 
$
0.07

 
$
13

 
$
13

 
$
26

October 31, 2011
November 1, 2011
 
0.07

 
20

 
14

 
34

November 30, 2011
December 1, 2011
 
0.06

 
25

 
17

 
42

December 31, 2011
January 3, 2012
 
0.06

 
35

 
21

 
56

 
 
 
 
 
$
93

 
$
65

 
$
158

2012:
 
 
 
 
 
 
 
 
 
January 31, 2012
February 1, 2012
 
$
0.06

 
$
47

 
$
26

 
$
73

February 29, 2012
March 1, 2012
 
0.06

 
80

 
34

 
114

March 31, 2012
April 2, 2012
 
0.06

 
118

 
48

 
166

April 30, 2012
May 1, 2012
 
0.06

 
157

 
65

 
222

May 31, 2012
June 1, 2012
 
0.07

 
289

 
91

 
380

June 30, 2012
July 2, 2012
 
0.06

 
313

 
113

 
426


43

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Record Date
Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
July 31, 2012
August 1, 2012
 
$
0.07

 
$
361

 
$
146

 
$
507

August 31, 2012
September 4, 2012
 
0.07

 
394

 
173

 
567

September 30, 2012
October 1, 2012
 
0.06

 
429

 
203

 
632

October 31, 2012
November 1, 2012
 
0.07

 
505

 
247

 
752

November 30, 2012
December 3, 2012
 
0.07

 
612

 
287

 
899

December 17, 2012
December 27, 2012
 
0.09

 
917

 
462

 
1,379

December 31, 2012
January 2, 2013
 
0.07

 
682

 
341

 
1,023

 
 
 
 
 
$
4,904

 
$
2,236

 
$
7,140

2013:
 
 
 
 
 
 
 
 
 
January 31, 2013
February 1, 2013
 
$
0.07

 
$
787

 
$
395

 
$
1,182

February 28, 2013
March 1, 2013
 
0.06

 
797

 
408

 
1,205

March 31, 2013
April 1, 2013
 
0.07

 
1,008

 
525

 
1,533

April 30, 2013
May 1, 2013
 
0.07

 
1,098

 
590

 
1,688

May 31, 2013
June 1, 2013
 
0.07

 
1,276

 
755

 
2,031

June 30, 2013
July 1, 2013
 
0.07

 
1,396

 
893

 
2,289

July 31, 2013
August 1, 2013
 
0.07

 
1,608

 
1,071

 
2,679

August 31, 2013
September 1, 2013
 
0.07

 
1,764

 
1,285

 
3,049

September 30, 2013
October 1, 2013
 
0.07

 
1,868

 
1,408

 
3,276

October 31, 2013
November 1, 2013
 
0.07

 
2,092

 
1,673

 
3,765

November 30, 2013
December 2, 2013
 
0.07

 
2,225

 
1,799

 
4,024

December 31, 2013
January 2, 2014
 
0.07

 
2,504

 
2,074

 
4,578

 
 
 
 
 
$
18,423

 
$
12,876

 
$
31,299

2014:
 
 
 
 
 
 
 
 
 
January 31, 2014
February 4, 2014
 
$
0.07

 
$
2,718

 
$
2,317

 
$
5,035

February 28, 2014
March 3, 2014
 
0.06

 
2,751

 
2,399

 
5,150

March 31, 2014
April 1, 2014
 
0.07

 
3,499

 
3,196

 
6,695

April 30, 2014
May 1, 2014
 
0.07

 
3,816

 
3,608

 
7,424

 
 
 
 
 
$
12,784

 
$
11,520

 
$
24,304

 
 
 
 
 
$
36,204

 
$
26,697

 
$
62,901

The following table reflects the stock distributions per share that the Company declared on its common stock to date:

Date Declared
 
Record Date
 
Payment Date
 
Per Share
 
Distribution Percentage
 
Shares Issued
March 29, 2012
 
May 1, 2012
 
May 2, 2012
 
$
0.05

 
0.49
%
 
25,709


The Company has not established any limit on the extent to which it may use borrowings, if any, or proceeds from its IPO to fund distributions (which may reduce the amount of capital it ultimately invests in assets). There can be no assurance that the Company will be able to sustain distributions at any particular level.

On March 1, 2012, the price for newly-issued shares under the DRIP issued to stockholders was changed from 95% to 90% of the stock price that the shares are sold in the offering as of the date the distribution is made.


44

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Note 13 — Financial Highlights

The following is a schedule of financial highlights for the three months ended March 31, 2014 and March 31, 2013:
 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
2014
 
2013
Per share data:
 

 
 

Net asset value, beginning of period
$
9.86

 
$
9.41

 
 
 
 
Results of operations (1)
       Net investment income
0.15

 
0.12

Net realized and unrealized appreciation (depreciation) on investments
(0.01
)
 
0.08

Net realized and unrealized appreciation on total return swap
0.07

 
0.22

Net increase in net assets resulting from operations
0.21

 
0.42

 
 
 
 
Stockholder distributions (2)
       Distributions from net investment income
(0.16
)
 
(0.12
)
Distributions from net realized gain on investments and total return swap
(0.06
)
 
(0.09
)
Net decrease in net assets resulting from stockholder distributions
(0.22
)
 
(0.21
)
 
 
 
 
Capital share transactions
       Issuance of common stock (3)
0.09

 
0.09

Repurchases of common stock (4)

 

Offering costs
(0.06
)
 
(0.08
)
Net increase in net assets resulting from capital share transactions
0.03

 
0.01

Net asset value, end of period
$
9.88

 
$
9.63

Shares outstanding at end of period
94,132,120

 
22,323,260

Total return (6)
2.37
%
 
4.47
%
Ratio/Supplemental data:
 

 
 

Net assets, end of period (in thousands)
$
930,415

 
$
214,868

Ratio of net investment income to average net assets (5)(8)
6.22
%
 
5.03
%
Ratio of operating expenses to average net assets (5)(8)
3.41
%
 
4.90
%
Ratio of incentive fees to average net assets (8)
0.10
%
 
1.49
%
Ratio of credit facility related expenses to average net assets (8)
0.67
%
 
0.69
%
Portfolio turnover rate (7)
18.66
%
 
44.57
%
 
 
 
 
______________

45

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


(1) 
The per share data was derived by using the weighted average shares outstanding during the period. Net investment income per share excluding the expense waiver and reimbursement equals $0.15 for the three months ended March 31, 2014. Net investment income per share excluding the expense waiver and reimbursements equals $0.40 for the three months ended March 31, 2013.

(2) 
The per share data for distributions reflects the actual amount of distributions declared per share during the period.

(3) 
The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous offering.

(4) 
The per share impact of the Company's repurchases of common stock is a reduction to net asset value of less than$0.01 per share during the three months ended March 31, 2014.

(5) 
For the three months ended March 31, 2014, excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses, and incentive fees to average net assets is 6.22%, 3.41%, and 0.10% , respectively. For the three months ended March 31, 2013, excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses and incentive fees to average net assets was 4.10%, 5.82%, and 2.41% , respectively.

(6) 
Total return is calculated assuming a purchase of shares of common stock at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. The total return based on net asset value for the three months ended March 31, 2014, includes the effect of the expense waiver and reimbursement which equaled 0.00%. The total return based on net asset value for the three months ended March 31, 2013, includes the effect of the expense waiver and reimbursement which equaled 0.23%.

(7) 
Portfolio turnover rate is calculated using the lesser of year-to-date purchases or sales over the average of the invested assets at fair value. Not annualized.

(8) 
Ratios are annualized.

Note 14 – Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:

From April 1, 2014 to May 15, 2014, the Company has issued 19.3 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $214.4 million.

On May 6, 2014, the Company, through 405 Sub, amended and restated its total return swap agreement (the "Sixth Amended Agreement") with Citi. The Sixth Amended Agreement increases the maximum aggregate market value of the portfolio of loans that 405 Sub may elect from $350.0 million to $450.0 million.


46

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS AND ADVANCES TO AFFILIATES
(dollars in thousands)
(Unaudited)




Schedule 12-14
Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value December 31, 2013
 
Gross additions
 
Gross reductions
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss)
 
Fair Value at March 31, 2014
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
$
535

 
$
15,860

 
$
3,683

 
$

 
$

 
$

 
$
19,543

Kahala Aviation Holdings, LLC (2)
 
Equity/Other
 

 

 

 

 

 

 

Kahala Aviation Holdings, LLC - Preferred Shares
 
Equity/Other
 

 
5,271

 
1,050

 

 

 

 
6,321

Park Ave RE Holdings, LLC
 
Senior Secured First Lien Debt
 
431

 
9,750

 
14,338

 

 

 

 
24,088

Park Ave RE, Inc.
 
