NF Investment Corp. - FORM 10-Q

NF Investment Corp. - FORM 10-Q - August 13, 2014

Attached files

Attached files

NF Investment Corp. Reports

file	filename
EX-10.1 - EX-10.1 - NF Investment Corp.	d774311dex101.htm
EX-31.2 - EX-31.2 - NF Investment Corp.	d774311dex312.htm
EX-32.2 - EX-32.2 - NF Investment Corp.	d774311dex322.htm
EX-32.1 - EX-32.1 - NF Investment Corp.	d774311dex321.htm
EX-31.1 - EX-31.1 - NF Investment Corp.	d774311dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

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

For the transition period to

Commission File No. 000-54961

NF INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

Maryland

61-1696304

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

520 Madison Avenue, 38th Floor, New York, NY 10022

(Address of principal executive office) (Zip Code)

(212) 813-4900

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at August 13, 2014
Common stock, $0.01 par value		3,190,834

NF INVESTMENT CORP.

INDEX


Part I.	Financial Information

Item 1.	Financial Statements

	Consolidated Statements of Assets and Liabilities as of June 30, 2014 (unaudited) and December 31, 2013	1

	Consolidated Statements of Operations for the three month and six month periods ended June 30, 2014 (unaudited)	2

	Consolidated Statement of Changes in Net Assets for the six month period ended June 30, 2014 (unaudited)	3

	Consolidated Statement of Cash Flows for the six month period ended June 30, 2014 (unaudited)	4

	Consolidated Schedules of Investments as of June 30, 2014 (unaudited) and December 31, 2013	5

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

Part II.	Other information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

	Signatures	46

NF INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(dollar amounts in thousands, except per share data)


	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Investments—non-controlled/non-affiliated, at fair value (amortized cost of $103,476 and $59,975, respectively)	$	104,060		$	59,868
Cash and cash equivalents		2,372			12,219
Deferred financing costs		2,490			1,931
Interest receivable		297			197
Prepaid expenses and other assets		38			23

Total assets	$	109,257		$	74,238

LIABILITIES
Payable for investments purchased	$	14,930		$	3,491
Secured borrowings (Note 6)		30,234			25,506
Due to Investment Adviser (Note 5)		10			742
Interest and credit facility fees payable (Note 6)		215			146
Management fees payable (Note 5)		56			27
Dividend payable (Note 8)		383			—
Administrative service fees payable		33			74
Other accrued expenses and liabilities		364			315

Total liabilities		46,225			30,301

Commitments and contingencies (Notes 7 and 11)
NET ASSETS
Common stock, $0.01 par value; 200,000,000 shares authorized; 3,190,834 shares and 2,265,375 shares, respectively, issued and outstanding		32			23
Paid-in capital in excess of par value		62,992			44,667
Offering costs		(45	)		(45	)
Accumulated net investment income (loss), net of cumulative dividends of $511 and $0, respectively		(531	)		(601	)
Net change in unrealized appreciation (depreciation)		584			(107	)

Total net assets	$	63,032		$	43,937

NET ASSETS PER SHARE	$	19.75		$	19.40

The accompanying notes are an integral part of these consolidated financial statements.

NF INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollar amounts in thousands, except per share data)

(unaudited)


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Investment income:
Interest income from non-controlled/non-affiliated investments	$	1,224	$	2,193

Total investment income		1,224		2,193

Expenses:
Management fees (Note 5)		56		97
Professional fees		152		435
Administrative service fees (Note 5)		59		112
Interest expense (Note 6)		113		223
Credit facility fees (Note 6)		275		477
Directors’ fees and expenses		78		141
Transfer agency fees		7		16
Other general and administrative		55		111

Total expenses		795		1,612

Net investment income (loss)		429		581
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments:
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated		547		691

Net realized gain (loss) and change in unrealized appreciation (depreciation) on investments		547		691

Net increase (decrease) in net assets resulting from operations	$	976	$	1,272

Basic and diluted earnings per common share (Note 8)	$	0.31	$	0.46

Weighted-average shares of common stock outstanding—Basic and Diluted (Note 8)		3,190,834		2,786,904

Dividends declared per common share	$	0.12	$	0.16

The accompanying notes are an integral part of these consolidated financial statements.

NF INVESTMENT CORP.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(dollar amounts in thousands)

(unaudited)


	For the six month period ended June 30, 2014
Increase (decrease) in net assets resulting from operations:
Net investment income (loss)	$	581
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated		691

Net increase (decrease) in net assets resulting from operations		1,272

Capital transactions:
Common stock issued		18,334
Dividends declared		(511	)

Total capital share transactions		17,823

Net increase (decrease) in net assets		19,095

Net assets at beginning of period		43,937

Net assets at end of period	$	63,032

The accompanying notes are an integral part of these consolidated financial statements.

NF INVESTMENT CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(dollar amounts in thousands)

(unaudited)


	For the six month period ended June 30, 2014
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	1,272
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Amortization of deferred financing costs		209
Net accretion of discount on securities		(109	)
Net change in unrealized (appreciation) depreciation on investments—non-controlled/non-affiliated		(691	)
Cost of investments purchased and change in payable for investments purchased		(39,586	)
Proceeds from repayments of investments		7,633
Changes in operating assets:
Interest receivable		(100	)
Prepaid expenses and other assets		(15	)
Changes in operating liabilities:
Due to Investment Adviser		(595	)
Interest and credit facility fees payable		69
Management fees payable		29
Administrative service fees payable		(41	)
Other accrued expenses and liabilities		49

Net cash provided by (used in) operating activities		(31,876	)

Cash flows from financing activities:
Proceeds from issuance of common stock		18,334
Borrowings on Revolving Credit Facility and Facility		9,000
Repayments of Revolving Credit Facility		(4,272	)
Debt issuance costs		(905	)
Dividends paid in cash		(128	)

Net cash provided by (used in) financing activities		22,029

Net increase (decrease) in cash and cash equivalents		(9,847	)
Cash and cash equivalents, beginning of period		12,219

Cash and cash equivalents, end of period	$	2,372

Supplemental disclosure:
Interest paid during the period	$	161
Dividends declared during the period	$	511

The accompanying notes are an integral part of these consolidated financial statements.

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of June 30, 2014

(dollar amounts in thousands)

(unaudited)


Portfolio Company⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par Amount		Amortized Cost⁽⁶⁾		Fair Value⁽⁷⁾		Percentage of Net Assets
Investments—non-controlled/non-affiliated
First Lien Debt (97.77%)
Accuvant Finance LLC^{(2) (3) (5)}	High Tech Industries		5.75	%		10/22/2020		4/22/2014	$	1,967	$	1,951	$	1,958		3.11	%
Alpha Packaging Holdings, Inc.^{(2) (3) (5)}	Containers, Packaging & Glass		5.25			5/12/2020		5/9/2014		3,875		3,867		3,834		6.08
American Tire Distributors, Inc.^{(2) (3) (5) (10)}	Automotive		5.75			6/1/2018		6/12/2014		865		865		869		1.38
Anaren, Inc.^{(2) (3) (4)}	Telecommunications		5.50			2/18/2021		2/18/2014		3,370		3,339		3,341		5.30
Aquilex LLC ^{(2) (3) (4)}	Environmental Industries		5.00			12/31/2020		12/20/2013		3,483		3,478		3,477		5.52
Ascensus, Inc.^{(2) (3) (4)}	Banking, Finance, Insurance & Real Estate		5.00			12/2/2019		12/2/2013		5,970		5,944		6,012		9.54
Consolidated Aerospace Manufacturing, LLC ^{(2) (3) (4)}	Aerospace & Defense		5.00			3/27/2020		2/28/2014		1,685		1,679		1,680		2.66
Genex Holdings, Inc. ^{(2) (3) (5)}	Banking, Finance, Insurance & Real Estate		5.25			5/30/2020		5/22/2014		2,692		2,680		2,672		4.24
Indra Holdings Corp. (Totes Isotoner) ^{(2) (3) (5)}	Non-durable Consumer Goods		5.25			5/1/2021		4/29/2014		5,000		4,952		5,003		7.94
InterWrap Corp. (Canada)^{(2) (3) (4) (8)}	Construction & Building		5.25			11/1/2018		10/31/2013		1,954		1,940		1,921		3.05
Miller Heiman, Inc. ^{(2) (3) (4)}	Business Services		6.75			9/30/2019		10/1/2013		4,347		4,309		4,304		6.82
National Technical Systems, Inc. ^{(2) (3) (4) (9)}	Aerospace & Defense		7.25			11/22/2018		11/22/2013		4,210		4,173		4,254		6.75
NES Global Talent Finance US LLC (United Kingdom) ^{(2) (3) (4) (8)}	Energy: Oil & Gas		6.50			10/3/2019		10/2/2013		3,456		3,395		3,491		5.54
Pelican Products, Inc. ^{(2) (3) (5)}	Containers, Packaging & Glass		5.25			4/11/2020		4/8/2014		3,036		3,021		3,056		4.85
Phillips-Medisize Corporation ^{(2) (3) (5)}	Chemicals, Plastics & Rubber		4.75			6/16/2021		6/13/2014		2,500		2,488		2,495		3.96
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC) ^(2) (3) (4)	Wholesale		5.50			1/28/2020		1/24/2014		4,082		4,045		4,112		6.52
RCHP, Inc. (Regionalcare) ^{(2) (3) (5)}	Healthcare & Pharmaceuticals		6.00			4/23/2019		4/21/2014		4,375		4,332		4,393		6.97
Sterling Infosystems, Inc. ^{(2) (3) (5)}	Business Services		5.50			5/13/2021		5/12/2014		3,000		2,986		3,019		4.79
Synarc-Biocore Holdings, LLC ^{(2) (3) (5)}	Healthcare & Pharmaceuticals		5.50			3/10/2021		3/6/2014		4,489		4,446		4,523		7.18
System Maintenance Services Holding, Inc.^{(2) (3) (4)}	High Tech Industries		5.25			10/18/2019		10/18/2013		3,246		3,236		3,202		5.08
Tectum Holdings, Inc.^{(2) (3) (4)}	Automotive		5.25			9/12/2018		3/4/2014		1,904		1,902		1,904		3.02
The SI Organization, Inc.^{(2) (3) (5) (11)}	Aerospace & Defense		5.75			11/23/2019		5/16/2014		4,416		4,367		4,456		7.07
The Topps Company, Inc. ^{(2) (3) (4)}	Non-durable Consumer Goods		7.25			10/2/2018		10/1/2013		4,049		4,014		3,977		6.31
Transilwrap Company, Inc.^{(2) (3) (4) (12)}	Chemicals, Plastics & Rubber		5.00			11/22/2019		10/20/2013		4,953		4,944		4,847		7.69
Violin Finco S.A.R.L. (Alexander Mann Solutions) (United Kingdom) ^{(2) (3) (4) (8)}	Business Services		5.75			12/20/2019		12/18/2013		3,483		3,452		3,474		5.51
Vitera Healthcare Solutions, LLC ^{(2) (3) (4)}	Healthcare & Pharmaceuticals		6.00			11/4/2020		11/1/2013		3,354		3,323		3,363		5.33
W/S Packaging Group, Inc. ^{(2) (3) (4)}	Containers, Packaging & Glass		5.00			8/9/2019		8/8/2013		4,353		4,337		4,305		6.83
Watchfire Enterprises, Inc. ^{(2) (3) (4)}	Media: Advertising, Printing & Publishing		5.25			10/2/2020		10/2/2013		3,474		3,462		3,414		5.42
Zest Holdings, LLC ^{(2) (3) (4)}	Durable Consumer Goods		6.50			8/16/2020		8/14/2013		4,342		4,265		4,382		6.95

