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Table of Contents

 

 

 

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 September 30, 2014

 

OR

 

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

 

For the transition period           to          

 

Commission File No. 814-00663

 

ARES CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Maryland

 

33-1089684

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

245 Park Avenue, 44th Floor, New York, NY 10167

(Address of principal executive office)   (Zip Code)

 

(212) 750-7300

(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  o

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

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 November 4, 2014

Common stock, $0.001 par value

 

314,108,062

 

 

 


 


Table of Contents

 

ARES CAPITAL CORPORATION

 

INDEX

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheet as of September 30, 2014 (unaudited) and December 31, 2013

2

 

 

 

 

Consolidated Statement of Operations for the three and nine months ended September 30, 2014 (unaudited) and September 30, 2013 (unaudited)

3

 

 

 

 

Consolidated Schedule of Investments as of September 30, 2014 (unaudited) and December 31, 2013

5

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2014 (unaudited)

46

 

 

 

 

Consolidated Statement of Cash Flows for the nine months ended September 30, 2014 (unaudited) and September 30, 2013 (unaudited)

47

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

48

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

76

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

104

 

 

 

Item 4.

Controls and Procedures

105

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

106

 

 

 

Item 1A.

Risk Factors

106

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

106

 

 

 

Item 3.

Defaults Upon Senior Securities

106

 

 

 

Item 4.

Mine Safety Disclosures

106

 

 

 

Item 5.

Other Information

106

 

 

 

Item 6.

Exhibits

107

 



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in thousands, except per share data)

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

$

 6,090,210

 

$

 5,136,612

 

Non-controlled affiliate company investments

 

196,572

 

260,484

 

Controlled affiliate company investments

 

2,496,798

 

2,235,801

 

Total investments at fair value (amortized cost of $8,600,794 and $7,537,403, respectively)

 

8,783,580

 

7,632,897

 

Cash and cash equivalents

 

107,878

 

149,629

 

Interest receivable

 

167,984

 

123,981

 

Receivable for open trades

 

28,244

 

128,566

 

Other assets

 

115,373

 

106,431

 

Total assets

 

$

 9,203,059

 

$

 8,141,504

 

LIABILITIES

 

 

 

 

 

Debt

 

$

 3,679,201

 

$

 2,986,275

 

Base management fees payable

 

32,685

 

29,270

 

Income based fees payable

 

31,345

 

29,001

 

Capital gains incentive fees payable

 

87,702

 

80,937

 

Accounts payable and other liabilities

 

81,505

 

68,649

 

Interest and facility fees payable

 

40,667

 

42,828

 

Payable for open trades

 

306

 

100

 

Total liabilities

 

3,953,411

 

3,237,060

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $0.001 per share, 500,000 common shares authorized 314,108 and 297,971 common shares issued and outstanding, respectively

 

314

 

298

 

Capital in excess of par value

 

5,250,934

 

4,982,477

 

Accumulated overdistributed net investment income

 

(59,999

)

(8,785

)

Accumulated net realized loss on investments, foreign currency transactions, extinguishment of debt and other assets

 

(124,980

)

(165,040

)

Net unrealized gains on investments and foreign currency transactions

 

183,379

 

95,494

 

Total stockholders’ equity

 

5,249,648

 

4,904,444

 

Total liabilities and stockholders’ equity

 

$

 9,203,059

 

$

 8,141,504

 

NET ASSETS PER SHARE

 

$

 16.71

 

$

 16.46

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

From non-controlled/non-affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

$

114,552

 

$

102,222

 

$

314,763

 

$

281,734

 

Capital structuring service fees

 

21,196

 

18,257

 

47,890

 

35,888

 

Dividend income

 

8,345

 

4,486

 

21,922

 

13,583

 

Management and other fees

 

 

286

 

 

949

 

Other income

 

3,938

 

3,612

 

13,840

 

12,944

 

Total investment income from non-controlled/non-affiliate company investments

 

148,031

 

128,863

 

398,415

 

345,098

 

 

 

 

 

 

 

 

 

 

 

From non-controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

2,706

 

4,097

 

8,901

 

15,748

 

Capital structuring service fees

 

369

 

 

1,019

 

 

Dividend income

 

1,071

 

5,258

 

4,569

 

6,421

 

Other income

 

69

 

37

 

472

 

166

 

Total investment income from non-controlled affiliate company investments

 

4,215

 

9,392

 

14,961

 

22,335

 

 

 

 

 

 

 

 

 

 

 

From controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest income from investments

 

73,554

 

63,304

 

216,822

 

174,287

 

Capital structuring service fees

 

10,147

 

13,298

 

25,433

 

25,807

 

Dividend income

 

10,271

 

25,104

 

40,671

 

62,711

 