Equity/Other
 

 
33

 
46

 

 

 
(79
)
 

Park Ave RE, Inc. - Preferred Shares
 
Equity/Other
 

 
3,218

 
4,591

 

 

 

 
7,809

  Total Control Investments
 
 
 
$
966

 
$
34,132

 
$
23,708

 
$

 
$

 
$
(79
)
 
$
57,761

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
$
441

 
$
13,650

 
$

 
$

 
$

 
$
(66
)
 
$
13,584

Catamaran CLO 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
247

 
20,404

 

 
(21,176
)
 
3,236

 
(2,464
)
 

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
1,069

 
28,086

 

 
(3,243
)
 

 

 
24,843

Fifth Street Senior Loan Fund I, LLC
 
Equity/Other
 

 

 
14,455

 

 

 

 
14,455

Garrison Funding 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 

 
15,000

 

 

 

 

 
15,000

JMP Credit Advisors CLO II Ltd. Subordinated Notes
 
Collateralized Securities
 
27

 
6,099

 

 
(6,100
)
 
400

 
(399
)
 

MidOcean Credit CLO II, Ltd. Subordinated Notes
 
Collateralized Securities
 
184

 
20,543

 

 
(20,543
)
 

 

 

MidOcean Credit Fund Management LP
 
Collateralized Securities
 
823

 

 
34,058

 

 

 

 
34,058

NewStar Arlington Fund, LLC
 
Equity/Other
 
780

 
30,000

 

 

 

 

 
30,000

OFSI Fund VI, Ltd. Subordinated Notes
 
Collateralized Securities
 
177

 

 
32,895

 

 

 

 
32,895

OFSI Fund VI, Ltd. Warehouse
 
Collateralized Securities
 
123

 

 
17,000

 
(17,000
)
 

 

 

PennantPark Credit Opportunities Fund, LP
 
Equity/Other
 
158

 
10,550

 

 

 

 
241

 
10,791

Related Fee Agreements
 
Collateralized Securities
 
82

 

 
5,130

 

 

 

 
5,130

Shackleton 2014-V CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
113

 

 
26,250

 

 

 

 
26,250

South Grand MM CLO I, LLC
 
Equity/Other
 
69

 
872

 
21,337

 

 

 

 
22,209

THL Credit Greenway Fund II LLC
 
Equity/Other
 
236

 
9,005

 
2,962

 

 

 
(29
)
 
11,938

  Total Affiliate Investments
 
 
 
$
4,529

 
$
154,209

 
$
154,087

 
$
(68,062
)
 
$
3,636

 
$
(2,717
)
 
$
241,153

  Total Control & Affiliate Investments
 
 
 
$
5,495

 
$
188,341

 
$
177,795

 
$
(68,062
)
 
$
3,636

 
$
(2,796
)
 
$
298,914

This schedule should be read in connection with the Company’s Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________________________________________
(1)
The principal amount and ownership detail are shown in the Consolidated Schedules of Investments.
(2) 
In accordance with the subscription agreement executed with Kahala Aviation Holdings, LLC dated December 23, 2013, the Company owns 84 common units of shares.

47

BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS AND ADVANCES TO AFFILIATES
(dollars in thousands)
(Unaudited)




Schedule 12-14
Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value December 31, 2012
 
Gross additions
 
Gross reductions
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss)
 
Fair Value at December 31, 2013
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$

Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
$
51

 
$

 
$
15,860

 
$

 
$

 
$

 
$
15,860

Kahala Aviation Holdings, LLC (2)
 
Equity/Other
 

 

 

 

 

 

 

Kahala Aviation Holdings, LLC - Preferred Shares
 
Equity/Other
 

 

 
5,271

 

 

 

 
5,271

Park Ave RE Holdings, LLC
 
Senior Secured First Lien Debt
 
4

 

 
9,750

 

 

 

 
9,750

Park Ave RE, Inc.
 
Equity/Other
 

 

 
33

 

 

 

 
33

Park Ave RE, Inc. - Preferred Shares
 
Equity/Other
 

 

 
3,218

 

 

 

 
3,218

Total Control Investments
 
 
 
$
55

 
$

 
$
34,132

 
$

 
$

 
$

 
$
34,132

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
$

 
$

 
$
18,200

 
$
(4,675
)
 
$
125

 
$

 
$
13,650

Catamaran CLO 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
1,780

 

 
23,000

 
(5,790
)
 
730

 
2,464

 
20,404

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 

 

 
28,086

 

 

 

 
28,086

Garrison Funding 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
385

 

 
15,000

 

 

 

 
15,000

JMP Credit Advisors CLO II Ltd. Subordinated Notes
 
Collateralized Securities
 
513

 

 
5,700

 

 

 
399

 
6,099

MidOcean Credit CLO II, Ltd. Subordinated Notes
 
Collateralized Securities
 

 

 
20,543

 

 

 

 
20,543

NewStar Arlington Fund, LLC
 
Equity/Other
 
1,093

 

 
30,000

 

 

 

 
30,000

PennantPark Credit Opportunities Fund, LP
 
Equity/Other
 
438

 
5,137

 
5,000

 

 

 
413

 
10,550

Shackleton 2013-IV CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
1,765

 

 
24,760

 
(24,760
)
 

 

 

South Grand MM CLO I, LLC
 
Equity/Other
 

 

 
872

 

 

 

 
872

THL Credit Greenway Fund II LLC
 
Equity/Other
 
606

 

 
11,630

 
(2,693
)
 

 
68

 
9,005

Total Affiliate Investments
 
 
 
$
6,580

 
$
5,137

 
$
182,791

 
$
(37,918
)
 
$
855

 
$
3,344

 
$
154,209

Total Control & Affiliate Investments
 
 
 
$
6,635

 
$
5,137

 
$
216,923

 
$
(37,918
)
 
$
855

 
$
3,344

 
$
188,341

This schedule should be read in connection with the Company’s Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
_____________________________________________________
(1) 
The principal amount and ownership detail are shown in the Consolidated Schedules of Investments.
(2) 
In accordance with the subscription agreement executed with Kahala Aviation Holdings, LLC dated December 23, 2013, the Company owns 84 common units of shares.


48



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Business Development Corporation of America and the notes thereto, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. We are externally managed by our adviser, BDCA Adviser, LLC (the "Adviser").

The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:
our future operating results;
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;
the timing of cash flows, if any, from the operations of our portfolio companies;
our repurchase of shares;
actual and potential conflicts of interest with our Adviser and its affiliates;
the dependence of our future success on the general economy and its effect on the industries in which we invest;
the ability to qualify and maintain our qualification as a regulated investment company (“RIC”) and a business development company (“BDC”); and
the impact on our business of Dodd-Frank and the rules and regulations issued thereunder.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this 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 discussed in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013. Other factors that could cause actual results to differ materially include:
changes in the economy;
risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and
future changes in laws or regulations and conditions in our operating areas.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Overview

We are a specialty finance company incorporated in Maryland in May 2010. We are an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). We are therefore required to comply with certain regulatory requirements. We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually hereafter, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). We are managed by the Adviser, a private investment firm that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Adviser oversees the management of our activities and is responsible for making investment decisions with respect to our portfolio. Our Adviser is controlled by Nicholas S. Schorsch, our chairman and chief executive officer, and William M. Kahane, one of our directors, through their ownership of AR Capital, LLC (formerly known as American Realty Capital II, LLC) (the "Sponsor").


49



On January 25, 2011, we commenced our initial public offering (the "IPO") on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, at an initial offering price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form N-2 (File No. 333-166636) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. We sold 22,222 shares of common stock to our Adviser on July 8, 2010 at $9.00 per share, which represents the initial public offering price of $10.00 per share minus selling commissions of $0.70 per share and dealer manager fees of $0.30 per share. On August 25, 2011, we raised sufficient funds to break escrow on our IPO and commenced operations as of that date. As of March 31, 2014, we had issued 94.1 million shares of common stock for gross proceeds of $1.0 billion including the shares purchased by the Sponsor and shares issued under our distribution reinvestment plan ("DRIP"). As of March 31, 2014, we had repurchased 0.3 million shares of common stock for payments of $2.6 million.

On July 13, 2012, we, through a wholly-owned, consolidated subsidiary, 405 TRS I, LLC ("405 Sub"), entered into a total return swap agreement ("TRS") with Citibank, N.A. ("Citi"), which was subsequently amended on October 17, 2012, December 7, 2012, May 10, 2013, July 18, 2013, and October 15, 2013, to increase the aggregate market value of the portfolio of loans selected by 405 Sub to $350.0 million. 405 Sub is included within our consolidated financial statements. As amended, the TRS provides that 405 Sub may select a portfolio of loans with a maximum aggregate value (determined at the time such loans become subject to the TRS) of $350.0 million. The consolidated financial statements include both our accounts and the accounts of 405 Sub. All significant intercompany transactions have been eliminated in consolidation.

On July 24, 2012, we, through a wholly-owned, consolidated special purpose financing subsidiary, BDCA Funding I, LLC ("Funding I"), entered into a revolving credit facility (the "Wells Fargo Credit Facility") with Wells Fargo Bank, National Association, as lender, Wells Fargo Securities, as administrative agent (together, "Wells Fargo") and U.S. Bank National Association ("U.S. Bank"), as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013 and September 9, 2013, provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months. Funding I is included within our consolidated financial statements. The consolidated financial statements include both our accounts and the accounts of Funding I. All significant intercompany transactions have been eliminated in consolidation.

On February 21, 2014, the Company, through a newly-formed, wholly-owned, consolidated special purpose financing subsidiary, BDCA 2L Funding I, LLC ("2L Funding I"), entered into a revolving credit facility with Deutsche Bank AG, New York Branch as administrative agent and U.S. Bank as collateral agent and collateral custodian (the "Deutsche Bank Credit Facility"). The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million on a committed basis, with a 36 month term.

We have formed and expect to continue to form taxable wholly-owned, consolidated subsidiaries (the “Taxable Consolidated Subsidiaries”). These Taxable Consolidated Subsidiaries are taxed as corporations for federal income tax purposes and allow us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
    
Our investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. We anticipate that during our offering period we will invest largely in first and second lien senior secured loans and mezzanine debt issued by middle market companies. We may also purchase, directly and through the TRS, interests in loans through secondary market transactions in the "over-the-counter" market for institutional loans. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We define middle market companies as those with annual revenues between $10 million and $1 billion. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles ("Collateralized Securities"). Structurally, Collateralized Securities are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities are limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. We expect that our investments will generally range between approximately $1 million and $25 million, although this investment size will vary proportionately with the size of our capital base. As we increase our capital base during our offering period, we will invest in, and ultimately intend to have a substantial portion of our assets invested in, customized direct loans to and equity securities of middle market companies. In most cases, companies to whom we provide customized financing solutions will be privately held at the time we invest in them.


50



As a BDC, we are required to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying assets,” including securities of U.S. operating companies whose securities are not listed on a national securities exchange, U.S. operating companies with listed securities that have equity market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding borrowings) to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions.

Investment Advisory and Administration Agreement

Pursuant to the Investment Advisory Agreement we have with the Adviser, we pay the Adviser a fee for its services consisting of two components - a management fee and an incentive fee. The management fee is calculated at an annual rate of 1.5% of our average gross assets and is payable quarterly in arrears.

The incentive fee consists of two parts. The first part, which we refer to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding quarter. The payment of the subordinated incentive fee on income is subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, of 1.75% (7.00% annualized), subject to a “catch up” feature.