*First Lien Debt Total*												101,192		101,738		161.41

Second Lien Debt (2.23%)
Jazz Acquisition, Inc. (Wencor)^{(2) (3) (5)}	Aerospace & Defense		7.75			6/19/2022		6/25/2014		800		798		803		1.27
Phillips-Medisize Corporation ^{(2) (3) (5)}	Chemicals, Plastics & Rubber		8.25			6/16/2022		6/13/2014		1,500		1,486		1,519		2.41

*Second Lien Debt Total*												2,284		2,322		3.68

Total Investments—non-controlled/non-affiliated											$	103,476	$	104,060		165.09	%

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2014

(dollar amounts in thousands)

(unaudited)

(1)

Unless otherwise indicated, investments of NF Investment Corp. (“NFIC” or the “Company”) are domiciled in the United States. Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”), the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of June 30, 2014, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of June 30, 2014, the Company is not an “affiliated person” of any portfolio company.

(2)

Variable rate loans to the portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), which generally reset quarterly. For each such loan, the Company has provided the interest rate in effect as of June 30, 2014.

(3)	Loan includes interest rate floor feature.

(4)

These assets are owned by the Company’s wholly owned subsidiary, NFIC SPV L.L.C. (the “Borrower Sub”). The Borrower Sub has a senior secured revolving credit facility with various lenders (the “Revolving Credit Facility”). The lenders of the Revolving Credit Facility have a first lien security interest in all of the assets of the Borrower Sub (see Note 6, Borrowings) and such assets are not generally available to creditors of NFIC other than to satisfy obligations of the Borrower Sub under the Revolving Credit Facility.

(5)

These assets are owned by the Company. The Company has a senior secured revolving credit facility with one lender (the “Facility”). The lender of the Facility has a perfected first-priority security interest in substantially all of the portfolio investments held by the Company and certain future domestic subsidiaries of the Company. The lender of the Facility also has a perfected first-priority security interest in the unfunded investor equity capital commitments (provided that the amount of unfunded capital commitments ultimately available to the lender is limited to $34,000) and such security interest will be removed upon the earlier of (a) the date eligible investments held by the Company are equal to or greater than $62,500 and the Facility’s borrowing base equity test is satisfied and (b) the date the borrower has received equity capital contributions in an amount equal to $34,000 (see Note 6, Borrowings).

(6)	Amortized cost represents original cost, including loan origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.

(7)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (Notes 2 and 4), pursuant to the Company’s valuation policies.

(8)

The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

(9)

National Technical Systems, Inc. has an undrawn delayed draw term loan of $790 par value at LIBOR + 5.50%, 1.25% floor, and a partially undrawn revolver of $183 par value at LIBOR + 5.50%, 1.25% floor. An unused rate of 1.25% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn. The delayed draw term loan and revolver are both owned by the Company.

(10)	American Tire Distributors, Inc. has an undrawn delayed draw term loan of $204 par value at LIBOR + 4.75%, 1.00% floor. No unused rate is charged on the principal while undrawn for the first 30 days, thereafter, a rate of LIBOR + 4.75%, 1.00% floor, is charged.

(11)	The SI Organization, Inc. has an undrawn delayed draw term loan of $584 par value at LIBOR + 4.75%, 1.00% floor. An unused rate of 0.90% is charged on the principal while undrawn for the first 90 days, thereafter, a rate of LIBOR + 4.75%, 1.00% floor, is charged.

(12)	Transilwrap Company, Inc. is partially owned by the Company ($598 par value) with the remaining $4,355 par value owned by the Borrower Sub as indicated in Note 4 above.

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of June 30, 2014

(dollar amounts in thousands)

(unaudited)

The type and industrial composition of our investments as of June 30, 2014 were as follows:


Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt	$	101,192	$	101,738		97.77	%
Second Lien Debt		2,284		2,322		2.23

Total	$	103,476	$	104,060		100.00	%


Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	11,017	$	11,193		10.75	%
Automotive		2,767		2,773		2.66
Banking, Finance, Insurance & Real Estate		8,624		8,684		8.35
Business Services		10,747		10,797		10.38
Chemicals, Plastics & Rubber		8,918		8,861		8.52
Construction & Building		1,940		1,921		1.85
Containers, Packaging & Glass		11,225		11,195		10.76
Durable Consumer Goods		4,265		4,382		4.21
Energy: Oil & Gas		3,395		3,491		3.35
Environmental Industries		3,478		3,477		3.34
Healthcare & Pharmaceuticals		12,101		12,279		11.80
High Tech Industries		5,187		5,160		4.96
Media: Advertising, Printing & Publishing		3,462		3,414		3.28
Non-durable Consumer Goods		8,966		8,980		8.63
Telecommunications		3,339		3,341		3.21
Wholesale		4,045		4,112		3.95

Total	$	103,476	$	104,060		100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2013

(dollar amounts in thousands)


Portfolio Company ⁽¹⁾	Industry	Interest Rate			Maturity Date		Acquisition Date		Par Amount		Amortized Cost ⁽⁵⁾		Fair Value ⁽⁶⁾		Percentage of Net Assets
Investments—non-controlled/non-affiliated
First Lien Debt (100.00%)
Aquilex LLC ^{(2) (3) (4)}	Environmental Industries		5.00	%		12/31/2020		12/20/2013	$	3,500	$	3,495	$	3,495		7.94	%
Ascensus, Inc.^{(2) (3) (4)}	Banking, Finance, Insurance & Real Estate		5.00			12/2/2019		12/2/2013		6,000		5,972		5,984		13.62
Dialysis Newco, Inc., d/b/a DSI Renal ^{(2) (3) (4)}	Healthcare & Pharmaceuticals		5.25			8/16/2020		8/16/2013		4,250		4,210		4,262		9.70
InterWrap Corp. (Canada)^{(2) (3) (4) (7)}	Construction & Building		6.50			11/1/2018		10/31/2013		1,964		1,947		1,896		4.31
Landslide Holdings, Inc. (LANDesk Software) ^{(2) (3) (4)}	High Tech Industries		5.25			8/9/2019		8/7/2013		3,028		3,001		3,044		6.93
Miller Heiman, Inc. ^{(2) (3) (4)}	Business Services		6.75			9/30/2019		10/1/2013		4,375		4,333		4,404		10.02
National Technical Systems, Inc. ^{(2) (3) (4) (8)}	Aerospace & Defense		6.75			11/22/2018		11/22/2013		3,048		3,012		3,001		6.83
NES Global Talent Finance US LLC (United Kingdom)^{(2) (3) (4) (7)}	Energy: Oil & Gas		6.50			10/3/2019		10/2/2013		3,500		3,433		3,509		7.99
System Maintenance Services Holding, Inc.^{(2) (3) (4)}	High Tech Industries		5.25			10/18/2019		10/18/2013		3,263		3,251		3,175		7.23
The Topps Company, Inc. ^{(2) (3) (4)}	Non-durable Consumer Goods		7.25			10/2/2018		10/1/2013		4,070		4,031		4,015		9.14
Transilwrap Company, Inc.^{(2) (3) (4) (9)}	Chemicals, Plastics and Rubber		5.00			11/22/2019		10/20/2013		4,375		4,367		4,216		9.60
Violin Finco S.A.R.L. (Alexander Mann Solutions) (United Kingdom) ^{(2) (3) (4) (7)}	Business Services		5.75			12/20/2019		12/18/2013		3,500		3,467		3,458		7.87
Vitera Healthcare Solutions, LLC ^{(2) (3) (4)}	Healthcare & Pharmaceuticals		6.00			11/4/2020		11/1/2013		3,370		3,338		3,377		7.69
W/S Packaging Group, Inc. ^{(2) (3) (4)}	Containers, Packaging & Glass		5.00			8/9/2019		8/8/2013		4,375		4,358		4,341		9.88
Watchfire Enterprises, Inc. ^{(2) (3) (4)}	Media: Advertising, Printing & Publishing		5.25			10/2/2020		10/2/2013		3,491		3,479		3,386		7.71
Zest Holdings, LLC ^{(2) (3) (4)}	Durable Consumer Goods		6.50			8/16/2020		8/14/2013		4,364		4,281		4,305		9.80