Management and other fees

 

6,359

 

5,098

 

18,389

 

13,926

 

Other income

 

819

 

1,742

 

3,351

 

3,815

 

Total investment income from controlled affiliate company investments

 

101,150

 

108,546

 

304,666

 

280,546

 

 

 

 

 

 

 

 

 

 

 

Total investment income

 

253,396

 

246,801

 

718,042

 

647,979

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest and credit facility fees

 

54,096

 

44,424

 

159,740

 

124,032

 

Base management fees

 

32,685

 

27,467

 

93,500

 

75,587

 

Income based fees

 

31,345

 

32,284

 

85,203

 

81,510

 

Capital gains incentive fees

 

13,087

 

2,915

 

24,190

 

7,148

 

Administrative fees

 

3,105

 

3,346

 

9,661

 

8,544

 

Other general and administrative

 

6,274

 

6,152

 

20,314

 

20,548

 

Total expenses

 

140,592

 

116,588

 

392,608

 

317,369

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME BEFORE INCOME TAXES

 

112,804

 

130,213

 

325,434

 

330,610

 

 

3



Table of Contents

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

Income tax expense, including excise tax

 

7,514

 

3,991

 

15,817

 

11,714

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

105,290

 

126,222

 

309,617

 

318,896

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

 

 

 

 

 

 

 

 

 

Net realized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

21,800

 

7,877

 

32,467

 

24,305

 

Non-controlled affiliate company investments

 

58,560

 

63

 

58,598

 

208

 

Controlled affiliate company investments

 

(6,592

)

1,006

 

(52,780

)

4,759

 

Foreign currency transactions

 

2,764

 

 

1,847

 

 

Net realized gains

 

76,532

 

8,946

 

40,132

 

29,272

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

(9,590

)

3,817

 

196

 

27,915

 

Non-controlled affiliate company investments

 

(37,439

)

(7,812

)

9,607

 

(9,745

)

Controlled affiliate company investments

 

42,076

 

9,624

 

77,486

 

(11,701

)

Foreign currency transactions

 

870

 

 

596

 

 

Net unrealized gains (losses)

 

(4,083

)

5,629

 

87,885

 

6,469

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains from investments and foreign currency transactions

 

72,449

 

14,575

 

128,017

 

35,741

 

 

 

 

 

 

 

 

 

 

 

REALIZED LOSSES ON EXTINGUISHMENT OF DEBT

 

 

 

(72

)

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS

 

$

177,739

 

$

140,797

 

$

437,562

 

$

354,637

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED EARNINGS PER COMMON SHARE

 

$

0.57

 

$

0.52

 

$

1.45

 

$

1.36

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING

 

310,564

 

268,312

 

302,315

 

261,120

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CIC Flex, LP (9)

 

Investment partnership

 

Limited partnership units (0.94 units)

 

 

 

9/7/2007

 

$

 

$

186

(2)

 

 

Covestia Capital Partners, LP (9)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

487

 

1,962

(2)

 

 

HCI Equity, LLC (7)(8)(9)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

 

399

 

 

 

Imperial Capital Private Opportunities, LP (9)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

5,134

 

18,868

(2)

 

 

Partnership Capital Growth Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

 

1,361

(2)

 

 

Partnership Capital Growth Investors III, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

2,260

 

2,332

(2)

 

 

PCG-Ares Sidecar Investment, L.P. (9)

 

Investment partnership

 

Limited partnership interest (100.00% interest)

 

 

 

5/22/2014

 

2,042

 

2,151

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

1,034

 

931

(2)

 

 

Senior Secured Loan Fund LLC (7)(10)

 

Co-investment vehicle

 

Subordinated certificates ($1,954,145 par due 12/2024)

 

8.23% (Libor + 8.00%/M)(27)

 

10/30/2009

 

1,954,145

 

1,983,457

 

 

 

 

 

 

 

Membership interest (87.50% interest)

 

 

 

10/30/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,954,145

 

1,983,457

 

 

 

VSC Investors LLC (9)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

877

 

1,505

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,965,979

 

2,013,152

 

38.35

%

Healthcare-Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alegeus Technologies Holdings Corp.

 

Benefits administration and transaction processing provider

 

Preferred stock (2,997 shares)

 

 

 

12/13/2013

 

3,087

 

2,542

 

 

 

 

 

 

 

Common stock (3 shares)

 

 

 

12/13/2013

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,090

 

2,542

 

 

 

AwarePoint Corporation

 

Healthcare technology platform developer

 

First lien senior secured loan ($10,000 par due 6/2018)

 

9.50%

 

9/5/2014

 

9,900

 

10,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 547,046 shares of Series F preferred stock

 

 

 

9/5/2014

 

 

2

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,900

 

10,002

 

 

 

AxelaCare Holdings, Inc. and AxelaCare Investment Holdings, L.P.