The second part of the incentive fee, referred to as the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of our incentive fee capital gains, which equals our realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar 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. Realized gains received from loans underlying the total return swap we have with Citi will not be included for purposes of evaluating the incentive fee on capital gains.
 
We have entered into a fund administration servicing agreement and a fund accounting servicing agreement with U.S. Bancorp Fund Services, LLC (the “Administrator”). The Administrator provides services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary to operate. On August 13, 2012, we entered into a custody agreement with U.S. Bank. Under the custody agreement, U.S. Bank will hold all of our portfolio securities and cash for certain of our subsidiaries, and will transfer such securities or cash pursuant to our instructions. The custody agreement is terminable by either party, without penalty, on not less than ninety days prior notice to the other party. Realty Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, serves as the dealer manager of the IPO. The Adviser and the Dealer Manager are related parties and receive compensation and fees for services related to the IPO and for the investment and management of our assets. The Adviser receives fees during the offering, operational and liquidation stages while the Dealer Manager receives fees during the offering stage. The Adviser pays to the Administrator a portion of the fees payable to the Adviser for the performance of these support services.

Significant Accounting Estimates and Critical Accounting Policies
 
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating plans occur we will describe additional critical accounting policies in the notes to our consolidated financial statements in addition to those discussed below.


51



Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates include:

Valuation of Portfolio Investments

Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of Financial Accounting Standards Board, ("FASB"), Accounting Standards Codification, ("ASC"), Topic 946, Financial Services-Investment Companies, as of the Company's measurement date. However, in determining the fair value of the Company's investment, the Company may make adjustments to the net asset value per share in certain circumstances, based on the Company's analysis of any restrictions on redemption of the shares of the investment as of the measurement date.

The value of our TRS is primarily based on the increase or decrease in the value of the loans underlying the TRS, as determined by Citi based upon indicative pricing by an independent third-party pricing service.

For investments in Collateralized Securities, the Company models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Company considers broker quotations and/or quotations provided by pricing services as an input to determining fair value when available.

As part of the Company's quarterly valuation process, the Adviser may be assisted by an independent valuation firm engaged by the Company's board of directors. The audit committee of the Company's board of directors reviews each preliminary valuation and the Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. The board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of the Adviser, the independent valuation firm (to the extent applicable) and the audit committee of the board of directors.


52



Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

Income Taxes

We have elected to be treated for federal income tax purposes, and intend to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of its ‘‘investment company taxable income,’’ as defined in the Code, each year. Distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to distribute sufficient distributions to maintain our RIC status each year. We are also subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income each calendar year and 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes. We will generally endeavor each year to avoid any federal excise taxes.

New Accounting Pronouncements

In June 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-08, Financial Services – Investment Companies (ASC Topic 946), which affects the scope, measurement and disclosure requirements for investment companies under U.S. GAAP. The amendments: (i) change the approach to the investment company assessment in ASC Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment company; (ii) require an investment company to measure non-controlling ownership interests in other investment companies at fair value rather than the equity method of accounting; and (iii) require the following additional disclosures (a) the fact that the entity is an investment company and is applying the guidance in ASC Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. This guidance is effective for interim an annual reporting periods beginning on or after December 15, 2013. Management has reviewed the impact of this accounting pronouncement but does not believe it has a material impact on the Company.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Portfolio and Investment Activity

During the three months ended March 31, 2014, we made $406.3 million of investments in new portfolio companies and had $153.5 million in aggregate amount of exits and repayments, resulting in net investment activity of $252.8 million for the period.

53




Our portfolio composition, based on fair value, including the value of the TRS underlying loans, at March 31, 2014 was as follows:
 
                                          At March 31, 2014
 
 
Percentage of
Total Portfolio (1)
 
Weighted Average Current Yield for Total Portfolio (1) (2)
 
Percentage of TRS Underlying Loans
 
Weighted Average Current Yield for TRS Underlying Loans
 
Percentage of Total Portfolio Including TRS Underlying Loans
 
Weighted Average Current Yield for Total Portfolio Including TRS Underlying Loans (2)
Senior Secured First Lien Debt
48.3
%
 
8.4
%
 
96.8
%
 
7.5
%
 
60.2
%
 
8.1
%
Senior Secured Second Lien Debt
13.3

 
10.5

 
3.2

 
11.1

 
10.8

 
10.5

Subordinated Debt
6.1

 
14.3

 

 

 
4.6

 
14.3

Collateralized Securities (3)
16.1

 
15.3

 

 

 
12.2

 
15.3

Equity/Other
16.2

 
N/A

 

 
N/A

 
12.2

 
N/A

Total
100.0
%
 
10.5
%
 
100.0
%
 
7.7
%
 
100.0
%
 
9.7
%
______________

(1) Does not include TRS underlying loans.

(2) Excludes the effect of the amortization or accretion of loan premiums or discounts.

(3) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).

During the year ended December 31, 2013, we made $815.9 million of investments in new portfolio companies and had $270.0 million in aggregate amount of exits and repayments, resulting in net investment activity of $545.9 million for the period.


54



Our portfolio composition, based on fair value, including the value of the TRS underlying loans, at December 31, 2013 was as follows:
 
                                           At December 31, 2013
 
 
Percentage of Total Portfolio (1)
 
Weighted Average Current Yield for Total Portfolio (1) (2)
 
Percentage of TRS Underlying Loans
 
Weighted Average Current Yield for TRS Underlying Loans
 
Percentage of Total Portfolio Including TRS Underlying Loans
 
Weighted Average Current Yield for Total Portfolio Including TRS Underlying Loans (2)
Senior Secured First Lien Debt
47.9
%
 
8.3
%
 
95.7
%
 
7.7
%
 
62.2
%
 
8.0
%
Senior Secured Second Lien Debt
13.1

 
10.7

 
4.3

 
11.3

 
10.4

 
11.3

Subordinated Debt
8.6

 
13.9

 

 

 
6.0

 
13.3

Collateralized Securities (3)
15.2

 
12.0

 

 

 
10.7

 
12.0

Equity/Other
15.2

 
N/A

 

 
N/A

 
10.7

 
N/A

Total
100.0
%
 
8.4
%
 
100.0
%
 
7.8
%
 
100.0
%
 
9.3
%
______________

(1) Does not include TRS underlying loans.

(2) Excludes the effect of the amortization or accretion of loan premiums or discounts.

(3) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).


55



The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value at March 31, 2014 (dollars in thousands):
 
At March 31, 2014
 
Investments at
Fair Value (1)
 
Percentage of Total Portfolio (1)
 
Value of TRS Underlying Loans (2)
 
Percentage of TRS Underlying Loans
 
Total Investments at Fair Value including the value of TRS Underlying Loans
 
Percentage of Total Portfolio Including the value of TRS Underlying Loans
Diversified Investment Vehicles (3)
$
251,126

 
26.5
%
 
$

 
%
 
$
251,126

 
19.8
%
Media
56,698

 
6.0

 
22,088

 
7.2

 
78,786

 
6.2

Food Products
62,892

 
6.7

 
13,400

 
4.3

 
76,292

 
6.0

Health Care Providers & Services
65,043

 
6.9

 
9,987

 
3.2

 
75,030

 
5.9

Electronic Equipment, Instruments & Components
39,216

 
4.1

 
17,292

 
5.6

 
56,508

 
4.5

Hotels, Restaurants & Leisure
34,497

 
3.6

 
21,340

 
6.9

 
55,837

 
4.4

Publishing
55,374

 
5.8

 

 

 
55,374

 
4.4

Diversified Consumer Services
27,805

 
2.9

 
26,469

 
8.6

 
54,274

 
4.3

Oil, Gas & Consumable Fuels
27,217

 
2.9

 
23,786

 
7.7

 
51,003

 
4.1

Aerospace & Defense
40,789

 
4.3

 
5,730

 
1.9

 
46,519

 
3.7

Real Estate Management & Development
31,897

 
3.4

 
14,550

 
4.7

 
46,447

 
3.7

Consumer Finance
29,884

 
3.1

 
9,900

 
3.2

 
39,784

 
3.2

Professional Services
25,729

 
2.7

 
11,935

 
3.9

 
37,664

 
3.0

Marine
25,228

 
2.7

 
12,148

 
3.9

 
37,376

 
3.0

Biotechnology

 

 
37,094

 
12.0

 
37,094

 
2.9

Internet Software & Services
36,282

 
3.8

 

 

 
36,282

 
2.9

Commercial Services & Supplies
13,670

 
1.4

 
16,018

 
5.2

 
29,688

 
2.4

Software
9,727

 
1.0

 
17,383

 
5.6

 
27,110

 
2.2

Commercial Banks
10,000

 
1.1

 
10,000

 
3.2

 
20,000

 
1.6

Communications Equipment
3,925

 
0.4

 
14,972

 
4.8

 
18,897

 
1.5

Paper & Forest Products
7,999

 
0.8

 
7,000

 
2.3

 
14,999

 
1.2

Business Equipment & Services
4,950

 
0.5

 
10,013

 
3.2

 
14,963

 
1.2

Automotive
12,875

 
1.4

 

 

 
12,875

 
1.0

Technology - Enterprise Solutions
12,351

 
1.3

 

 

 
12,351

 
1.0

Road & Rail
12,053

 
1.3

 

 

 
12,053

 
1.0

Textiles, Apparel & Luxury Goods
11,974

 
1.3

 

 

 
11,974

 
1.0

IT Services
10,883

 
1.1

 

 

 
10,883

 
0.9

Diversified Telecommunication Services
9,962

 
1.0

 

 

 
9,962

 
0.8

Retailers (except food & drug)
9,825

 
1.0

 

 

 
9,825

 
0.8

Chemicals
9,794

 
1.0

 

 

 
9,794

 
0.8

Capital Markets

 

 
8,065

 
2.6

 
8,065

 
0.6

Pharmaceuticals

 

 

 

 

 

Total
$
949,665

 
100.0
%
 
$
309,170

 
100.0
%
 
$
1,258,835

 
100.0
%
______________

(1) Does not include TRS underlying loans.
(2) The TRS underlying loans are held by our counterparty to the TRS, Citi. The values of the TRS underlying loans shown are based primarily on the indicative bid prices provided by an independent third-party pricing service to Citi.
(3) Diversified Investment Vehicles consists of Collateralized Securities and equity investments in funds.