*First Lien Debt Total*												59,975		59,868		136.26

Total Investments—non-controlled/non-affiliated											$	59,975	$	59,868		136.26	%

NF INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2013

(dollar amounts in thousands)

(1)

Unless otherwise indicated, investments of the Company are domiciled in the United States. Under the Investment Company Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of December 31, 2013, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2013, the Company is not an “affiliated person” of any portfolio company.

(2)

(3)	Loan includes interest rate floor feature.

(4)

These assets are owned by the Borrower Sub. The Borrower Sub has the Revolving Credit Facility. The lenders of the Revolving Credit Facility have a first lien security interest in all of the assets of the Borrower Sub (see Note 6, Borrowings) and such assets are not generally available to creditors of NFIC other than to satisfy obligations of the Borrower Sub under the Revolving Credit Facility.

(5)	Amortized cost represents original cost, including loan origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.

(6)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (Notes 2 and 4), pursuant to the Company’s valuation policies.

(7)

(8)

National Technical Systems, Inc. has an undrawn delayed draw term loan of $790 par value at LIBOR + 5.50%, 1.25% floor and an undrawn revolver of $226 par value at LIBOR + 5.50%, 1.25% floor. An unused rate of 1.25% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn. The delayed draw term loan and revolver are both owned by the Company.

(9)	The investment in Transilwrap Company, Inc. is partially owned by the Company ($875 par value) with the remaining $3,750 par value owned by the Borrower Sub as indicated in Note 4 above.

The type and industrial composition of investments as of December 31, 2013 were as follows:


Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt	$	59,975	$	59,868		100.00	%

Total	$	59,975	$	59,868		100.00	%


Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	3,012	$	3,001		5.01	%
Banking, Finance, Insurance & Real Estate		5,972		5,984		10.00
Business Services		7,800		7,862		13.13
Chemicals, Plastics & Rubber		4,367		4,216		7.04
Construction & Building		1,947		1,896		3.17
Containers, Packaging & Glass		4,358		4,341		7.25
Durable Consumer Goods		4,281		4,305		7.19
Energy: Oil & Gas		3,433		3,509		5.86
Environmental Industries		3,495		3,495		5.84
Healthcare & Pharmaceuticals		7,548		7,639		12.76
High Tech Industries		6,252		6,219		10.39
Media: Advertising, Printing & Publishing		3,479		3,386		5.65
Non-durable Consumer Goods		4,031		4,015		6.71

Total	$	59,975	$	59,868		100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

NF INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2014

(dollar amounts in thousands, except per share data)

1. ORGANIZATION

NF Investment Corp. (“NFIC” or the “Company”) is a Maryland corporation formed on November 1, 2012, and structured as an externally managed, non-diversified closed-end investment company. On August 5, 2013, NFIC filed its election to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). NFIC intends to be treated, and intends to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2013.

NFIC’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). NFIC seeks to achieve its investment objective by investing primarily in first lien senior secured and unitranche loans to private U.S. middle market companies that are, in many cases, controlled by private equity investment firms (“Middle Market Senior Loans”). On June 11, 2014, the Board of Directors of the Company voted to allow the Company to invest up to 10% of its total assets in second lien senior secured loans to private U.S. middle market companies.

NFIC was initially funded on November 8, 2012, with the purchase of 100 shares at a net asset value (“NAV”) of $20.00 per share by Carlyle GMS Investment Management L.L.C. (the “Investment Adviser”). On August 6, 2013, NFIC completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations. Prior to August 6, 2013, NFIC had not commenced operations and was a development stage company as defined by Accounting Standards Codification (“ASC”) 915, Development Stage Entity. During this time, NFIC focused substantially all of its efforts on establishing its business.

NFIC is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. NFIC will remain an emerging growth company for up to five years following an initial public offering, although if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, NFIC would cease to be an emerging growth company as of the following December 31.

NFIC SPV LLC (the “Borrower Sub”) is a Delaware limited liability company that was formed on June 18, 2013. The Borrower Sub invests in first lien senior secured loans. The Borrower Sub is a wholly-owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, June 18, 2013.

NFIC is externally managed by its Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle GMS Finance Administration L.L.C. (the “Administrator”) provides the administrative services necessary for NFIC to operate. Both the Investment Adviser and the Administrator are wholly-owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. (“Carlyle”), a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on The Carlyle Group L.P.

After the earlier of August 6, 2018 or the completion of an initial public offering by Carlyle GMS Finance, Inc. (another business development company managed by the Investment Adviser) that results in an unaffiliated public float of at least 15% of its aggregate capital commitments (a “Qualified IPO”), the Board of Directors (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act)

will use its best efforts to wind down and/or liquidate and dissolve the Company. These efforts may include cash tender offers from time to time as proceeds become available. Refer to sec.gov website for further information on Carlyle GMS Finance, Inc.

As a BDC, NFIC is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).

NFIC intends to be treated, and intends to comply with the requirements to qualify annually, as a RIC under the Code, and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, NFIC must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, NFIC generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that NFIC satisfies those requirements.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”). The consolidated financial statements include the accounts of NFIC and its wholly-owned subsidiary, the Borrower Sub. All significant intercompany balances and transactions have been eliminated. Management has determined that NFIC and the Borrower Sub are both investment companies for the purposes of accounting and financial reporting in accordance with Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (“ASU 2013-08”): Amendments to the Scope, Measurement and Disclosure Requirements and NFIC will consolidate the Borrower Sub. US GAAP for an investment company requires investments to be recorded at fair value. The carrying value for all other assets and liabilities approximates their fair value.

The interim financial statements have been prepared in accordance with US GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying the annual consolidated financial statements prepared in accordance with US GAAP are omitted. In the opinion of management, all adjustments considered necessary for the fair presentation of consolidated financial statements for the interim period presented have been included. These adjustments are of a normal, recurring nature. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2013. The results of operations for the three month and six month periods ended June 30, 2014 are not necessarily indicative of the operating results to be expected for the full year.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on management fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements. Actual results could differ from these estimates and such differences could be material.

Investments

Investment transactions are recorded on the trade date. Realized gains or losses are measured 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, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the accompanying Consolidated Statements of Operations reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See Note 4 for further information about fair value measurements.

Cash and Cash Equivalents

Cash and cash equivalents consists of demand deposits and highly liquid investments (e.g. money market funds, U.S treasury notes) with original maturities of three months or less. Cash equivalents are carried at amortized cost which approximates fair value. The Company’s cash and cash equivalents are held with a large financial institution and cash held in such financial institutions may, at times, exceed the Federal Deposit Insurance Corporation insured limit.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of investments represents the original cost, including loan origination fees, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.

The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity. As of June 30, 2014 and December 31, 2013 and for the three month and six month periods ended June 30, 2014, no loans in the portfolio contained PIK provisions.

Other Income

Other income may include income such as consent, waiver and amendment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive a fee for guaranteeing the outstanding debt of a portfolio company. Such fee will be amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the accompanying Consolidated Statements of Assets and Liabilities. For the three month and six month periods ended June 30, 2014, there was no other income.

Non-Accrual Income

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2014 and December 31, 2013, no loans in the portfolio were on non-accrual status.

Revolving Credit Facility and Facility Related Costs, Expenses and Deferred Financing Costs (See Note 6, Borrowings)

Interest expense and commitment fees on the Revolving Credit Facility and Facility (as defined in Note 6) are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.

The Revolving Credit Facility and Facility are recorded at carrying value, which approximates fair value.

Deferred financing costs consist of capitalized expenses related to the origination of the Revolving Credit Facility and Facility. Amortization of deferred financing costs for each credit facility is computed on the straight-line basis over the respective term of each credit facility. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.