 

Provider of home infusion services

 

Preferred units (8,218,160 units)

 

 

 

4/12/2013

 

822

 

681

(2)

 

 

 

 

 

 

Common units (83,010 units)

 

 

 

4/12/2013

 

8

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

830

 

687

 

 

 

California Forensic Medical Group, Incorporated

 

Correctional facility healthcare operator

 

First lien senior secured loan ($48,766 par due 11/2018)

 

9.25% (Libor + 8.00%/Q)

 

11/16/2012

 

48,766

 

48,766

(3)(26)

 

 

CCS Intermediate Holdings, LLC and CCS Group Holdings, LLC

 

Correctional facility healthcare operator

 

First lien senior secured revolving loan ($750 par due 7/2019)

 

6.25% (Base Rate + 3.00%/Q)

 

7/23/2014

 

750

 

750

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($15,000 par due 7/2021)

 

5.00% (Libor + 4.00%/Q)

 

7/23/2014

 

14,927

 

15,000

(2)(26)

 

 

 

 

 

 

Second lien senior secured loan ($135,000 par due 7/2022)

 

9.38% (Libor + 8.38%/Q)

 

7/23/2014

 

133,678

 

135,000

(2)(26)

 

 

 

 

 

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

 

2,553

(2)

 

 

 

 

 

 

 

 

 

 

 

 

149,355

 

153,303

 

 

 

 

5



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC (6)

 

Healthcare analysis services provider

 

Class A common stock (9,679 shares)

 

 

 

6/15/2007

 

2,543

 

2,820

(2)

 

 

 

 

 

 

Class C common stock (1,546 shares)

 

 

 

6/15/2007

 

 

450

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,543

 

3,270

 

 

 

DNAnexus, Inc.

 

Bioinformatics company

 

First lien senior secured loan ($5,000 par due 10/2017)

 

9.25%

 

3/21/2014

 

4,784

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 2/2018)

 

9.25%

 

3/21/2014

 

4,769

 

5,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 909,092 units of Series C preferred stock

 

 

 

3/21/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,553

 

10,000

 

 

 

Genocea Biosciences, Inc.

 

Vaccine discovery technology company

 

First lien senior secured loan ($9,788 par due 4/2017)

 

8.00%

 

9/30/2013

 

9,637

 

9,788

(2)

 

 

 

 

 

 

Common stock (31,500 shares)

 

 

 

2/10/2014

 

 

285

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,637

 

10,073

 

 

 

GI Advo Opco, LLC

 

Behavioral treatment services provider

 

First lien senior secured loan ($14,170 par due 6/2017)

 

6.00% (Libor + 4.75%/Q)

 

12/13/2013

 

14,498

 

14,170

(2)(26)

 

 

Global Healthcare Exchange, LLC and GHX Ultimate Parent Corp.

 

On-demand supply chain automation solutions provider

 

First lien senior secured loan ($125,000 par due 3/2020)

 

10.00% (Libor + 9.00%/Q)

 

3/11/2014

 

123,921

 

125,000

(2)(26)

 

 

 

 

 

 

Class A common stock (2,475 shares)

 

 

 

3/11/2014

 

2,475

 

2,475

(2)

 

 

 

 

 

 

Class B common stock (938 shares)

 

 

 

3/11/2014

 

25

 

335

(2)

 

 

 

 

 

 

 

 

 

 

 

 

126,421

 

127,810

 

 

 

INC Research, Inc.

 

Pharmaceutical and biotechnology consulting services

 

Common stock (1,410,000 shares)

 

 

 

9/27/2010

 

1,512

 

2,700

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Second lien senior secured loan ($112,000 par due 6/2020)

 

9.25% (Libor + 8.25%/Q)

 

12/27/2012

 

112,000

 

112,000

(2)(26)

 

 

LM Acquisition Holdings, LLC (8)

 

Developer and manufacturer of medical equipment

 

Class A units (426 units)

 

 

 

9/27/2013

 

1,000

 

1,638

(2)

 

 

MC Acquisition Holdings I, LLC

 

Healthcare professional provider

 

Class A units (1,338,314 shares)

 

 

 

1/17/2014

 

1,338

 

1,541

(2)

 

 

Monte Nido Holdings, LLC

 

Outpatient eating disorder treatment provider

 

First lien senior secured loan ($44,750 par due 12/2019)

 

7.75% (Libor + 6.75%/Q)

 

12/20/2013

 

44,750

 

43,855

(3)(19)(26)

 

 

MW Dental Holding Corp.