56




The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value at December 31, 2013 (dollars in thousands):
 
At December 31, 2013
 
Investments at
Fair Value (1)
 
Percentage of Total Portfolio (1)
 
Value of TRS Underlying Loans (2)
 
Percentage of TRS Underlying Loans
 
Total Investments at Fair Value including the value of TRS Underlying Loans
 
Percentage of Total Portfolio Including the value of TRS Underlying Loans
Diversified Investment Vehicles (3)
$
168,156

 
24.2
%
 
$

 
%
 
$
168,156

 
16.9
%
Media
57,061

 
8.2

 
21,134

 
7.1

 
78,195

 
7.9

Hotels, Restaurants & Leisure
46,462

 
6.7

 
24,990

 
8.4

 
71,452

 
7.2

Diversified Consumer Services
29,190

 
4.2

 
30,876

 
10.4

 
60,066

 
6.1

Health Care Providers & Services
48,823

 
7.0

 
8,301

 
2.8

 
57,124

 
5.8

Oil, Gas & Consumable Fuels
32,058

 
4.6

 
23,875

 
8.1

 
55,933

 
5.6

Marine
28,399

 
4.1

 
12,209

 
4.1

 
40,608

 
4.1

Food Products
34,438

 
5.0

 
5,444

 
1.9

 
39,882

 
4.0

Biotechnology
5,876

 
0.8

 
33,227

 
11.2

 
39,103

 
3.9

Consumer Finance
28,691

 
4.1

 
9,925

 
3.4

 
38,616

 
3.9

Internet Software & Services
36,432

 
5.2

 

 

 
36,432

 
3.7

Commercial Services & Supplies
19,376

 
2.8

 
15,975

 
5.4

 
35,351

 
3.6

Professional Services
20,110

 
2.9

 
11,943

 
4.0

 
32,053

 
3.2

Software
10,182

 
1.5

 
20,342

 
6.9

 
30,524

 
3.1

Electronic Equipment, Instruments & Components
12,862

 
1.9

 
17,343

 
5.9

 
30,205

 
3.0

Real Estate Management & Development
13,001

 
1.9

 
14,475

 
4.9

 
27,476

 
2.8

Aerospace & Defense
21,131

 
3.0

 
5,752

 
1.9

 
26,883

 
2.7

Commercial Banks
9,875

 
1.4

 
9,900

 
3.3

 
19,775

 
2.0

Paper & Forest Products
8,040

 
1.2

 
7,035

 
2.4

 
15,075

 
1.5

Communications Equipment
7,412

 
1.1

 
5,355

 
1.8

 
12,767

 
1.3

Road & Rail
12,147

 
1.7

 

 

 
12,147

 
1.2

Textiles, Apparel & Luxury Goods
11,977

 
1.7

 

 

 
11,977

 
1.2

IT Services
10,741

 
1.5

 

 

 
10,741

 
1.1

Diversified Telecommunication Services
10,000

 
1.4

 

 

 
10,000

 
1.0

Distributors

 

 
10,000

 
3.4

 
10,000

 
1.0

Chemicals
9,728

 
1.4

 

 

 
9,728

 
1.0

Capital Markets

 

 
8,059

 
2.7

 
8,059

 
0.8

Machinery
3,608

 
0.5

 

 

 
3,608

 
0.4

Total
$
695,776

 
100.0
%
 
$
296,160

 
100.0
%
 
$
991,936

 
100.0
%
______________

(1) Does not include TRS underlying loans.
(2) The TRS underlying loans are held by our counterparty to the TRS, Citi. The values of the TRS underlying loans shown are based primarily on the indicative bid prices provided by an independent third-party pricing service to Citi.
(3) Diversified Investment Vehicles consists of Collateralized Securities and equity investments in funds.

    

57



The following table presents the fair value measurements at March 31, 2014 for Level 3 investments (dollars in thousands):
Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
ABRA Holding Co.
 
Senior Secured First Lien Debt
 
$
10,546

 
1.1
%
Adventure Interactive Corp.
 
Senior Secured First Lien Debt
 
19,571

 
2.2

American Importing Company, Inc.
 
Senior Secured First Lien Debt
 
10,906

 
1.1

Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
13,584

 
1.4

Boston Market Corporation
 
Senior Secured Second Lien Debt
 
24,597

 
2.7

Carlyle GMS Finance, Inc.
 
Equity/Other
 
2,371

 
0.2

Chicken Soup for the Soul Publishing, LLC
 
Senior Secured First Lien Debt
 
29,624

 
3.1

Collision Holding Company, LLC
 
Senior Secured First Lien Debt
 
2,329

 
0.2

CPX Interactive Holdings, LP
 
Senior Secured Second Lien Debt
 
18,663

 
2.0

CPX Interactive Holdings, LP - Series A Convertible Preferred Shares
 
Equity/Other
 
6,000

 
0.6

CPX Interactive Holdings, LP - Warrants
 
Equity/Other
 
1,087

 
0.1

Crowley Holdings, Inc.- Series A Preferred Stock
 
Equity/Other
 
25,228

 
2.7

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
24,843

 
2.6

ECI Acquisition Holdings, Inc.
 
Senior Secured First Lien Debt
 
12,351

 
1.3

Epic Health Services, Inc.
 
Senior Secured First Lien Debt
 
13,725

 
1.4

EZE Trucking, Inc.
 
Senior Secured First Lien Debt
 
12,053

 
1.3

Fifth Street Senior Loan Fund I, LLC
 
Equity/Other
 
14,455

 
1.5

Garrison Funding 2013 - 1 Ltd. Subordinated Notes
 
Collateralized Securities
 
15,000

 
1.6

Global Telecom & Technology, Inc.
 
Senior Secured First Lien Debt
 
7,395

 
0.8

Gold, Inc.
 
Subordinated Debt
 
11,974

 
1.3

HIG Integrity Neutraceuticals
 
Senior Secured First Lien Debt
 
25,665

 
2.7

HIG Integrity Neutraceuticals
 
Equity/Other
 
895

 
0.1

ILC Dover LP
 
Senior Secured First Lien Debt
 
14,925

 
1.6

InMotion Entertainment Group, LLC
 
Senior Secured First Lien Debt
 
9,825

 
1.0

Interblock USA L.C.
 
Senior Secured Second Lien Debt
 
22,540

 
2.4

K2 Pure Solutions NoCal, L.P.
 
Senior Secured First Lien Debt
 
9,794

 
1.0

Kahala Aviation Holdings, LLC
 
Equity/Other
 

 

Kahala Aviation Holdings, LLC - Preferred Stock
 
Equity/Other
 
6,321

 
0.7

Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
19,543

 
2.1

MBLOX Inc.
 
Senior Secured Second Lien Debt
 
7,038

 
0.7

MBLOX Inc. - Warrants
 
Equity/Other
 
777

 
0.1

Med-Data Incorporated
 
Senior Secured First Lien Debt
 
14,683

 
1.5

MidOcean Credit Fund Management LP
 
Collateralized Securities
 
34,058

 
3.6

National Technical Systems, Inc.
 
Senior Secured First Lien Debt
 
18,615

 
2.0

NewStar Arlington Fund, LLC
 
Equity/Other
 
30,000

 
3.2

NextCare, Inc.
 
Senior Secured First Lien Debt
 
16,649

 
1.8

OFSI Fund VI, Ltd. Subordinated Notes
 
Collateralized Securities
 
32,895

 
3.5

Park Ave Re Holdings, LLC
 
Senior Secured First Lien Debt
 
24,088

 
2.5

Park Ave Re, Inc.
 
Equity/Other
 

 

Park Ave Re, Inc. - Preferred Stock
 
Equity/Other
 
7,809

 
0.8

PennantPark Credit Opportunity Fund, LP
 
Equity/Other
 
10,791

 
1.1

PeopLease Holdings, LLC
 
Senior Secured First Lien Debt
 
9,779

 
1.0

Precision Dermatology, Inc. - Warrants
 
Equity/Other
 

 

Related Fee Agreements
 
Collateralized Securities
 
6,797

 
0.7

S.B. Restaurant Co., Inc.
 
Subordinated Debt
 

 

S.B. Restaurant Co., Inc. - Warrants
 
Equity/Other
 

 

S.B. Restaurant Co., Inc. - Senior Subordinated Debt
 
Subordinated Debt
 

 

Shackleton 2014-V CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
26,250

 
2.8

SkyCross, Inc.
 
Senior Secured Second Lien Debt
 
4,835

 
0.5


58



Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
SkyCross, Inc. - Warrants
 
Equity/Other
 
$
450

 
%
South Grand MM CLO I, LLC
 
Equity/Other
 
22,209

 
2.3

Tennenbaum Waterman Fund, L.P.
 
Equity/Other
 
5,935

 
0.6

The SAVO Group, Ltd.
 
Subordinated Debt
 
5,014

 
0.5

The SAVO Group, Ltd. - Warrants
 
Equity/Other
 
1,301

 
0.1

The Tennis Channel Holdings, Inc.
 
Senior Secured First Lien Debt
 
14,955

 
1.6

THL Credit Greenway Fund II LLC
 
Equity/Other
 
11,938

 
1.3

Varel International Energy Mezzanine Funding Corp.
 
Subordinated Debt
 
11,390

 
1.2

Vestcom Acquisition, Inc.
 
Subordinated Debt
 
7,573

 
0.9

Visionary Integration Professionals, LLC
 
Subordinated Debt
 
9,962

 
1.0

Visionary Integration Professionals, LLC - Warrants
 
Equity/Other
 
921

 
0.1

WBL SPE I., LLC
 
Senior Secured First Lien Debt
 
4,500

 
0.5

World Business Lenders, LLC
 
Equity/Other
 
3,750

 
0.4

Xplornet Communications, Inc.
 
Subordinated Debt
 
9,962

 
1.0

Xplornet Communications, Inc. - Warrants
 
Equity/Other
 

 

Zimbra, Inc.
 