Organization and Offering Costs

The Company agreed to reimburse the Investment Adviser for initial organization and offering costs incurred on behalf of NFIC up to $750. As of June 30, 2014 and December 31, 2013, $663 of organization and offering costs had been incurred by NFIC. The $663 of incurred organization and offering costs are allocated to all stockholders based on their respective capital commitment and are re-allocated amongst all stockholders at the time of each capital drawdown subsequent to the Initial Closing. The Company’s organization costs incurred are expensed and the offering costs are charged against equity when incurred.

Income Taxes

For federal income tax purposes, NFIC intends to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, NFIC must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then NFIC is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.

The minimum distribution requirements applicable to RICs require NFIC to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, NFIC may choose to carry forward ICTI in excess of current year distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

In addition, based on the excise distribution requirements, NFIC is subject to a 4% nondeductible federal excise tax on undistributed income unless NFIC distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by NFIC that is subject to corporate income tax is considered to have been distributed. NFIC intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense.

The Borrower Sub is a disregarded entity for tax purposes and is consolidated with the return of NFIC.

Capital Calls and Dividends and Distributions to Common Stockholders

The Company records the shares issued in connection with capital calls as of the effective date, or due date, of the capital call, which is the date shares are issued. To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date and paid in cash. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, is generally distributed at least annually, although the Company may decide to retain such capital gains for investment.

Functional Currency

The functional currency of the Company is the U.S. Dollar.

Recent Accounting Standards Updates

On June 7, 2013, the FASB issued ASU 2013-08. The final standard updates the criteria used in defining an investment company under US GAAP and also sets forth certain measurement and disclosure requirements. This ASU is effective for fiscal periods (including interim periods) beginning after December 15, 2013. The impact of this update did not have a material effect on the consolidated financial statements as of and for the six month period ended June 30, 2014.

3. INVESTMENTS

As of June 30, 2014 and December 31, 2013, investments—non-controlled/non-affiliated, at fair value consisted of the following:


	June 30, 2014
Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt	$	101,192	$	101,738		97.77	%
Second Lien Debt		2,284		2,322		2.23

Total	$	103,476	$	104,060		100.00	%


	December 31, 2013
Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt	$	59,975	$	59,868		100.00	%

Total	$	59,975	$	59,868		100.00	%

The geographical composition of investments—non-controlled/non-affiliated at fair value as of June 30, 2014 and December 31, 2013 was as follows:


	June 30, 2014
Industry	Amortized Cost		Fair Value		% of Fair Value
Canada	$	1,940	$	1,921		1.85	%
United Kingdom		6,847		6,965		6.69
United States		94,689		95,174		91.46

Total	$	103,476	$	104,060		100.00	%


	December 31, 2013
Industry	Amortized Cost		Fair Value		% of Fair Value
Canada	$	1,947	$	1,896		3.17	%
United Kingdom		6,900		6,967		11.64
United States		51,128		51,005		85.19

Total	$	59,975	$	59,868		100.00	%

The industrial composition of investments—non-controlled/non-affiliated at fair value as of June 30, 2014 and December 31, 2013 was as follows:


	June 30, 2014
Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	11,017	$	11,193		10.75	%
Automotive		2,767		2,773		2.66
Banking, Finance, Insurance & Real Estate		8,624		8,684		8.35
Business Services		10,747		10,797		10.38
Chemicals, Plastics & Rubber		8,918		8,861		8.52
Construction & Building		1,940		1,921		1.85
Containers, Packaging & Glass		11,225		11,195		10.76
Durable Consumer Goods		4,265		4,382		4.21
Energy: Oil & Gas		3,395		3,491		3.35
Environmental Industries		3,478		3,477		3.34
Healthcare & Pharmaceuticals		12,101		12,279		11.80
High Tech Industries		5,187		5,160		4.96
Media: Advertising, Printing & Publishing		3,462		3,414		3.28
Non-durable Consumer Goods		8,966		8,980		8.63
Telecommunications		3,339		3,341		3.21
Wholesale		4,045		4,112		3.95

Total	$	103,476	$	104,060		100.00	%


	December 31, 2013
Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	3,012	$	3,001		5.01	%
Banking, Finance, Insurance & Real Estate		5,972		5,984		10.00
Business Services		7,800		7,862		13.13
Chemicals, Plastics & Rubber		4,367		4,216		7.04
Construction & Building		1,947		1,896		3.17
Containers, Packaging & Glass		4,358		4,341		7.25
Durable Consumer Goods		4,281		4,305		7.19
Energy: Oil & Gas		3,433		3,509		5.86
Environmental Industries		3,495		3,495		5.84
Healthcare & Pharmaceuticals		7,548		7,639		12.76
High Tech Industries		6,252		6,219		10.39
Media: Advertising, Printing & Publishing		3,479		3,386		5.65
Non-durable Consumer Goods		4,031		4,015		6.71

Total	$	59,975	$	59,868		100.00	%

4. FAIR VALUE MEASUREMENTS

The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e. “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or NFIC’s Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages one or more third-party valuation firms to provide positive assurance on portions of the portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once annually) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and, where appropriate, the respective third-party valuation firms and provide the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the respective third-party valuation firms.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:

•

the nature and realizable value of any collateral;

•

call features, put features and other relevant terms of debt;

•

the portfolio company’s leverage and ability to make payments;

•

the portfolio company’s public or private credit rating;

•

the portfolio company’s actual and expected earnings and discounted cash flow;

•

prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;

•

the markets in which the portfolio company does business and recent economic and/or market events; and

•

comparisons to comparable transactions and publicly traded securities.

Investment performance data utilized are the most recently available financial statements and compliance certificate received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.

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. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different than the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of June 30, 2014.

US GAAP establishes a hierarchal disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.

Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:

•

Level I—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments included in Level I include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

•

Level II—inputs to the valuation methodology are either directly or indirectly observable as of the reporting date and are those other than quoted prices in active markets. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

•

Level III—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately-held entities, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Transfer between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. For the three month and six month periods ended June 30, 2014, there were no transfers between levels.

The following tables summarize the Company’s investments measured at fair value on a recurring basis by the above fair value hierarchy levels as of June 30, 2014 and December 31, 2013:


	June 30, 2014
	Level I		Level II		Level III		Total
Assets
First Lien Debt		—		—	$	101,738	$	101,738
Second Lien Debt		—		—		2,322		2,322

Total		—		—	$	104,060	$	104,060


	December 31, 2013
	Level I		Level II		Level III		Total
Assets
First Lien Debt		—		—	$	59,868	$	59,868

Total		—		—	$	59,868	$	59,868

The changes in the Company’s investments at fair value for which the Company has used Level III inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level III investments still held are as follows:


	Financial Assets For the three month period ended June 30, 2014
	First Lien Debt			Second Lien Debt		Total
Balance, beginning of period	$	73,441		$	—	$	73,441
Purchases		32,159			2,284		34,443
Paydowns		(4,433	)		—		(4,433	)
Accretion of discount		62			—		62
Net change in unrealized appreciation (depreciation)		509			38		547

Balance, end of period	$	101,738		$	2,322	$	104,060

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2014 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	$	561		$	38	$	599


	Financial Assets For the six month period ended June 30, 2014
	First Lien Debt			Second Lien Debt		Total
Balance, beginning of period	$	59,868		$	—	$	59,868
Purchases		48,741			2,284		51,025
Paydowns		(7,633	)		—		(7,633	)
Accretion of discount		109			—		109
Net change in unrealized appreciation (depreciation)		653			38		691

Balance, end of period	$	101,738		$	2,322	$	104,060

Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of June 30, 2014 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	$	748		$	38	$	786

The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:

Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.

Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.

Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the investment’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies.

The following tables summarize the quantitative information related to the significant unobservable inputs for Level III instruments which are carried at fair value as of June 30, 2014 and December 31, 2013:


	Fair Value as of June 30, 2014				Range
	Fair Value as of June 30, 2014		Valuation Techniques	Significant Unobservable Inputs	Low			High			Weighted Average
Investments in Debt Securities	$	99,756	Discounted Cash Flow	Discount Rate		4.59	%		8.08	%		5.59	%
		4,304	Consensus Pricing	Indicative Quotes		99.00			99.00			99.00

Total Debt	$	104,060

Total Level III Investments	$	104,060


	Fair Value as of December 31, 2013				Range
	Fair Value as of December 31, 2013		Valuation Techniques	Significant Unobservable Inputs	Low			High			Weighted Average
Investments in Debt Securities	$	59,868	Discounted Cash Flow	Discount Rate		5.12	%		7.54	%		5.97	%

Total Debt	$	59,868

Total Level III Investments	$	59,868

The significant unobservable inputs used in the fair value measurement of the Company’s investments in debt securities are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.

Financial instruments disclosed but not carried at fair value:

The following table presents the carrying value and fair value of the Company’s secured borrowings disclosed but not carried at fair value.


	June 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured borrowings	$	30,234	$	30,234	$	25,506	$	25,506

Total	$	30,234	$	30,234	$	25,506	$	25,506

The fair value of the secured borrowings approximates its carrying value and is categorized as Level III within the hierarchy. Secured borrowings are valued generally using discounted cash flows analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.