 

Dental services provider

 

First lien senior secured loan ($37,818 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

37,818

 

37,818

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($48,362 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

48,362

 

48,362

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($9,721 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

9,721

 

9,721

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

95,901

 

95,901

 

 

 

My Health Direct, Inc.

 

Healthcare scheduling exchange software solution provider

 

First lien senior secured loan ($3,000 par due 1/2018)

 

10.75%

 

9/18/2014

 

2,901

 

2,970

(2)

 

 

 

 

 

 

Warrant to purchase up to 4,548 shares of Series D preferred stock

 

 

 

9/18/2014

 

39

 

39

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,940

 

3,009

 

 

 

Napa Management Services Corporation

 

Anesthesia management services provider

 

First lien senior secured loan ($9,543 par due 2/2019)

 

7.25% (Base Rate + 4.00%/Q)

 

4/15/2011

 

9,543

 

9,543

(2)(21)(26)

 

 

 

 

 

 

First lien senior secured loan ($70,691 par due 2/2019)

 

6.00% (Libor + 5.00%/Q)

 

4/15/2011

 

70,691

 

70,691

(2)(21)(26)

 

 

 

 

 

 

First lien senior secured loan ($3,957 par due 2/2019)

 

7.25% (Base Rate + 4.00%/Q)

 

4/15/2011

 

3,950

 

3,957

(3)(21)(26)

 

 

 

 

 

 

First lien senior secured loan ($29,309 par due 2/2019)

 

6.00% (Libor + 5.00%/Q)

 

4/15/2011

 

29,261

 

29,309

(3)(21)(26)

 

 

 

 

 

 

Common units (5,345 units)

 

 

 

4/15/2011

 

5,764

 

9,973

(2)

 

 

 

 

 

 

 

 

 

 

 

 

119,209

 

123,473

 

 

 

 

6



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

First lien senior secured loan ($2,778 par due 12/2017)

 

8.75% (Libor + 7.50%/Q)

 

12/18/2012

 

2,778

 

2,778

(2)(17)(26)

 

 

 

 

 

 

First lien senior secured loan ($35,144 par due 12/2017)

 

8.75% (Libor + 7.50%/Q)

 

12/18/2012

 

35,144

 

35,144

(2)(17)(26)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

2,500

 

4,780

(2)

 

 

 

 

 

 

 

 

 

 

 

 

40,422

 

42,702

 

 

 

New Trident Holdcorp, Inc.

 

Outsourced mobile diagnostic healthcare service provider

 

Second lien senior secured loan ($80,000 par due 7/2020)

 

10.25% (Libor + 9.00%/Q)

 

8/6/2013

 

78,607

 

78,400

(2)(26)

 

 

Nodality, Inc.

 

Biotechnology company

 

First lien senior secured loan ($8,000 par due 2/2018)

 

8.90%

 

4/25/2014

 

7,750

 

8,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($3,000 par due 8/2018)

 

8.90%

 

4/25/2014

 

2,895

 

3,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 164,179 shares of Series B preferred stock

 

 

 

4/25/2014

 

 

41

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,645

 

11,041

 

 

 

OmniSYS Acquisition Corporation, OmniSYS, LLC, and OSYS Holdings, LLC

 

Provider of technology-enabled solutions to pharmacies

 

First lien senior secured loan ($20,606 par due 11/2018)

 

8.50% (Libor + 7.50%/Q)

 

11/21/2013

 

20,606

 

20,606

(2)(26)

 

 

 

 

 

 

Limited liability company membership interest (1.57%)

 

 

 

11/21/2013

 

1,000

 

1,112

(2)

 

 

 

 

 

 

 

 

 

 

 

 

21,606

 

21,718

 

 

 

PerfectServe, Inc.

 

Communications software platform provider for hospitals and physician practices

 

First lien senior secured loan ($2,500 par due 10/2017)

 

10.00%

 

12/26/2013

 

2,477

 

2,500

(2)

 

 

 

 

 

 

First lien senior secured loan ($3,500 par due 4/2017)

 

10.00%

 

12/26/2013

 

3,472

 

3,500

(2)

 

 

 

 

 

 

Warrants to purchase up to 34,113 units of Series C Preferred Stock

 

 

 

12/26/2013

 

 

75

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,949

 

6,075

 

 

 

PGA Holdings, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

125

 

18

(2)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

922

(2)

 

 

 

 

 

 

 

 

 

 

 

 

292

 

940

 

 

 

Physiotherapy Associates Holdings, Inc.

 

Physical therapy provider

 

Class A common stock (100,000 shares)

 

 

 

12/13/2013

 

3,090

 

2,240

 

 

 

POS I Corp. (fka Vantage Oncology, Inc.)