Senior Secured Second Lien Debt
 
6,140

 
0.6

Zimbra, Inc.
 
Subordinated Debt
 
2,000

 
0.2

Zimbra, Inc. - Warrants (Second Lien Debt)
 
Equity/Other
 
255

 

Zimbra, Inc. - Warrants (Third Lien Bridge Note)
 
Equity/Other
 
1,332

 
0.1

Total Level 3 investments
 
 
 
$
750,461

 
79.0
%
Total Level 2 investments (1)
 
 
 
$
199,204

 
21.0
%
Total Investments
 
 
 
$
949,665

 
100.0
%
______________

(1) Does not include TRS underlying loans.

The following table presents the fair value measurements at December 31, 2013 for Level 3 investments (dollars in thousands):
Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
Adventure Interactive Corp.
 
Senior Secured First Lien Debt
 
$
19,575

 
2.9
%
American Importing Company, Inc.
 
Senior Secured First Lien Debt
 
10,933

 
1.6

Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
13,650

 
2.0

Boston Market
 
Senior Secured Second Lien Debt
 
24,625

 
3.5

Carlyle GMS Finance, Inc.
 
Equity/Other
 
2,173

 
0.3

Catamaran CLO 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
20,404

 
2.9

Crowley Holdings Preferred, LLC - Series A Preferred Shares
 
Equity/Other
 
25,000

 
3.6

CVP Cascade CLO-1, LTD. Subordinated Notes
 
Collateralized Securities
 
28,086

 
4.0

Epic Health Services
 
Senior Secured First Lien Debt
 
13,899

 
2.0

Eureka Hunter Holdings, LLC
 
Senior Secured Second Lien Debt
 
4,969

 
0.7

EZE Trucking, Inc.
 
Senior Secured First Lien Debt
 
12,147

 
1.7

FairPay Solutions Inc. Term Loan A
 
Senior Secured First Lien Debt
 
2,350

 
0.3

FairPay Solutions Inc. Term Loan B
 
Senior Secured First Lien Debt
 
7,500

 
1.1

Garrison Funding 2013 - 1 Ltd. Subordinated Notes
 
Collateralized Securities
 
15,000

 
2.2

Global Telecom & Technology, Inc.
 
Senior Secured First Lien Debt
 
7,559

 
1.1

Gold, Inc.
 
Subordinated Debt
 
11,977

 
1.7

HIG Integrity Neutraceuticals
 
Equity/Other
 
850

 
0.1

HIG Integrity Neutraceuticals
 
Senior Secured First Lien Debt
 
22,655

 
3.3

JMP Credit Advisors CLO II Ltd. Subordinated Notes
 
Collateralized Securities
 
6,099

 
0.9

K2 Pure Solutions NoCal, L.P.
 
Senior Secured First Lien Debt
 
9,728

 
1.4

Kahala Aviation Holdings, LLC
 
Equity/Other
 

 

Kahala Aviation Holdings, LLC Preferred Shares
 
Equity/Other
 
5,271

 
0.8


59



Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
$
15,860

 
2.3
%
MBLOX Inc.
 
Senior Secured Second Lien Debt
 
7,011

 
1.0

MBLOX Inc. - Warrants
 
Equity/Other
 
705

 
0.1

MC Funding Ltd. Preferred Shares
 
Collateralized Securities
 
2,163

 
0.3

MidOcean Credit CLO II, Ltd. Subordinated Notes
 
Collateralized Securities
 
20,543

 
3.0

National Technical Systems, Inc.
 
Senior Secured First Lien Debt
 
12,375

 
1.8

NewStar Arlington Fund LLC
 
Equity/Other
 
30,000

 
4.3

NextCare, Inc.
 
Senior Secured First Lien Debt
 
17,272

 
2.5

Park Ave RE Holdings, LLC
 
Senior Secured First Lien Debt
 
9,750

 
1.4

Park Ave RE, Inc.
 
Equity/Other
 
33

 

Park Ave RE, Inc. - Preferred Shares
 
Equity/Other
 
3,218

 
0.5

PennantPark Credit Opportunities Fund, LP
 
Equity/Other
 
10,550

 
1.5

PeopLease Holdings, LLC
 
Senior Secured First Lien Debt
 
9,800

 
1.4

Precision Dermatology, Inc. - Warrants
 
Equity/Other
 

 

S.B. Restaurant Co., Inc. - Warrants
 
Equity/Other
 

 

S.B. Restaurant Co., Inc. - Senior Subordinated Debt
 
Subordinated Debt
 
88

 

S.B. Restaurant Co., Inc.
 
Subordinated Debt
 
2,025

 
0.3

SkyCross, Inc. - Warrants
 
Equity/Other
 
450

 
0.1

SkyCross, Inc.
 
Senior Secured Second Lien Debt
 
4,979

 
0.7

Source Refrigeration & HVAC, Inc.
 
Senior Secured First Lien Debt
 
2,735

 
0.4

South Grand MM CLO I, LLC
 
Equity/Other
 
872

 
0.1

Teleflex Marine, Inc.
 
Senior Secured Second Lien Debt
 
3,399

 
0.5

Tennenbaum Waterman Fund, L.P.
 
Equity/Other
 
9,611

 
1.4

The SAVO Group, Ltd.
 
Subordinated Debt
 
5,005

 
0.7

The SAVO Group, Ltd. - Warrants
 
Equity/Other
 
1,302

 
0.2

The Tennis Channel Holdings, Inc.
 
Senior Secured First Lien Debt
 
14,787

 
2.1

THL Credit Greenway Fund II LLC
 
Equity/Other
 
9,005

 
1.3

Trinity Consultants Holdings, Inc.
 
Senior Secured First Lien Debt
 
3,079

 
0.4

Varel International Energy Mezzanine Funding Corp.
 
Subordinated Debt
 
11,251

 
1.6

Vestcom Acquisition, Inc.
 
Subordinated Debt
 
7,525

 
1.1

Visionary Integration Professionals, LLC
 
Subordinated Debt
 
9,831

 
1.4

Visionary Integration Professionals, LLC - Warrants
 
Equity/Other
 
910

 
0.1

WBL SPE I., LLC
 
Senior Secured First Lien Debt
 
3,750

 
0.5

World Business Lenders, LLC
 
Equity/Other
 
3,751

 
0.5

Xplornet Communications, Inc.
 
Subordinated Debt
 
10,000

 
1.4

Xplornet Communications, Inc. - Warrants
 
Equity/Other
 

 

Zimbra, Inc.
 
Senior Secured Second Lien Debt
 
6,137

 
0.9

Zimbra, Inc.
 
Subordinated Debt
 
2,000

 
0.3

Zimbra, Inc. - Warrants (Second Lien Debt)
 
Equity/Other
 
447

 
0.1

Zimbra, Inc. - Warrants (Third Lien Bridge Note)
 
Equity/Other
 
1,598

 
0.2

Total Level 3 investments
 
 
 
$
518,267

 
74.5
%
Total Level 2 investments (1)
 
 
 
$
177,509

 
25.5
%
Total Investments
 
 
 
$
695,776

 
100.0
%
______________

(1) Does not include TRS underlying loans.


60



    
The following table presents the percentage of amortized cost by loan market for investments including the TRS underlying loans as of March 31, 2014:
 
Amortized Cost as of March 31, 2014
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
67.7
%
 
80.3
%
 
70.8
%
Large Corporate (2)
0.4

 
19.7

 
5.1

Other (3)
31.9

 

 
24.1

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.

The following table presents the percentage of amortized cost by loan market for investments including the TRS underlying loans as of December 31, 2013:
 
Amortized Cost as of December 31, 2013
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
67.4
%
 
90.9
%
 
74.4
%
Large Corporate (2)
2.8

 
9.1

 
4.7

Other (3)
29.8

 

 
20.9

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.


61



The following table presents the percentage of fair value by loan market for investments including the TRS underlying loans as of March 31, 2014:

 
Fair Value as of March 31, 2014
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
67.2
%
 
80.5
%
 
70.5
%
Large Corporate (2)
0.4

 
19.5

 
5.1

Other (3)
32.4

 

 
24.4

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.

The following table presents the percentage of fair value by loan market for investments including the TRS underlying loans as of December 31, 2013:

 
Fair Value as of December 31, 2013
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
66.7
%
 
91.2
%
 
74.0
%
Large Corporate (2)
2.8

 
8.8

 
4.6

Other (3)
30.5

 

 
21.4

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.

Portfolio Asset Quality

Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.

62



 Loan Rating
 
Summary Description
1
  
Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable.
 
 
2
  
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”.
 
 
3
  
Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration.
 
 
4
  
Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative.
 
 
5
  
Underperforming debt investment with expected loss of interest and some principal.

The weighted average risk ratings of our investments based on amortized cost were 2.01 as of March 31, 2014 and 2.03 as of December 31, 2013.
    
As of March 31, 2014, we had one portfolio company, which represented two portfolio investments, on non-accrual status. These investments had a total principal of $4.2 million, which represented 0.4% of our portfolio and had no fair value as of March 31, 2014. We are currently evaluating potential value recovery alternatives for these investments. As of December 31, 2013, we had one portfolio investment on non-accrual status. This investment had a principal of $4.0 million and fair value of $2.0 million as of December 31, 2013, which represented 0.6% and 0.3%, respectively, of our portfolio.

RESULTS OF OPERATIONS

Operating results for the three months ended March 31, 2014 and March 31, 2013 were as follows (dollars in thousands):
 
For the Three Months Ended March 31,
 
2014
 
2013
Total investment income
$
18,490

 
$
4,355

Total expenses, net
6,544

 
2,148

Net investment income
$
11,946

 
$
2,207


 Investment Income

For the three months ended March 31, 2014 and March 31, 2013, total investment income was $18.5 million and $4.4 million, respectively, and was attributable to interest income from investments in portfolio companies. The increase in total investment income was due to the higher level of investments in portfolio companies during the period ended March 31, 2014 as compared to the period ended March 31, 2013. During the three months ended March 31, 2014, the average portfolio fair value was $822.7 million with a 10.5% weighted average current yield while the average portfolio fair value and weighted average current yield were $158.6 million and 10.8%, respectively for the same period in 2013.