The fair value of other financial assets and liabilities approximates their carrying value based on the short term nature of these items.

5. RELATED PARTY TRANSACTIONS

Investment Advisory Agreement

On July 10, 2013, the Company’s Board of Directors, including a majority of the directors who are not interested persons as defined in the Investment Company Act, approved an investment advisory and management agreement (the “Investment Advisory Agreement”) between the Company and the Investment Adviser in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act. Subject to the overall supervision of the Board of Directors, the Investment Adviser provides investment advisory services to the Company. For providing these services, the Investment Adviser receives a management fee from the Company. The management fee is calculated and payable quarterly in arrears at an annual rate of 0.25% of the average value of the gross assets of the Company at the end of the two most recently completed fiscal quarters, excluding any cash and cash equivalents and including assets acquired with leverage from use of the Revolving Credit Facility and Facility (see Note 6, Borrowings). For purposes of this calculation, cash and cash equivalents include any temporary investments in cash-equivalents, U.S. government securities and other high quality investment grade debt investments that mature in 12 months or less from the date of investment. The management fee for any partial quarter is prorated.

For the three month and six month periods ended June 30, 2014, management fees were $56 and $97 respectively.

As of June 30, 2014 and December 31, 2013, $56 and $27, respectively, was included in management fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

On July 10, 2013, the Investment Adviser entered into a personnel agreement with The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.

Administration Agreement

On July 10, 2013, the Company’s Board of Directors approved an administration agreement (the “Administration Agreement”) between the Company and the Administrator. Pursuant to the Administration Agreement, the Administrator provides services and receives reimbursements equal to an amount that reimburses

the Administrator for its costs and expenses and the Company’s allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Chief Financial Officer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and any internal audit staff, to the extent internal audit performs a role in the Sarbanes-Oxley internal control assessment. Reimbursement under the Administration Agreement occurs quarterly in arrears.

For the three month and six month periods ended June 30, 2014, NFIC incurred $59 and $112, respectively in fees under the Administrative Agreement, which are included in administrative service fees in the accompanying Consolidated Statements of Operations. As of June 30, 2014 and December 31, 2013, $33 and $74, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

Sub-Administration Agreements

On July 10, 2013, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP. Pursuant to the agreements, Carlyle Employee Co. and CELF Advisors LLP provide the Administrator access to personnel.

On July 10, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company. For the three month and six month periods ended June 30, 2014, fees incurred in connection with the sub-administration agreement, which amounted to $15 and $30, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of June 30, 2014 and December 31, 2013, $40 and $10, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.

Placement Fees

On July 10, 2013, the Company entered into a placement fee arrangement with TCG Securities, L.L.C. (“TCG”), a licensed broker-dealer and an affiliate of the Investment Adviser. There are no placement fees under this arrangement.

Board of Directors

NFIC’s Board of Directors currently consists of five members, three of whom are not “interested persons” of NFIC as defined in Section 2(a)(19) of the Investment Company Act (“Independent Directors”). On July 10, 2013, the Board of Directors also established an Audit Committee consisting of its Independent Directors, and may establish additional committees in the future. For the three month and six month periods ended June 30, 2014, NFIC incurred $78 and $141, respectively, in fees and expenses associated with its Independent Directors and Audit Committee. As of June 30, 2014 and December 31, 2013, $3 and $18, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities. As of June 30, 2014 and December 31, 2013, certain directors had committed $1,050 in capital commitments to the Company.

6. BORROWINGS

In accordance with the Investment Company Act, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. As of June 30, 2014 and December 31, 2013, asset coverage was 308.48% and 272.26%, respectively. During the six month period ended June 30, 2014, there were net secured borrowings of $1,728 under the Revolving Credit Facility and secured borrowings of $3,000 under the Facility. As of June 30, 2014 and December 31, 2013, there were $30,234 and $25,506, respectively, in secured borrowings outstanding.

Revolving Credit Facility

The Borrower Sub closed on September 12, 2013 on the Revolving Credit Facility with various lenders, which Revolving Credit Facility was subsequently amended on July 25, 2014 (the “First Amendment”). The First Amendment, among other things (a) reduced the maximum commitments from $175,000 to $140,000, (b) extended the revolving period from September 12, 2016 to the earlier of September 12, 2017 or the completion of a Qualified IPO by Carlyle GMS Finance, Inc., (c) extended the maturity date from September 12, 2019 to the earlier of September 11, 2020 or the completion of a Qualified IPO by Carlyle GMS Finance, Inc., (d) increased the per annum revolving period rate from the applicable base rate (based on LIBOR, the commercial paper rate, prime rate or the federal funds rate) plus 1.50% to the applicable base rate plus 1.60%, (e) added second lien loans and covenant-lite loans (subject to certain limitations) to the types of assets eligible to be purchased by the Borrower Sub, and (f) modified certain other restrictions and requirements set forth in the Revolving Credit Facility. Advances under the Revolving Credit Facility first became available to the Company once the Borrower Sub held at least $10,500 of minimum equity in its assets held. The Revolving Credit Facility provides for secured borrowings up to the lesser of $140,000 or the amount of capital commitments the Company has received with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $262,500, subject to restrictions imposed on borrowings under the Investment Company Act and adequate collateral to support such borrowings. The Revolving Credit Facility has a revolving period through the earlier of September 12, 2017 or the completion of a Qualified IPO by Carlyle GMS Finance, Inc. (with two one-year extension options, subject to the Borrower Sub’s and the lenders’ consent) and a maturity date of the earlier of September 11, 2020 or the completion of a Qualified IPO by Carlyle GMS Finance, Inc. (extendable in connection with an extension of the revolving period). Base rate borrowings under the Revolving Credit Facility bear interest initially at the applicable commercial paper rate (if the lender is a conduit lender) or LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 1.60% per year during the revolving period, with pre-determined future interest rate increases of 1.25%-2.25% over the three years following the end of the revolving period. The Borrower Sub is also required to pay a commitment fee of between 0.25% and 1.00% per year depending on the usage of the Revolving Credit Facility. Payments under the Revolving Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the Borrower Sub.

As part of the Revolving Credit Facility, the Borrower Sub is subject to limitations as to how borrowed funds may be used including, but not limited to, restrictions on sector and geographic concentrations, loan size, payment frequency, tenor and investment ratings (or estimated ratings). In addition, borrowed funds are intended to be used primarily to purchase first lien loan assets, and the Borrower Sub is limited in its ability to purchase certain other assets (including, but not limited to, second lien loans, covenant-lite loans, revolving and delayed draw loans and discount loans) and other assets are not permitted to be purchased (including, but not limited to paid-in-kind loans).The Revolving Credit Facility has certain requirements relating to interest coverage, and portfolio performance, including limitations on delinquencies and charge offs, violation of which could result in the immediate acceleration of the amounts due under the Revolving Credit Facility. The Revolving Credit Facility is also subject to a borrowing base that applies different advance rates to assets held by the Borrower Sub based generally on the fair market value of such assets. Under certain circumstances, NFIC could be obliged to repurchase loans from the Borrower Sub.

Related to the First Amendment which reduced the maximum commitments to the Revolving Credit Facility, $370 of deferred financing costs (representing the prorated financing costs related to the reduction in commitments) were immediately expensed as of July 25, 2014 in lieu of continuing to amortize over the term of the Revolving Credit Facility.

As of June 30, 2014 and December 31, 2013, the Borrower Sub was in compliance with all covenants and other requirements of the Revolving Credit Facility.

Facility

The Company closed on March 27, 2014 on the Facility with one lender. The maximum principal amount of the Facility is $50,000, subject to availability under the Facility, which is based on the value of the Company’s portfolio investments net of certain other indebtedness that the Company may incur in the future in accordance with the terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $75,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $10,000 limit for swingline loans and a $5,000 limit for letters of credit. The Company may borrow amounts in U.S. dollars, subject to the satisfaction of certain conditions, including certain collateral quality tests. The availability period under the Facility will terminate on March 27, 2017 or earlier under certain conditions specified in the Facility (the “Commitment Termination Date”) and the Facility will mature on March 27, 2020 (the “Maturity Date”). During the period from the Commitment Termination Date to the Maturity Date, the Company will be obligated to make mandatory prepayments under the Facility out of the proceeds of certain asset sales, other recovery events and equity and debt issuances. Amounts drawn under the Facility, including amounts drawn in respect of letters of credit, will bear interest at either (a) LIBOR plus an applicable spread of (i) prior to the Commitment Termination Date, 2.25% and (ii) following the Commitment Termination Date, 2.65%, or (b) an “alternative base rate” (which is the highest of a prime rate, the federal funds effective rate plus 0.50%, or one month LIBOR plus 1.00%) plus an applicable spread of (i) prior to the Commitment Termination Date, 1.25% and (ii) following the Commitment Termination Date, 1.65%. The Company may elect either the LIBOR or the “alternative base rate” at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company will also pay a fee of 0.375% on undrawn amounts under the Facility and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin under the Facility while the letter of credit is outstanding.