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

548

(2)

 

 

Reed Group Holdings, LLC

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

First lien senior secured loan ($2,000 par due 7/2015)

 

11.00%

 

6/28/2012

 

1,997

 

2,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 99,094 shares of Series C preferred stock

 

 

 

6/28/2012

 

38

 

29

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,035

 

2,029

 

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Second lien senior secured loan ($75,000 par due 6/2020)

 

9.25% (Libor + 8.00%/Q)

 

12/13/2012

 

75,000

 

75,000

(2)(26)

 

 

Sarnova HC, LLC, Tri-Anim Health Services, Inc., and BEMS Holdings, LLC

 

Distributor of emergency medical service and respiratory products

 

Second lien senior secured loan ($60,000 par due 9/2018)

 

8.75% (Libor + 8.00%/M)

 

6/30/2014

 

60,000

 

60,000

(2)(26)

 

 

SurgiQuest, Inc.

 

Medical device company

 

Warrants to purchase up to 54,672 shares of Series D-4 convertible preferred stock

 

 

 

9/28/2012

 

 

(2)

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

First lien senior secured loan ($49,850 par due 12/2019)

 

6.00% (Libor + 5.00%/Q)

 

6/26/2014

 

49,850

 

49,850

(2)(26)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 9/2020)

 

9.00% (Libor + 8.00%/Q)

 

9/24/2014

 

50,000

 

50,000

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

99,850

 

99,850

 

 

 

 

7



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Wrigley Purchaser, LLC and Wrigley Management, LLC

 

Provider of outpatient rehabilitation services

 

First lien senior secured loan ($7,100 par due 5/2020)

 

6.13% (Libor + 5.38%/Q)

 

5/19/2014

 

7,100

 

7,100

(2)(26)

 

 

Young Innovations, Inc.

 

Dental supplies and equipment manufacturer

 

Second lien senior secured loan ($45,000 par due 7/2019)

 

9.00% (Libor + 8.00%/Q)

 

5/30/2014

 

45,000

 

45,000

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

1,207,509

 

1,217,383

 

23.19

%

Services-Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Residential Services L.L.C.

 

Heating, ventilation and air conditioning services provider

 

First lien senior secured loan ($17,456 par due 6/2021)

 

5.50% (Libor + 4.50%/Q)

 

6/30/2014

 

17,372

 

17,456

(2)(26)

 

 

 

 

 

 

Second lien senior secured loan ($50,000 par due 12/2021)

 

9.00% (Libor + 8.00%/Q)

 

6/30/2014

 

49,517

 

50,000

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

66,889

 

67,456

 

 

 

Capital Investments and Ventures Corp.

 

SCUBA diver training and certification provider

 

First lien senior secured loan ($66,035 par due 8/2020)

 

6.75% (Libor + 5.75%/Q)

 

8/9/2012

 

65,686

 

66,035

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($23,060 par due 8/2020)

 

6.75% (Libor + 5.75%/Q)

 

8/9/2012

 

23,060

 

23,060

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($8,203 par due 8/2020)

 

6.75% (Libor + 5.75%/Q)

 

8/9/2012

 

8,203

 

8,203

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

96,949

 

97,298

 

 

 

Community Education Centers, Inc.

 

Offender re-entry and in-prison treatment services provider

 

First lien senior secured loan ($714 par due 12/2014)

 

7.50% (Base Rate + 4.25%/M)

 

12/10/2010

 

714

 

714

(2)(18)(26)

 

 

 

 

 

 

First lien senior secured loan ($13,571 par due 12/2014)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

13,571

 

13,571

(2)(18)(26)

 

 

 

 

 

 

Second lien senior secured loan ($47,767 par due 12/2015)

 

 

 

12/10/2010

 

47,169

 

42,233

(2)(25)

 

 

 

 

 

 

Warrants to purchase up to 654,618 shares

 

 

 

12/10/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

61,454

 

56,518

 

 

 

Competitor Group, Inc. and Calera XVI, LLC

 

Endurance sports media and event operator

 

First lien senior secured revolving loan ($2,850 par due 11/2018)

 

10.00% (Base Rate + 6.75%/Q)

 

11/30/2012

 

2,850

 

2,565

(2)(26)

 

 

 

 

 

 

First lien senior secured revolving loan ($900 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

900

 

810

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($24,380 par due 11/2018)

 

10.00% (Libor + 7.75% Cash, 1.00% PIK /Q)

 

11/30/2012

 

24,380

 

21,942

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($29,853 par due 11/2018)

 

10.00% (Libor + 7.75% Cash, 1.00% PIK /Q)

 

11/30/2012

 

29,853

 

26,868

(3)(26)

 

 

 

 

 

 

Membership units (2,500,000 units)

 

 

 

11/30/2012

 

2,516

 

338

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

60,499

 

52,523

 

 

 