63



Operating Expenses

The composition of our operating expenses for the three months ended March 31, 2014 and March 31, 2013 were as follows (dollars in thousands):

 
For the Three Months Ended March 31,
 
2014
 
2013
Management fees
$
3,631

 
$
827

Interest and credit facility financing expenses
1,294

 
302

Subordinated income incentive fees
778

 
729

Capital gains incentive fees
(19
)
 
330

Professional fees
743

 
238

Insurance
58

 
54

Other administrative
42

 
58

Directors fees
17

 
16

Operating expenses before expense waivers and reimbursements from Adviser
6,544

 
2,554

Waiver of management and incentive fees

 
(406
)
Total operating expenses net of expense waivers and reimbursements from Adviser
$
6,544

 
$
2,148


Interest and credit facility expenses for the three months ended March 31, 2014 were comprised of amortization of deferred financing costs and non-usage fees related to the Wells Fargo Credit Facility and the Deutsche Bank Credit Facility along with $0.9 million of interest expense on the balance drawn on the Wells Fargo Credit Facility. The interest expense on the balance drawn on the Wells Fargo Credit Facility was based on an average debt outstanding of $152.1 million at a weighted average annualized cost of 2.42% for the three months ended March 31, 2014. For the three months ended March 31, 2014, we incurred $3.6 million of management fees, of which the Adviser did not waive any such fees. For the three months ended March 31, 2014, we incurred $0.8 million of incentive fees, of which the Adviser waived $0.0 million.

Interest and credit facility expenses for the three months ended March 31, 2013 were comprised of amortization of deferred financing costs and non-usage fees related to our Wells Fargo Credit Facility along with $0.2 million of interest expense on the balance drawn on the Wells Fargo Credit Facility. The interest expense on the balance drawn on the Wells Fargo Credit Facility was based on an average debt outstanding of $30.0 million at a weighted average annualized cost of 2.61% for the three months ended March 31, 2013. For the three months ended March 31, 2013 , we incurred $0.8 million of management fees, of which the Adviser did not waive any such fees. For the three months ended March 31, 2013, we incurred $1.0 million of incentive fees, of which the Adviser waived $0.4 million.

 
For the Three Months Ended March 31,
 
2014
 
2013
Net realized gain from investments
$
3,476

 
$
996

Net realized gain from total return swap
5,451

 
1,796

Net unrealized appreciation (depreciation) on investments
(3,571
)
 
658

Net unrealized appreciation on total return swap
98

 
2,283

Net realized and unrealized gain on investments and total return swap
$
5,454

 
$
5,733




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Net Realized Gain and Net Change in Unrealized Appreciation (Depreciation) on Investments

Net realized gain and change in unrealized appreciation (depreciation) on investments resulted in a net loss of $(0.1) million for the three months ended March 31, 2014 compared to a net gain of $1.7 million for the same period in 2013. We look at net realized gains and change in unrealized appreciation (depreciation) together as movement in unrealized appreciation or depreciation can be the result of realizations. The net loss for the three months ended March 31, 2014 was primarily driven by the unrealized depreciation of $(2.1) million on the two portfolio investments in non-accrual status and was partially offset by the net short-term gain of $1.0 million on the sale of one investment along with smaller scale net realized gains and unrealized appreciation across the remainder of the portfolio. In total, we sold $153.5 million of assets during the three month period ended March 31, 2014. The net gain for the three months ended March 31, 2013 was primarily driven by the unrealized appreciation of $0.9 million on an investment that was exceeding performance expectations along with smaller scale net realized gains and unrealized appreciation across the remainder of the portfolio. Total asset sales for the three months ended March 31, 2014 were $70.7 million.

Net Realized Gain and Net Change in Unrealized Appreciation on Total Return Swap

Net realized gain and change in unrealized appreciation on the total return swap resulted in a net gain of $5.5 million for the three months ended March 31, 2014 compared to a net gain of $4.1 million for the same period in 2013. We look at net realized gains and change in unrealized appreciation (depreciation) together as movement in unrealized appreciation or depreciation can be the result of realizations. The net gain for the three months ended March 31, 2014 was primarily driven by interest income of $5.5 million earned on the loans held under the TRS which had an average total notional value of $299.4 million for the three month period. In addition, we had $(1.0) million of interest expense on the TRS and $1.0 million in realized gains on TRS asset sales. The net gain for the three months ended March 31, 2013 was primarily driven by a $2.3 million change in unrealized appreciation across our loans held under the TRS due to overall increases in market prices. In addition, we had $2.1 million in interest income earned on the loans held under the TRS which had an average total notional value of $103.3 million for the three month period. This was partially offset by $(0.4) million in interest expense. Please see Note 6 - Total Return Swap - for more information about the TRS.

At March 31, 2014, the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):
 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
4,117

 
$
5,467

TRS interest expense
(801
)
 
(1,029
)
Gains on TRS asset sales
78

 
1,013

Net realized gain from TRS
$
3,394

 
$
5,451

    
At March 31, 2013, the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):
 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
1,696

 
$
2,127

TRS interest expense
(300
)
 
(375
)
Gains on TRS asset sales
7

 
44

Net realized gain from TRS
$
1,403

 
$
1,796


Cash Flows for the Three Months Ended March 31, 2014

For the three months ended March 31, 2014, net cash used in operating activities was $266.1 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
investments, among other factors. The increase in cash flows used in operating activities for the three months ended March 31, 2014 was primarily due to $406.3 million for purchases of investments and $20.2 million from a decrease in unsettled trades receivable partially offset by cash provided by operating activities of $153.5 million for sales and repayments of investments, $46.6 million from a decrease in unsettled trades payable, and $17.4 million from a net increase in net assets from operations. The purchase and sales activity is driven by the increase in investment activity resulting from the continuous equity capital raising and growing capital base.

65




Net cash provided by financing activities of $309.7 million during the three months ended March 31, 2014 was primarily related to net proceeds from the issuance of common stock of $296.2 million and proceeds from the Wells Fargo Credit Facility of $22.0 million. These inflows were partially offset by payments of stockholder distributions of $8.0 million. Consistent with the increase in investment activity, the proceeds from the issuance of common stock are the result of our increasing equity raise capabilities.

Cash Flows for the Three Months Ended March 31, 2013

For the three months ended March 31, 2013, net cash used in operating activities was $60.7 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio investments, among other factors. The increase in cash flows used in operating activities for the three months ended March 31, 2013 was primarily due to $113.8 million for purchases of investments partially offset by $70.7 million for repayments of investments and $7.9 million from a net increase in net investment income. The purchase and sales activity is driven by the increase in investment activity resulting from the continuous equity capital raising and growing capital base.
Net cash provided by financing activities of $65.4 million during the three months ended March 31, 2013 was primarily related to net proceeds from the issuance of common stock of $69.2 million and proceeds from the Wells Fargo Credit Facility of $2.0 million. These inflows were partially offset by principal repayments on debt of $4.7 million and payments of stockholder distributions of $2.3 million. Consistent with the increase in investment activity, the proceeds from the issuance of common stock are the result of our increasing equity raise capabilities.

Liquidity and Capital Resources
 
We generate cash from the net proceeds of our ongoing continuous public offering and from cash flows from fees, interest and dividends earned from our investments, as well as proceeds from sales of our investments. The Registration Statement offering for sale up to $1.5 billion of shares of our common stock (150.0 million shares at an initial offering price of $10.00 per share) (the "Offering"), was declared effective on January 27, 2011. As of March 31, 2014, we had issued 94.1 million shares of our common stock for gross proceeds of $1.0 billion including shares issued to the Sponsor and shares issued under the DRIP.
 
Our principal demands for funds in both the short-term and long-term are for portfolio investments, either directly or indirectly through investment interests, such as the TRS, for the payment of operating expenses, distributions to our investors, repurchases under our share repurchase program, and for the payment of principal and interest on our outstanding indebtedness. Generally, capital needs for investment activities will be met through net proceeds received from the sale of common stock through our public offering. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Items other than investment acquisitions are expected to be met from a combination of the proceeds from the sale of common stock, cash flows from operations, and, during our IPO, reimbursements from the Adviser.

We have entered into the Expense Support Agreement with our Adviser, whereby the Adviser may pay the Expense Support Payment for any period beginning on the effective date of the Registration Statement, until we and the Adviser mutually agree otherwise. The purpose of the Expense Support Agreement was to reduce our offering and operating expenses until we had achieved economies of scale sufficient to ensure that we were able to bear a reasonable level of expense in relation to our investment income. The Expense Support Payment for any month shall be paid to us by the Adviser in cash and/or offsets against amounts due from us to the Adviser. Operating expenses subject to this agreement include expenses as defined by U.S. GAAP, including, without limitation, advisory fees payable and interest on indebtedness for such period, if any. As of March 31, 2014, the Adviser had made cumulative payments to the Company for $1.0 million of expenses pursuant to the Expense Support Agreement. During the three months ended March 31, 2014, the Adviser made no payments to the Company for expenses pursuant to the Expense Support Agreement. See Note 4 - Related Party Transactions and Arrangements - Expense Support Agreement - in our consolidated financial statements included in this report for additional information on this arrangement, including Expense Payments made by our Adviser pursuant to the terms of this agreement and the ability of the Adviser to be reimbursed for Expense Payments made to us.

Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to raise proceeds in our public offering will be dependent on a number of factors as well, including general market conditions for BDCs and market perceptions about us.

66




In January 2011, we entered into an agreement to obtain a revolving line of credit in the amount of $10.0 million with Main Street. The line of credit bore a variable interest rate based on the London Interbank Offered Rate ("LIBOR") plus 3.50%. On July 24, 2012, we used working capital and certain proceeds from the total return swap of our subsidiary, 405 Sub, to repay all of the obligations under our credit facility with Main Street. We were not required to pay any prepayment penalty in connection with such repayment.

Total Return Swap

On July 13, 2012, we, through a wholly-owned subsidiary, 405 Sub, entered into a TRS with Citi, which was subsequently amended on October 17, 2012, December 7, 2012, May 10, 2013, July 18, 2013, and October 15, 2013, to increase the aggregate market value of the portfolio of loans selected by 405 Sub.