Subject to certain exceptions, including, without limitation, the Company’s ownership interests in its special purpose non-guarantor subsidiaries, such as the Borrower Sub, the Facility is secured by a perfected first-priority security interest in substantially all of the portfolio investments held by the Company and certain future domestic subsidiaries of the Company (collectively, the “Guarantors”) and $34,000 of unfunded investor equity capital commitments. The Company is required to cause the Guarantors to guaranty the Facility. The $34,000 pledge of unfunded investor equity capital commitments shall be released upon the earlier of (a) the date eligible investments held by the Company are equal to or greater than $62,500 and the Facility’s borrowing base equity test is satisfied and (b) the date the borrower has received equity capital contributions in an amount equal to $34,000. Such eligible investments and shareholder equity thresholds have not been satisfied as of June 30, 2014. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity, liquidity and interest coverage, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.

As of June 30, 2014, the Company was in compliance with all covenants and other requirements of the Facility.

Summary of Facilities

The facilities of the Company and the Borrower Sub consisted of the following as of June 30, 2014 and December 31, 2013:


	June 30, 2014
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	175,000	$	27,234	$	147,766	$	1,032
Facility		50,000		3,000		47,000		12,444

Total	$	225,000	$	30,234	$	194,766	$	13,476


	December 31, 2013
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	175,000	$	25,506	$	149,494	$	4,710

Total	$	175,000	$	25,506	$	149,494	$	4,710

(1)	The unused portion upon which commitment fees are based.

(2)	Available for borrowing based on the computation of collateral to support the borrowings.

As of June 30, 2014 and December 31, 2013, $103 and $41, respectively, of interest expense and $93 and $85, respectively, of unused commitment fees were included in interest and credit facility fees payable. For the three month and six month periods ended June 30, 2014, the average stated interest rate was 1.68% and 1.67% and average principal debt outstanding was $26,505 and $26,569 respectively. As of June 30, 2014 and December 31, 2013, the interest rate was 1.75% and 1.66%, respectively, based on floating LIBOR rates.

For the three month and six month periods ended June 30, 2014, the components of interest expense and credit facility fees were as follows:


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Interest expense	$	113	$	223
Unused commitment fee		141		236
Amortization of deferred financing costs		118		208
Other fees		16		33

Total credit facility fees	$	388	$	700

Cash paid for interest expense	$	111	$	161

7. COMMITMENTS AND CONTINGENCIES

A summary of significant contractual payment obligations was as follows as of June 30, 2014 and December 31, 2013:


June 30, 2014	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Secured Borrowings	$	30,234		—		—		—	$	30,234


December 31, 2013	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Secured Borrowings	$	25,506		—		—		—	$	25,506

In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of June 30, 2014 and December 31, 2013 for any such exposure.

As of June 30, 2014 and December 31, 2013, the Company had $190,077 and $80,077, respectively, in total capital commitments from stockholders, of which $126,542 and $34,875, respectively, was unfunded. Included in the commitments as of June 30, 2014 and December 31, 2013 were $5,077 of capital commitments of the Investment Adviser, members of senior management, and certain employees, partners, and affiliates of the Investment Adviser. As of June 30, 2014 and December 31, 2013, certain directors had committed $1,050 in capital commitments to the Company.

As of June 30, 2014, there was a $34,000 pledge of unfunded investor equity capital commitments to the lender of the Facility. The $34,000 pledge of unfunded investor equity capital commitments shall be released upon the earlier of (a) the date eligible investments held by the Company are equal to or greater than $62,500 and the Facility’s borrowing base equity test is satisfied and (b) the date the borrower has received equity capital contributions in an amount equal to $34,000. Such eligible investments and shareholder equity thresholds have not been satisfied as of June 30, 2014.

Upon the earlier of August 6, 2018 or the completion of a Qualified IPO by Carlyle GMS Finance, Inc., investors will be released from any further obligation to purchase additional shares of common stock, subject to certain exceptions contained in the subscription agreement.

The Company had the following commitments to fund delayed draw and revolving senior secured loans, none of which were funded:


	Par Value as of
	June 30, 2014		December 31, 2013
Unfunded delayed draw commitments	$	1,578	$	790
Unfunded revolving term loan commitments		183		226

Total unfunded commitments	$	1,761	$	1,016

8. NET ASSETS

In connection with its formation, the Company has the authority to issue 200,000,000 shares of common stock, $0.01 per share par value.

During the six month period ended June 30, 2014, the Company issued 925,459 shares for $18,334. The following table summarizes capital activity during the six month period ended June 30, 2014:


	Common Stock				Capital In Excess Of Par Value		Offering Expenses			Accumulated Net Investment Income (Loss)			Net Change in Unrealized Appreciation (Depreciation) on Investments			Total Net Assets

	Shares		Amount
Balance, beginning of period		2,265,375	$	23	$	44,667	$	(45	)	$	(601	)	$	(107	)	$	43,937
Common stock issued		925,459		9		18,325		—			—			—			18,334
Net investment income		—		—		—		—			581			—			581
Net change in unrealized appreciation on investments—non-controlled/non-affiliated		—		—		—		—			—			691			691
Dividends declared		—		—		—		—			(511	)		—			(511	)

Balance, end of period		3,190,834	$	32	$	62,992	$	(45	)	$	(531	)	$	584		$	63,032

The following table summarizes total shares issued and proceeds received related to capital drawdowns delivered pursuant to subscriptions for the Company’s common stock during the six month period ended June 30, 2014:


	Shares Issued		Proceeds Received
March 21, 2014		925,459	$	18,334

Total		925,459	$	18,334

Subscribed but unissued shares are presented in equity with a deduction of subscriptions receivable until cash is received for a subscription. There were no subscribed but unissued shares as of June 30, 2014 and December 31, 2013.

Subscription transactions during the six month period ended June 30, 2014 were executed at an offering price at a premium to NAV due to the requirement to use prior quarter NAV as the offering price unless it would result in the Company selling shares of its common stock at a price below the current NAV and also in order to effect a reallocation of organizational costs to subsequent investors. Such subscription transactions increased NAV by $28 or $0.09 per share for the six month period ended June 30, 2014.

As of June 30, 2014, four stockholders represented 95.62% of total net assets.

The Company computes earnings per common share in accordance with ASC 260, Earnings Per Share. Basic earnings per common share were calculated by dividing net increase (decrease) in net assets resulting from operations attributable to the Company by the weighted-average number of common shares outstanding for the period.

Basic and diluted earnings per common share were as follows:


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Net increase in net assets resulting from operations	$	976	$	1,272
Weighted-average common shares outstanding		3,190,834		2,786,904

Basic and diluted earnings per common share	$	0.31	$	0.46

On June 26, 2014 and March 13, 2014, the Company declared dividends of $0.12 and $0.04 per share, respectively, for the quarter ended June 30, 2014 and March 31, 2014, respectively, which were paid on July 14, 2014 and April 14, 2014, respectively, to holders of record of common stock at the close of business on June 30, 2014 and March 31, 2014, respectively. As of December 31, 2013, no dividends or distributions had been declared or paid by the Company.

9. CONSOLIDATED FINANCIAL HIGHLIGHTS

The following is a schedule of consolidated financial highlights for the six month period ended June 30, 2014:


Per Share Data:
Net asset value per share, beginning of period	$	19.40
Net investment income ⁽¹⁾		0.21
Net realized gain and net change in unrealized appreciation on investments		0.21

Net increase in net assets resulting from operations		0.42

Dividends declared⁽²⁾		(0.16	)
Effect of subscription offering price⁽³⁾		0.09

Net asset value per share, end of period	$	19.75

Number of shares outstanding, end of period		3,190,834
Total return⁽⁴⁾		2.63	%
Net assets, end of period	$	63,032
Ratio to average net assets ⁽⁵⁾:
Total expenses		2.85	%
Net investment income		1.03	%
Interest expense and credit facility fees		1.24	%
Ratios/Supplemental Data:
Asset coverage		308.48	%
Portfolio turnover		9.73	%
Total committed capital, end of period	$	190,077
Ratio of total contributed capital to total committed capital, end of period		33.43	%
Weighted-average shares outstanding		2,786,904

(1)	Net investment income per share is calculated as net investment income for the period divided by the weighted average number of shares outstanding for the period.

(2)	Dividends declared per share is calculated as the sum of dividends declared on each quarter-end date during the period divided by the number of shares outstanding at each respective quarter-end date (Refer to Note 8).

(3)	Increase is due to offering price of subscriptions during the period (Refer to Note 8).

(4)

Total return based on net asset value equals the change in net asset value during the year plus the declared dividends for the period ended June 30, 2014, divided by the beginning net asset value for the period. Total return based on net asset value is not annualized. Total return does not reflect taxes paid on distributions or placement fees paid on capital drawdowns, if any. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results. Total return is inclusive of $0.09 per share increase in NAV for the period related to the offering price of subscriptions. Excluding the effects of the higher offering price of subscriptions, total return would have been 2.16% (Refer to Note 8).

(5)	Periods less than one year have not been annualized.

10. LITIGATION

The Company may become party to certain lawsuits in the ordinary course of business. The Company does not believe that the outcome of current matters, if any, will materially impact the Company or its consolidated financial statements. As of June 30, 2014 and December 31, 2013, the Company was not subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company.

In addition, portfolio investments of the Company could be the subject of litigation or regulatory investigations in the ordinary course of business. The Company does not believe that the outcome of any current contingent liabilities of its portfolio investments, if any, will materially affect the Company or these consolidated financial statements.