Crown Health Care Laundry Services, Inc. and Crown Laundry Holdings, LLC (6)

 

Provider of outsourced linen management solutions to the healthcare industry

 

First lien senior secured revolving loan ($1,300 par due 3/2019)

 

8.25% (Libor + 7.00%/Q)

 

3/13/2014

 

1,300

 

1,300

(2)(26)(29)

 

 

 

 

 

 

First lien senior secured loan ($24,377 par due 3/2019)

 

8.25% (Libor + 7.00%/Q)

 

3/13/2014

 

24,377

 

24,377

(2)(26)

 

 

 

 

 

 

Class A preferred units (2,475,000 units)

 

 

 

3/13/2014

 

2,475

 

2,317

(2)

 

 

 

 

 

 

Class B common units (275,000 units)

 

 

 

3/13/2014

 

275

 

257

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,427

 

28,251

 

 

 

Dwyer Acquisition Parent, Inc. and TDG Group Holding Company

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($52,670 par due 2/2020)

 

11.00%

 

8/15/2014

 

52,670

 

52,670

(2)

 

 

 

 

 

 

Common stock (30,000 shares)

 

 

 

8/15/2014

 

3,000

 

3,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

55,670

 

55,670

 

 

 

Fox Hill Holdings, Inc.

 

Third party claims administrator on behalf of insurance carriers

 

First lien senior secured loan ($20,622 par due 6/2018)

 

8.00% (Base Rate + 4.75%/Q)

 

10/31/2013

 

20,622

 

20,622

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($64,719 par due 6/2018)

 

6.75% (Libor + 5.75%/Q)

 

10/31/2013

 

64,719

 

64,719

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

85,341

 

85,341

 

 

 

 

8



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

ISS #2, LLC

 

Provider of repairs, refurbishments and services to the broader industrial end user markets

 

First lien senior secured loan ($19,900 par due 6/2018)

 

7.75% (Base Rate + 4.50%/M)

 

6/5/2013

 

19,900

 

19,900

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($33,200 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

33,200

 

33,200

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($4,913 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

4,913

 

4,913

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($44,437 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

44,437

 

44,437

(3)(26)

 

 

 

 

 

 

 

 

 

 

 

 

102,450

 

102,450

 

 

 

Massage Envy, LLC

 

Franchisor in the massage industry

 

First lien senior secured loan ($28,245 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

28,245

 

28,245

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($47,716 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

47,716

 

47,716

(3)(26)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

3,944

(2)

 

 

 

 

 

 

 

 

 

 

 

 

78,961

 

79,905

 

 

 

McKenzie Sports Products, LLC

 

Designer, manufacturer and distributor of hunting-related supplies

 

First lien senior secured loan ($7,500 par due 9/2020)

 

4.75% (Libor + 3.75%/Q)

 

9/18/2014

 

7,500

 

7,500

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($88,500 par due 9/2020)

 

6.75% (Libor + 5.75%/Q)

 

9/18/2014

 

88,500

 

88,500

(2)(23)(26)

 

 

 

 

 

 

 

 

 

 

 

 

96,000

 

96,000

 

 

 

Spin HoldCo Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($140,000 par due 5/2020)

 

8.00% (Libor + 7.00%/M)

 

5/14/2013

 

140,000

 

140,000

(2)(26)

 

 

Wash Multifamily Laundry Systems, LLC

 

Laundry service and equipment provider

 

Second lien senior secured loan ($78,000 par due 2/2020)

 

7.75% (Libor + 6.75%/Q)

 

6/26/2012

 

78,000

 

78,000

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

950,640

 

939,412

 

17.89

%

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alphabet Energy, Inc.

 

Technology developer to convert waste-heat into electricity

 

First lien senior secured loan ($2,000 par due 7/2017)

 

9.50%

 

2/26/2014

 

1,926

 

2,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($3,000 par due 7/2017)

 

9.62%

 

12/26/2013

 

2,774

 

3,000

(2)

 

 

 

 

 

 

Series B preferred stock (74,449 shares)

 

 

 

2/26/2014

 

250

 

250

(2)

 

 

 

 

 

 

Warrant to purchase up to 59,524 units of Series B preferred stock

 

 

 

12/16/2013

 

146

 

126

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,096

 

5,376

 

 

 

Bicent (California) Holdings LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($49,812 par due 2/2021)

 

8.25% (Libor + 7.25%/Q)

 

2/6/2014

 

49,812

 

49,812

(2)(26)

 

 

Brush Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($1,030 par due 8/2020)

 

7.50% (Base Rate + 4.25%/Q)

 

8/1/2013

 

1,030

 

1,030

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($87,084 par due 8/2020)

 

6.25% (Libor + 5.25%/Q)

 

8/1/2013

 

87,084

 