A total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the total return swap, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. The TRS effectively adds leverage to our portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. The TRS enables us, through our ownership of 405 Sub, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest type payment to Citi.

The obligations of 405 Sub under the TRS are non-recourse to us and our exposure to the TRS is limited to the amount that we contribute to 405 Sub in connection with the TRS. Generally, that amount will be the amount that 405 Sub is required to post as cash collateral for each loan (which in most instances is approximately 25% of the market value of a loan at the time that such loan is purchased). As amended, the TRS provides that 405 Sub may select a portfolio of loans with a maximum aggregate market value (determined at the time such loans become subject to the TRS) of $350.0 million.

405 Sub will pay interest to Citi for each loan at a rate equal to one-month or three-month LIBOR, depending on the terms of the underlying loan, plus 1.20% per annum. Upon the termination or repayment of any loan selected by 405 Sub under the Agreement, 405 Sub may deduct the appreciation of such loan's value from any interest owed to Citi or pay the depreciation amount to Citi in addition to remaining interest payments.

Citi may terminate any individual loan on or after July 13, 2015. However, if at any time, any particular loan fails to meet certain criteria set forth in the TRS, and such failure continues for 30 days, Citi will have the right to terminate that loan or the entire agreement with at least 10 days' notice and 405 Sub would be required to pay certain breakage costs to Citi. 405 Sub may terminate the TRS prior to July 13, 2015 but would be required to pay certain termination fees.

As of March 31, 2014, we had $79.0 million in cash held as collateral by Citi under the terms of the TRS.

See Note 6 – Total Return Swap – in our consolidated financial statements included in this report for additional disclosure on the TRS with Citi.

Wells Fargo Credit Facility

On July 24, 2012, we, through a newly-formed, wholly-owned special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank, as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013 and September 9, 2013, provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months.

We may contribute cash or loans to Funding I from time to time to retain a residual interest in any assets contributed through its ownership of Funding I or will receive fair market value for any loans sold to Funding I. Funding I may purchase additional loans from various sources. Funding I has appointed us as servicer to manage its portfolio of loans. Funding I's obligations under the Wells Fargo Credit Facility are secured by a first priority security interest in substantially all of the assets of Funding I, including its portfolio of loans. The obligations of Funding I under the Wells Fargo Credit Facility are non-recourse to us.


67



The Wells Fargo Credit Facility will be priced at one month maturity LIBOR, with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I will be subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum for the first six months is 0.50%; thereafter, the non-usage fee per annum is 0.50% for the first 20% of the unused balance and 2.0% for the portion of the unused balance that exceeds 20%. Any amounts borrowed under the Wells Fargo Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable in April 2018.

Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. As of December 31, 2013, we were in compliance with regards to the Wells Fargo Credit Facility covenants. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs. In the event that the Wells Fargo Credit Facility is terminated prior to the first anniversary, an additional amount is payable to Wells Fargo equal to 2.00% of the maximum amount of the Wells Fargo Credit Facility.

The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate our rights, obligations, power and authority, in our capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to us that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

Borrowings of Funding I will be considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to BDCs.

Our cash is deposited in either commercial bank accounts or custody accounts and may be deposited in short-term, highly liquid investments that we believe provide appropriate safety of principal.

As of March 31, 2014, we had $154.7 million outstanding under the Wells Fargo Credit Facility.

See Note 5 – Borrowings – in our consolidated financial statements included in this report for additional disclosure on the Wells Fargo Credit Facility.

Deutsche Bank Credit Facility

On February 21, 2014, we, through 2L Funding I, entered into the Deutsche Bank Credit Facility with Deutsche Bank, as lender and as administrative agent and U.S. Bank, as collateral agent and collateral custodian.

The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million with a term of 36 months. The Deutsche Bank Credit Facility will be priced at LIBOR plus 4.25%, with no LIBOR floor. The undrawn rate is 0.75%. 2L Funding Sub I will be subject to a minimum utilization of 50% of the loan amount in the first 12-months and 65% of the loan amount thereafter, measured quarterly. If the utilized portion of the loan amount is less than the foregoing thresholds, such shortfalls shall bear interest at LIBOR plus 4.25%. The Deutsche Bank Credit Facility provides for monthly interest payments for each drawn loan. Any amounts borrowed under the Deutsche Bank Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, in January 2017. 2L Funding I paid a structuring fee and incurred certain other customary costs and expenses in connection with obtaining the Deutsche Bank Credit Facility.

Borrowings under the Deutsche Bank Credit Facility are subject to compliance with a borrowing base. The Deutsche Bank Credit Facility may be prepaid in whole or in part, subject to a prepayment fee. The Deutsche Bank Credit Facility contains customary default provisions including, but not limited to, non-payment of principal, interest or other obligations under the Deutsche Bank Credit Facility, insolvency, defaults of certain financial covenants and other events with respect to us that may be adverse to Deutsche Bank and the secured parties under the facility.
    

68



In connection with the Deutsche Bank Credit Facility, 2L Funding I has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. Upon the occurrence and during the continuation of an event of default, subject, in certain instances, to applicable cure periods, Deutsche Bank may declare the outstanding advances and all other obligations under the Deutsche Bank Credit Facility immediately due and payable. During the continuation of an event of default, 2L Funding I must pay interest at a default rate.

Borrowings of 2L Funding I will be considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 Act applicable to business development companies.

As of March 31, 2014, we had no borrowings under the Deutsche Bank Credit Facility.

See Note 5 – Borrowings – in our consolidated financial statements included in this report for additional disclosure on the Deutsche Bank Credit Facility.

Distributions

We have declared and paid cash distributions to our stockholders on a monthly basis since we commenced operations. As of March 31, 2014, the annualized yield for distributions declared was 7.75% based on our then current public offering price of $11.20 per share. From time to time, we may also pay interim distributions at the discretion of our board of directors. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our IPO. As a result, a portion of the distributions we make may represent a return of capital for tax purposes.

The table below shows the components of the distributions we have declared and/or paid during the three months ended March 31, 2014 and March 31, 2013 (dollars in thousands). As of March 31, 2014, we had $6.7 million of distributions accrued and unpaid.

    
 
For the three months ended March 31,
 
2014
 
2013
Distributions declared
$
16,880

 
$
3,920

Distributions paid
$
14,763

 
$
3,410

Portion of distributions paid in cash
$
7,973

 
$
2,266

Portion of distributions paid in DRIP shares
$
6,790

 
$
1,144


On March 1, 2012, the price for newly-issued shares under the DRIP issued to stockholders was changed from 95% to 90% of the offering price that the shares are sold as of the date the distribution is made. The DRIP purchase price based on the current offering price of $11.20 per share is $10.08.

On March 29, 2012, we declared a special common stock distribution equal to $0.05 per share. The distribution was paid to stockholders of record on May 1, 2012.

On December 20, 2012, we announced that, pursuant to the authorization of our board of directors, we declared a special cash distribution equal to $0.0925 per share, to be paid to stockholders of record at the close of business on December 17, 2012, payable on December 27, 2012. This special cash distribution was paid exclusive of, and in addition to, our monthly distribution.


69



We may fund our cash distributions to stockholders from any sources of funds available to us including expense payments from our Adviser that are subject to reimbursement to it as well as offering proceeds and borrowings. We have not established limits on the amount of funds we may use from available sources to make distributions. Prior to June 30, 2012, a substantial portion of our distributions resulted from Expense Support Payments made by our Adviser that are subject to reimbursement by us within three years from the date such payment obligations were incurred. The purpose of this arrangement could be to avoid such distributions being characterized as returns of capital for GAAP or tax purposes. Despite this, we may still have distributions which could be characterized as a return of capital for tax purposes. However, during the year ended December 31, 2012, no portion of our distributions was characterized as a return of capital for tax purposes. You should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser continues to make such reimbursements. You should also understand that our future reimbursements of such Expense Support Payments will reduce the distributions that you would otherwise receive. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all. The Adviser has no obligation to make Expense Support Payments in future periods. For the fiscal year ended December 31, 2012, if Expense Support Payments of $0.3 million were not made by our Adviser, approximately 4% percent of the distribution rate would have been a return of capital. No Expense Support Payments were made by our Adviser during the fiscal year ended December 31, 2013 or the three months ended March 31, 2014.

We consider our entire managed investment portfolio to include the investments in our portfolio included in our Consolidated Schedule of Investments as well as assets held in our TRS portfolio, which are considered off-balance sheet. Our Adviser selects and underwrites all of these investments and we measure our performance based on our entire managed portfolio. Our net investment income also does not include the interest income and expense related to the TRS portfolio. In accordance with U.S. GAAP, interest income and expense related to the TRS are accounted for as a component of “Net realized gain from total return swap.” The following table sets forth the computation of adjusted net investment income (loss) for our entire managed portfolio by adding the interest income from the TRS, the short-term realized gains, and the theoretical incentive fees on unrealized capital gains to the net investment income for the three months ended March 31, 2014 and 2013 (dollars in thousands):
 
For the Three Months Ended March 31,
 
2014
 
2013
Net investment income
$
11,946

 
$
2,207

TRS net investment income (1)
4,437

 
1,752

Operating gains (short-term) (2)
4,217

 
996

Incentive fees on unrealized gains (3)
(431
)
 
224

Adjusted net investment income
$
20,169

 
$
5,179

______________

(1) 
TRS net investment income includes the interest income and expense related to the TRS portfolio. See Note 6 - Total Return Swap - for more information about the TRS.

(2) 
Operating gains include short-term realized gains that result primarily from active portfolio management activities. As a RIC, short-term capital gains represent operating income available for distribution and are considered ordinary income.

(3) 
Incentive fees on unrealized gains are the U.S. GAAP-required theoretical incentive fees accrued based upon unrealized portfolio appreciation. These fees reduce net investment income but are not contractually due to the Adviser. See Note 4 - Related Party Transactions and Agreements - for additional details on the theoretical capital gains incentive fees.