11. TAX

The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740, Income Taxes, as of June 30, 2014 and December 31, 2013.

In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. As of June 30, 2014 and December 31, 2013, the Company has yet to file any tax returns and therefore is not yet subject to examination.

The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate. The estimated tax character of dividends declared for the six month period ended June 30, 2014 was as follows:


Ordinary income	$	511
Return of capital	$	—

12. SUBSEQUENT EVENTS

Subsequent events have been evaluated through the date the consolidated financial statements were issued. There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.

Subsequent to June 30, 2014, the Company borrowed $2,500 and $24,000 from the Revolving Credit Facility and Facility, respectively, to fund investment acquisitions and voluntarily repaid $1,803 and $2,500 to the Revolving Credit Facility and Facility, respectively.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

(dollar amounts in thousands, except per share data)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We have included or incorporated by reference in this Form 10-Q, and from time to time our management may make, “forward-looking statements”. These forward-looking statements are not historical facts, but instead relate to future events or the future performance or financial condition of NF Investment Corp. (“we,” “us,” “our,” “NFIC,” or the “Company”). These statements are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this Form 10-Q and the documents incorporated by reference herein involve a number of risks and uncertainties, including statements concerning:

•

our, or our portfolio companies’, future business, operations, operating results or prospects;

•

the return or impact of current and future investments;

•

the impact of a protracted decline in the liquidity of credit markets on our business;

•

the impact of fluctuations in interest rates on our business;

•

the impact of changes in laws or regulations (including the interpretation thereof) governing our operations or the operations of our portfolio companies;

•

the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

•

our ability to recover unrealized losses;

•

market conditions and our ability to access alternative debt markets and additional debt and equity capital;

•

our contractual arrangements and relationships with third parties;

•

the general economy and its impact on the industries in which we invest;

•

the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

•

our expected financings and investments;

•

our ability to successfully integrate any acquisitions;

•

the adequacy of our cash resources and working capital;

•

the timing, form and amount of any dividend distributions;

•

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

•

the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments; and

•

our intent to satisfy the requirements of a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. Our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2013 and Part II, Item 1A of and elsewhere in this Form 10-Q.

We have based the forward-looking statements included in this Form 10-Q on information available to us on the date of this Form 10-Q, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (the “SEC”), including our registration statement on Form 10, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

OVERVIEW

Management’s Discussion and Analysis should be read in conjunction with Part I, Item 1 of this Form 10-Q “Financial Statements.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2013 and Part II, Item 1A of this Form 10-Q “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.

NFIC is a Maryland corporation formed on November 1, 2012, and structured as an externally managed, non-diversified closed-end investment company. On August 5, 2013, NFIC filed its election to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). NFIC intends to be treated, and intends to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2013.

PORTFOLIO AND INVESTMENT ACTIVITY

The fair value of our investments was approximately $104,060 in 30 portfolio companies as of June 30, 2014. The Company had $59,868 of investments in 16 portfolio companies as of December 31, 2013.

The Company’s investment activity for the three month period ended June 30, 2014, is presented below (information presented herein is at amortized cost unless otherwise indicated).


	For the three month period ended June 30, 2014
Investments—non-controlled/non-affiliated:
Total Investments—non-controlled/non-affiliated as of March 31, 2014	$	73,404
New investments		34,443
Net accretion of discount on securities		62
Investments sold or repaid		(4,433	)

Total Investments—non-controlled/non-affiliated as of June 30, 2014	$	103,476

Principal amount of investments funded:
First Lien Debt	$	32,178
Second Lien Debt		2,500

Total	$	34,678

Principal amount of investments sold or repaid:
First Lien Debt	$	(4,433	)

Total	$	(4,433	)

Number of new funded investments		14
Average new funded investment amount	$	2,460
Percentage of new funded debt investments at floating rates		100	%

As of June 30, 2014 and December 31, 2013, investments—non-controlled/non-affiliated consisted of the following:


	June 30, 2014
	Amortized Cost		Fair Value
First Lien Debt	$	101,192	$	101,738
Second Lien Debt		2,284		2,322

Total	$	103,476	$	104,060


	December 31, 2013
	Amortized Cost		Fair Value
First Lien Debt	$	59,975	$	59,868

Total	$	59,975	$	59,868

The weighted average yields ⁽¹⁾ of our portfolio, based on the amortized cost and fair value of our portfolio as of June 30, 2014 and December 31, 2013, were as follows:


	June 30, 2014
	Amortized Cost			Fair Value
First Lien Debt		5.56	%		5.54	%
Second Lien Debt		0.18			0.18

Total		5.74	%		5.72	%


	December 31, 2013
	Amortized Cost			Fair Value
First Lien Debt		5.77	%		5.78	%

Total		5.77	%		5.78	%

The weighted average yields ⁽¹⁾ for each investment type, based on the amortized cost and fair value of our portfolio as of June 30, 2014 and December 31, 2013, were as follows:


	June 30, 2014
	Amortized Cost			Fair Value
First Lien Debt		5.69	%		5.67	%
Second Lien Debt		8.13			8.00


	December 31, 2013
	Amortized Cost			Fair Value
First Lien Debt		5.77	%		5.78	%

⁽¹⁾	Yields do not include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of June 30, 2014 and December 31, 2013.

RESULTS OF OPERATIONS

For the three month and six month periods ended June 30, 2014

The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation.

Investment Income


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Interest income from non-controlled/non-affiliated investments	$	1,224	$	2,193

Total investment income	$	1,224	$	2,193

The increase in interest income for the three month period ended June 30, 2014 was driven by our deployment of capital and increasing invested balance. As of June 30, 2014 and December 31, 2013, the size of our portfolio was $103,476 and $59,975, respectively, at amortized cost, with total par outstanding of $104,229 and $60,473, respectively. As of June 30, 2014 and December 31, 2013, our portfolio had a weighted average yield of 5.74% and 5.77%, respectively, on amortized cost.

Net investment income for the three month and six month periods ended June 30, 2014 was as follows:


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Total investment income from non-controlled/non-affiliated investments	$	1,224	$	2,193
Total expenses		795		1,612

Net investment income (loss)	$	429	$	581

Expenses


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Management fees	$	56	$	97
Professional fees		152		435
Administrative service fees		59		112
Interest expense		113		223
Credit facility fees		275		477
Directors’ fees and expenses		78		141
Transfer agency fees		7		16
Other general and administrative		55		111

Total expenses	$	795	$	1,612

Interest expense and credit facility fees for the three month and six month periods ended June 30, 2014 were comprised of the following:


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Interest expense	$	113	$	223
Unused commitment fee		141		236
Amortization of deferred financing costs		118		208
Other fees		16		33

Total interest expense and credit facility fees	$	388	$	700

Cash paid for interest expense	$	111	$	161

For the three month period ended June 30, 2014, unused commitment fees and amortization of deferred financing costs increased related to fees associated with a second credit facility, the Facility, that closed on March 27, 2014. For the three month and six month periods ended June 30, 2014, the average stated interest rate was 1.68% and 1.67%, respectively, and average principal debt outstanding was $26,505 and $26,569, respectively.

The management fees for the three and six month periods ended June 30, 2014 were driven by our deployment of capital and increasing invested balance. See Note 5 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for more information on the management fees.

Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative services fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing

its obligations under an administration agreement between the Company and the Administrator, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs.

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

During the three month and six month periods ended June 30, 2014, the Company had a change in unrealized appreciation on 19 and 24, respectively, portfolio companies totaling approximately $827 and $940, respectively, which was offset by a change in unrealized depreciation on 12 and 8, respectively, portfolio companies totaling approximately $280 and $249, respectively.


	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated	$	547	$	691

Net realized gain (loss) and net change in unrealized appreciation/(depreciation) on investments	$	547	$	691

Net change in unrealized appreciation (depreciation) for the three month and six month periods ended June 30, 2014 was as follows:


Type	For the three month period ended June 30, 2014		For the six month period ended June 30, 2014
First Lien Debt	$	509	$	653
Second Lien Debt		38		38

Total	$	547	$	691

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company generates cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Borrower Sub’s Revolving Credit Facility (as defined below) and/or the Company’s Facility (as defined below). The Borrower Sub closed on September 12, 2013 on a senior secured revolving credit facility with various lenders (the “Revolving Credit Facility”), which Revolving Credit Facility was subsequently amended on July 25, 2014 (the “First Amendment”). Under the First Amendment, the Revolving Credit Facility provides for secured borrowings up to the lesser of $140,000 or the amount of capital commitments the Company has received with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $262,500, subject to restrictions imposed on borrowings under the Investment Company Act and adequate collateral to support such borrowings. The Company closed on March 27, 2014 on a senior secured revolving credit facility with one lender (the “Facility”). The maximum principal amount of the Facility is $50,000, subject to availability under the Facility, which is based on the value of the Company’s portfolio investments net of certain other indebtedness that the Company may incur in the future in accordance with the terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $75,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $10,000 limit for swingline loans and a $5,000 limit for letters of credit. For more information on the Revolving Credit Facility and Facility, see Note 6 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, and for other general corporate purposes.