87,084

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

88,114

 

88,114

 

 

 

Centinela Funding, LLC

 

Solar power generation facility developer and operator

 

Senior subordinated loan ($55,542 par due 11/2020)

 

10.00% (Libor + 8.75%/Q)

 

11/14/2012

 

55,542

 

55,542

(2)(26)

 

 

CPV Maryland Holding Company II, LLC

 

Gas turbine power generation facilities operator

 

Senior subordinated loan ($42,305 par due 12/2020)

 

10.00%

 

8/8/2014

 

42,305

 

42,102

(2)

 

 

 

 

 

 

Warrant to purchase up to 4 units of common stock

 

 

 

8/8/2014

 

 

200

(2)

 

 

 

 

 

 

 

 

 

 

 

 

42,305

 

42,302

 

 

 

DESRI Wind Development Acquisition Holdings, L.L.C (6)

 

Wind and solar power generation facility operator

 

Senior subordinated loan ($14,750 par due 8/2021)

 

9.25%

 

8/26/2014

 

14,750

 

14,750

(2)

 

 

 

 

 

 

Membership interest (7.50% interest)

 

 

 

8/26/2014

 

806

 

806

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,556

 

15,556

 

 

 

Freeport LNG Expansion, L.P.

 

Liquefied natural gas producer

 

First lien senior secured loan ($19,468 par due 11/2014)

 

8.65% (Libor + 8.50%/Q)

 

6/27/2014

 

19,199

 

19,468

(2)

 

 

 

9



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Joule Unlimited Technologies, Inc. and Stichting Joule Global Foundation

 

Renewable fuel and chemical production developer

 

First lien senior secured loan ($6,591 par due 2/2017)

 

10.00%

 

7/25/2013

 

6,546

 

6,591

(2)

 

 

 

 

 

 

Warrant to purchase up to 32,051 shares of Series C-2 preferred stock

 

 

 

7/25/2013

 

 

39

(2)(8)

 

 

 

 

 

 

 

 

 

 

 

 

6,546

 

6,630

 

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Second lien senior secured loan ($10,000 par due 2/2020)

 

9.25% (Libor + 8.25%/Q)

 

2/20/2014

 

9,635

 

9,750

(2)(26)

 

 

Moxie Liberty LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($100,000 par due 8/2020)

 

7.50% (Libor + 6.50%/Q)

 

8/21/2013

 

98,890

 

100,000

(2)(26)

 

 

Panda Sherman Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($32,429 par due 9/2018)

 

9.00% (Libor + 7.50%/Q)

 

9/14/2012

 

32,429

 

32,429

(2)(26)

 

 

Panda Temple Power II, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($20,000 par due 4/2019)

 

7.25% (Libor + 6.00%/Q)

 

4/3/2013

 

19,843

 

20,000

(2)(26)

 

 

Panda Temple Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($60,000 par due 7/2018)

 

11.50% (Libor + 10.00%/Q)

 

7/17/2012

 

58,628

 

60,000

(2)(26)

 

 

Petroflow Energy Corporation

 

Oil and gas exploration and production company

 

First lien senior secured loan ($50,757 par due 7/2020)

 

12.00% (Libor + 8.00% Cash, 3.00% PIK /Q)

 

7/31/2014

 

49,775

 

50,757

(2)(26)

 

 

Sunrun Solar Owner Holdco X, LLC

 

Residential solar energy provider

 

First lien senior secured loan ($58,966 par due 6/2019)

 

9.50% (Libor + 8.25%/Q)

 

6/7/2013

 

58,966

 

58,966

(2)(26)

 

 

Sunrun Solar Owner Holdco XIII, LLC

 

Residential solar energy provider

 

First lien senior secured loan ($32,846 par due 12/2019)

 

9.50% (Libor + 8.25%/Q)

 

11/27/2013

 

32,648

 

32,846

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

642,984

 

647,548

 

12.33

%

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2329497 Ontario Inc. (8)

 

Outsourced data center infrastructure and related services provider

 

Second lien senior secured loan ($45,000 par due 6/2019)

 

10.50% (Libor + 9.25%/M)

 

12/13/2013

 

43,380

 

40,562

(2)(26)

 

 

Access CIG, LLC

 

Records and information management services provider

 

First lien senior secured loan ($985 par due 10/2017)

 

8.00% (Base Rate + 4.75%/M)

 

10/5/2012

 

985

 

985

(2)(26)

 

 

BlackArrow, Inc.

 

Advertising and data solutions software platform provider

 

First lien senior secured loan ($8,000 par due 9/2017)

 

9.25%

 

3/13/2014

 

7,761

 

8,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 517,386 units of Series C preferred stock

 

 

 

3/13/2014

 

 

76

(2)

 

 

 

 

 

 

 

 

 

 

 

 

7,761

 

8,076

 

 

 

CallMiner, Inc.