70



The following table sets forth the distributions made during the three months ended March 31, 2014 and 2013 (dollars in thousands):
 
For the Three Months Ended
 
2014
 
2013
Monthly distributions
$
16,879

 
$
3,920

Special dividends

 

Stock dividends

 

Total distributions
$
16,879

 
$
3,920


Election as a RIC

We have elected to be treated as a RIC under Subchapter M of the Code commencing with our taxable year ended December, 31 2011, and intend to maintain our qualification as a RIC thereafter. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders from our tax earnings and profits. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to U.S federal excise, state, local and foreign taxes. We will be subject to a 4% nondeductible U.S. Federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to 98% of net ordinary income each calendar year and 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes. We will generally endeavor each year to avoid any federal excise taxes.

Inflation

The impact of inflation on our portfolio depends on the type of securities we hold. When inflation occurs, the value of our equity securities may fall in the short term.  However in the long term, a company’s revenue and earnings and, therefore, the value of the equity investment, should at least increase at the same pace as inflation. The effect of inflation on debt securities is more immediate and direct as inflation may decrease the value of fixed rate debt securities. However, not all debt securities are affected equally, the longer the term of the debt security, the more volatile the value of the investment. The process through which we will value the investments in our portfolio on a quarterly basis, market quotations and our multi-step valuation process as described in our significant accounting policies, will take the effect of inflation into account. 

 Related-Party Transactions and Agreements
 
We have entered into agreements with affiliates of our Adviser, whereby we pay certain fees or reimbursements to our Adviser or its affiliates in connection with asset and service fees, reimbursement of operating costs and offering related costs. See Note 4 - Related Party Transactions and Arrangements - for a discussion of the various related-party transactions, agreements and fees.


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Contractual Obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at March 31, 2014 (dollars in thousands):

 
 
 
Payment Due by Period
 
Total
 
Less than 1 year
 
1 - 3 years
 
3- 5 years
 
More than 5 years
Wells Fargo Credit Facility (1)
$
154,687

 
$

 
$

 
$
154,687

 
$

Deutsche Bank Credit Facility (2)
$

 
$

 
$

 
$

 
$

Total contractual obligations
$
154,687

 
$

 
$

 
$
154,687

 
$

______________

(1) 
As of March 31, 2014, we had $45.3 million of unused borrowing capacity under the Wells Fargo Credit Facility, subject to borrowing base limits.

(2) 
As of March 31, 2014, we had $40.4 million of unused borrowing capacity under the Deutsche Bank Credit Facility, subject to borrowing base limits.


Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources other than the TRS as discussed in Note 6 – Total Return Swap.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements, subject to the requirements of the 1940 Act, in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this report, we did not engage in interest rate hedging activities. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

As of March 31, 2014, our debt included variable-rate debt, bearing a variable interest rate at the LIBOR plus 2.24% at March 31, 2014 with a carrying value of $154.7 million. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 100 or 200 basis points or decrease by 25 basis points assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity.

Change in Interest Rates
 
Estimated Percentage Change in Interest Income net of Interest Expense
(-) 25 Basis Points
 
0.46
 %
Base Interest Rate
 
 %
(+) 100 Basis Points
 
(1.00
)%
(+) 200 Basis Points
 
2.69
 %

Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
    
ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
 
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective as of the end of the period covered by the Quarterly Report on Form 10-Q.

Change in Internal Control Over Financial Reporting
 
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 






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PART II

ITEM 1. LEGAL PROCEEDINGS

Neither we nor our Adviser are currently subject to any material legal proceedings.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I., “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than the following, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit No.
Description
 
 
1.1
Dealer Manager Agreement with Realty Capital Securities, LLC, dated January 25, 2011 (previously filed as Exhibit 1.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 21, 2013 and herein incorporated by reference).
 
 
1.2
Form of Soliciting Dealer Agreement (previously filed as Exhibit (h)(2) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2/A filed on January 14, 2011 and herein incorporated by reference).
 
 
3.1
Second Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 13, 2013 and herein incorporated by reference).
 
 
3.2
Bylaws (previously filed as Exhibit (b) to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form N-2/A filed on November 24, 2010 and herein incorporated by reference).
 
 
10.1
Second Amended and Restated Investment Advisory and Management Services Agreement dated June 5, 2013 by and between the Company and the Adviser (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 13, 2013 and herein incorporated by reference).
 
 
10.2
Loan and Security Agreement by and between the Company and Main Street Capital Corporation (previously filed as Exhibit (k)(2) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2/A filed on January 14, 2011 and herein incorporated by reference).
 
 
10.3
Revolving Promissory Note (previously filed as Exhibit (k)(3) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2/A filed on January 14, 2011 and herein incorporated by reference).
 
 
10.4
Amended and Restated Subscription Escrow Agreement with Wells Fargo Bank (previously filed as Exhibit (k)(1) to the Company's Post Effective Amendment No. 3 to its Registration Statement on Form N-2/A filed on November 4, 2011 and herein incorporated by reference).
 
 
10.5
Fund Administration Servicing Agreement by and between the Company and U.S. Bancorp Fund Services, LLC (previously filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 31, 2011 and herein incorporated by reference).
 
 
10.6
Fund Accounting Servicing Agreement by and between the Company and U.S. Bancorp Fund Services, LLC (previously filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 31, 2011 and herein incorporated by reference).
 
 
10.7
Distribution Reinvestment Plan (previously filed as Exhibit E to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form N-2/A filed on November 24, 2010 and herein incorporated by reference).
 
 
10.8
Assignment and Assumption Agreement (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 31, 2011 and herein incorporated by reference).
 
 
10.9
Custody Agreement dated August 13, 2012 by and between the Company and U.S. Bank National Association (previously filed as Exhibit 10.11 to the Company's Current Report on Form 8-K filed on August 17, 2012 and herein incorporated by reference).

 
 
10.10
Expense Support Agreement dated November 9, 2011 by and between the Company and Adviser (previously filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed on November 14, 2011 and herein incorporated by reference).
 
 
10.11
ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, by and between 405 TRS I, LLC and Citibank, N.A, each dated as of July 13, 2012 (previously filed as Exhibit 10.13 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.12
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of October 15, 2013 (previously filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed on November 13, 2013 and herein incorporated by reference).

 
 

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10.13
Loan and Servicing Agreement, together with Exhibits thereto, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, Lenders and Lenders Agents from time to time party hereto and U.S. Bank National Association, each dated as of July 24, 2012 (previously filed as Exhibit 10.15 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.14
Purchase and Sale Agreement by and between the Company and BDCA Funding I, LLC, dated as of July 24, 2012 (previously filed as Exhibit 10.16 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.15
Collection Account Agreement by and among U.S. Bank National Association, Wells Fargo Securities, LLC, BDCA Funding I, LLC and the Company, dated as of July 24, 2012 (previously filed as Exhibit 10.17 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.16
Amendment No. 1 to Loan and Servicing Agreement, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, dated as of January 14, 2013 (previously filed as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed on May 15, 2013 and herein incorporated by reference).

 
 
10.17
Amendment No. 2 to Loan and Servicing Agreement, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, dated as of April 26, 2013 (previously filed as Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed on May 15, 2013 and herein incorporated by reference).

 
 
10.18
Amendment No. 1 to Purchase and Sale Agreement, entered into by and between BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association and U.S. Bank National Association, dated as of April 26, 2013 (previously filed as Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed on May 15, 2013 and herein incorporated by reference).

 
 
10.19
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of July 18, 2013 (previously filed as Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 13, 2013 and herein incorporated by reference).
 
 
10.20
Amendment No. 3 to Loan and Servicing Agreement, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, dated as of September 9, 2013 (previously filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed on November 13, 2013 and herein incorporated by reference).
 
 
10.21
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of October 15, 2013 (previously filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed on November 13, 2013 and herein incorporated by reference).
 
 
10.22
Loan financing and Servicing Agreement dated February 21, 2014 between BDCA 2L Funding I, LLC, as Borrower; Business Development Corporation of America, as Equityholder and as Servicer; the Lenders From Time to Time Parties Hereto; Deutsche Bank AG, New York Branch, as Administrative Agent, the Other Agents Party Hereto; and U.S. Bank National Association as Collateral Agent and as Collateral Custodian (previously filed as Exhibit 10.22 to the Company's Annual Report on form 10-K for the year ended December 31, 2013 filed on March 19, 2014 and herein incorporated by reference).
 
 
10.23
Sale and Contribution Agreement dated February 21, 2014 between Business Development Corporation of America, as Seller and BDCA 2L Funding I, LLC, as Purchaser (previously filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K filed on March 19, 2014 and herein incorporated by reference).
 
 
10.24
Securities Account Control Agreement dated February 21, 2014 between BDCA 2L Funding I, LLC, as Pledgor, U.S. Bank National Association, as Secured Party; and U.S. Bank National Association, as Securities Intermediary (previously filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K filed on March 19, 2014 and herein incorporated by reference).
 
 
10.25
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of May 6, 2014 (filed herewith).
 
 
14
Code of Ethics (previously filed as Exhibit 14 to the Company's Annual Report on Form 10-K filed on March 19, 2014 and herein incorporated by reference).
 
 
21
Subsidiaries of the Registrant (filed herewith).
 
 
31.1
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 

76



31.2
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 
32
Written statement of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

77



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 this 15th day of May 2014.
 
 
 
 
 
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 
 
By:
/s/ Nicholas S. Schorsch
Name: Nicholas S. Schorsch
Title: Chief Executive Officer and Chairman of the Board of Directors
* * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
 
 
 
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Nicholas S. Schorsch
Nicholas S. Schorsch
 
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
 
May 15, 2014
/s/ Nicholas Radesca
Nicholas Radesca
 
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
 
May 15, 2014
/s/ Peter M. Budko
Peter M. Budko
 
President and Chief Operating Officer
 
May 15, 2014
/s/ William M. Kahane
William M. Kahane
 
Director
 
May 15, 2014
/s/ Edward G. Rendell
Edward G. Rendell
 
Independent Director
 
May 15, 2014
/s/ Leslie D. Michelson
Leslie D. Michelson
 
Independent Director
 
May 15, 2014
/s/ William G. Stanley
William G. Stanley
 
Independent Director
 
May 15, 2014



78