As of June 30, 2014 and December 31, 2013, the Company had $2,372 and $12,219, respectively, in cash. The facilities of the Company and the Borrower Sub consisted of the following as of June 30, 2014 and December 31, 2013:


	June 30, 2014
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	175,000	$	27,234	$	147,766	$	1,032
Facility		50,000		3,000		47,000		12,444

Total	$	225,000	$	30,234	$	194,766	$	13,476


	December 31, 2013
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Revolving Credit Facility	$	175,000	$	25,506	$	149,494	$	4,710

Total	$	175,000	$	25,506	$	149,494	$	4,710

(1)	The unused portion upon which commitment fees are based.

(2)	Available for borrowing based on the computation of collateral to support the borrowings.

Equity Activity

There were $110,000 of investor equity capital commitments made to the Company during the six month period ended June 30, 2014. Total investor equity capital commitments to the Company were $190,077 and $80,077 as of June 30, 2014 and December 31, 2013, respectively.

As of June 30, 2014 and December 31, 2013, $126,542 and $34,875, respectively, of total investor equity capital commitments were unfunded. As of June 30, 2014 and December 31, 2013, $5,077 of total investor equity capital commitments were made by the Investment Adviser, members of senior management, and certain employees, partners, and affiliates of the Investment Adviser. As of June 30, 2014 and December 31, 2013, certain directors had committed $1,050 in capital commitments to the Company.

Shares issued as of June 30, 2014 and December 31, 2013 were 3,190,834 and 2,265,375, respectively.

The following table summarizes activity in the number of shares of our common stock outstanding during the six month period ended June 30, 2014:


	Common stock shares outstanding
Shares outstanding, beginning of period		2,265,375
Common stock issued		925,459

Shares outstanding, end of period		3,190,834

Contractual Obligations

A summary of our significant contractual payment obligations was as follows as of June 30, 2014 and December 31, 2013:


June 30, 2014	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Secured Borrowings	$	30,234		—		—		—	$	30,234


December 31, 2013	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Secured Borrowings	$	25,506		—		—		—	$	25,506

For more information on the Revolving Credit Facility and Facility, see Note 6 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

During the six month period ended June 30, 2014, there were net secured borrowings of $1,728 under the Revolving Credit Facility and secured borrowings of $3,000 under the Facility. As of June 30, 2014 and December 31, 2013, $30,234 and $25,506, respectively, of secured borrowings were outstanding. For the three month and six month periods ended June 30, 2014, we incurred $113 and $223, respectively, of interest expense and $141 and $236, respectively, of unused commitment fees.

OFF BALANCE SHEET ARRANGEMENTS

In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in these consolidated financial statements as of June 30, 2014 and December 31, 2013 included in Part I, Item 1 of this Form 10-Q for any such exposure.

We may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.

The Company had the following commitments to fund delayed draw and revolving senior secured loans, none of which were funded:


	Par Value as of
	June 30, 2014		December 31, 2013
Unfunded delayed draw commitments	$	1,578	$	790
Unfunded revolving term loan commitments		183		226

Total unfunded commitments	$	1,761	$	1,016

DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS

Dividends and distributions, if any, are paid in cash to common stockholders. On June 26, 2014 and March 13, 2014, the Company declared dividends of $0.12 and $0.04 per share, respectively, for the quarter

ended June 30, 2014 and March 31, 2014, respectively, which were payable on July 14, 2014 and April 14, 2014, respectively, to holders of record of common stock at the close of business on June 30, 2014 and March 31, 2014, respectively. As of December 31, 2013, no dividends or distributions had been declared or paid by the Company.

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described below. The critical accounting policies should be read in connection with our consolidated financial statements in Part I, Item 1 of this Form 10-Q and in Part II, Item 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2013.

Fair Value Measurements

The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e. “consensus pricing”). When doing so, the Company determines and documents whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or the Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages one or more third-party valuation firms to provide positive assurance on portions of the portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once annually) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and, where appropriate, the respective third-party valuation firms and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the respective third-party valuation firms.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:

•

the nature and realizable value of any collateral;

•

call features, put features and other relevant terms of debt;

•

the portfolio company’s leverage and ability to make payments;

•

the portfolio company’s public or private credit rating;

•

the portfolio company’s actual and expected earnings and discounted cash flow;

•

prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;

•

the markets in which the portfolio company does business and recent economic and/or market events; and

•

comparisons to comparable transactions and publicly traded securities.

Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:

•

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

The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:

Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.

The fair value of the secured borrowings approximates its carrying value and is categorized as Level III within the hierarchy. Secured borrowings are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.

The fair value of other financial assets and liabilities approximates their carrying value based on the short term nature of these items.

See Note 4 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information on fair value measurements.

Use of Estimates

The preparation of consolidated financial statements included in Part I, Item 1 of this Form 10-Q in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the

process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on management fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Actual results could differ from these estimates and such differences could be material.

Investments

Investment transactions are recorded on the trade date. Realized gains or losses are measured 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, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the Consolidated Statements of Operations included in Part I, Item 1 of this Form 10-Q reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of investments represents the original cost, including loan origination fees, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.

Other Income

Other income may include income such as consent, waiver and amendment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive a fee for guaranteeing the outstanding debt of a portfolio company. Such fee will be amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the Consolidated Statements of Assets and Liabilities included in Part I, Item 1 of this Form 10-Q.

Non-Accrual Income

Income Taxes

The Borrower Sub is a disregarded entity for tax purposes and is consolidated with the return of NFIC.

Capital Calls and Dividends and Distributions to Common Stockholders

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in the valuations of our investment portfolio and interest rates.

Valuation Risk

Our investments may not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. 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. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is possible that the difference could be material.

Interest Rate Risk

During the six month period ended June 30, 2014, all of the investments held in the Company’s portfolio had floating interest rates. Interest rates on the investments held within the Company’s portfolio of investments are typically based on floating LIBOR, with many of these investments also having a LIBOR floor. Additionally, the Company’s credit facilities are also subject to floating interest rates and are currently paid based on floating LIBOR rates.

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. There can be no assurance that a significant change in market interest rates will not have a material adverse effect on our income in the future.

The following table estimates the potential changes in net cash flow generated from interest income, should interest rates increase or decrease by 100, 200 or 300 basis points. Interest income is calculated as revenue from interest generated from the Company’s settled portfolio of investments held as of June 30, 2014. These hypothetical calculations are based on a model of the settled investments in our portfolio, held as of June 30, 2014, and are only adjusted for assumed changes in the underlying base interest rates and the impact of that change on interest income. Interest expense is calculated based on outstanding secured borrowings as of June 30, 2014 and based on the respective terms of each of the Company’s credit facilities. Interest expense on the Company’s credit facilities is calculated using the interest rate as of June 30, 2014, adjusted for the hypothetical changes in rates, as shown below. We intend to finance a portion of our investments with borrowings and the interest rates paid on our borrowings may impact significantly our net interest income.

The Company regularly measures exposure to interest rate risk. The Company assesses interest rate risk and manages interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

Based on our Consolidated Statement of Assets and Liabilities as of June 30, 2014, the following table shows the annual impact on net investment income of base rate changes in interest rates for our settled investments (considering interest rate floors for variable rate instruments) and outstanding secured borrowings assuming no changes in our investment and borrowing structure:


Basis Point Change	Interest Income		Interest Expense			Net Interest
Up 300 basis points	$	1,969	$	(907	)	$	1,062
Up 200 basis points	$	1,077	$	(605	)	$	472
Up 100 basis points	$	187	$	(302	)	$	(115	)
Down 100 basis points	$	—	$	47		$	47
Down 200 basis points	$	—	$	47		$	47
Down 300 basis points	$	—	$	47		$	47

Item 4. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our President and our Chief Financial Officer and Treasurer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports we file or submit under the Exchange Act.

There have been no changes in our internal control over financial reporting periods during the three month period ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may become party to certain lawsuits in the ordinary course of business. The Company is not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against the Company. See also Note 10 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors.

Except as set forth below, there have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2013. For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 14, 2014, which is accessible on the SEC’s website at sec.gov.

Valuation Risk

Management of the Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Company’s investments conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, the Company is subject to changing regulatory and tax environments. Such events are beyond the Company’s control, and the likelihood that they may occur and the effect on the Company cannot be predicted. Furthermore, most of the Company’s investments are made in private companies whose shares do not trade on established exchanges. While it is expected that these companies may pursue initial public offerings, trade sales, or other liquidation events, there are generally no public markets for these securities at the current time. The Company’s ability to liquidate its private company investments and realize value is subject to significant limitations and uncertainties, including currency fluctuations.

The Company’s ability to liquidate its publicly traded investments may be subject to limitations, including discounts that may be required to be taken on quoted prices due to the number of shares being sold.

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

Except as previously reported by the Company on Form 8-K, we did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On June 26, 2014, the Board of Directors of the Company voted to reduce the annual fee for each Independent Director from $75,000 to $50,000 effective July 1, 2014.

Item 6. Exhibits.


10.1		First Amendment, dated as of July 25, 2014, to the Loan and Servicing Agreement, dated as of September 12, 2013.*

31.1		Certification of President (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

31.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*

32.1		Certification of President (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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