 

Provider of cloud-based conversational analytics solutions

 

First lien senior secured loan ($4,000 par due 5/2018)

 

10.00%

 

7/23/2014

 

3,971

 

4,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,350,636 shares of Series 1 preferred stock

 

 

 

7/23/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,971

 

4,000

 

 

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C. (6)

 

Payroll and accounting services provider to the entertainment industry

 

First lien senior secured loan ($12,107 par due 12/2017)

 

5.75% (Libor + 4.75%/M)

 

12/24/2012

 

12,107

 

12,107

(2)(16)(26)

 

 

 

 

 

 

First lien senior secured loan ($41,813 par due 12/2017)

 

5.75% (Libor + 4.75%/M)

 

12/24/2012

 

41,813

 

41,813

(3)(16)(26)

 

 

 

 

 

 

Class A membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

5,743

(2)

 

 

 

 

 

 

Class B membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

5,743

(2)

 

 

 

 

 

 

 

 

 

 

 

 

58,920

 

65,406

 

 

 

CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

3,893

(2)

 

 

Command Alkon, Incorporated and CA Note Issuer, LLC

 

Software solutions provider to the ready-mix concrete industry

 

Second lien senior secured loan ($48,000 par due 8/2020)

 

9.25% (Libor + 8.25%/Q)

 

9/28/2012

 

48,000

 

48,000

(2)(26)

 

 

 

 

 

 

Senior subordinated loan ($17,000 par due 8/2021)

 

14.00% PIK

 

8/8/2014

 

17,000

 

17,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

65,000

 

65,000

 

 

 

Coverall North America, Inc.

 

Commercial janitorial services provider

 

Letter of credit facility

 

 

 

1/17/2013

 

 

(30)

 

 

 

10



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

DTI Holdco, Inc. and OPE DTI Holdings, Inc.

 

Provider of legal process outsourcing and managed services

 

First lien senior secured loan ($1,000 par due 8/2020)

 

5.75% (Libor + 4.75%/Q)

 

8/19/2014

 

1,000

 

1,000

(2)(26)

 

 

 

 

 

 

Class A common stock (7,500 shares)

 

 

 

8/19/2014

 

7,500

 

7,500

(2)

 

 

 

 

 

 

Class B common stock (7,500 shares)

 

 

 

8/19/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,500

 

8,500

 

 

 

First Insight, Inc.

 

SaaS company providing merchandising and pricing solutions to companies worldwide

 

First lien senior secured loan ($3,500 par due 4/2017)

 

9.50%

 

3/20/2014

 

3,412

 

3,500

(2)

 

 

 

 

 

 

Warrants to purchase up to 122,827 units of Series C preferred stock

 

 

 

3/20/2014

 

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,412

 

3,506

 

 

 

GHS Interactive Security, LLC and LG Security Holdings, LLC

 

Originates residential security alarm contracts

 

First lien senior secured loan ($7,058 par due 5/2018)

 

7.50% (Libor + 6.00%/S)

 

12/13/2013

 

7,109

 

7,058

(26)

 

 

 

 

 

 

Class A membership units (1,560,000 units)

 

 

 

12/13/2013

 

1,607

 

1,404

 

 

 

 

 

 

 

 

 

 

 

 

 

8,716

 

8,462

 

 

 

HCPro, Inc. and HCP Acquisition Holdings, LLC (7)

 

Healthcare compliance advisory services

 

Senior subordinated loan ($9,297 par due 5/2015)

 

 

 

3/5/2013

 

2,691

 

(2)(25)

 

 

 

 

 

 

Class A units (14,293,110 units)

 

 

 

6/26/2008

 

12,793

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,484

 

 

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

Warrant to purchase up to 124,300 shares of Series C preferred stock

 

 

 

10/15/2012

 

88

 

82

(2)

 

 

Investor Group Services, LLC (6)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (8.50% interest)

 

 

 

6/22/2006

 

 

601

 

 

 

IronPlanet, Inc.

 

Online auction platform provider for used heavy equipment

 

First lien senior secured revolving loan ($5,000 par due 9/2015)

 

8.00%

 

9/24/2013

 

5,000

 

5,000

(2)(29)

 

 

 

 

 

 

First lien senior secured loan ($7,153 par due 7/2017)

 

9.25%

 

9/24/2013

 

6,886

 

7,153

(2)

 

 

 

 

 

 

Warrant to purchase to up to 133,333 shares of Series C preferred stock

 

 

 

9/24/2013

 

214

 

249

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,100

 

12,402

 

 

 

Itel Laboratories, Inc.

 

Data services provider for building materials to the property insurance industry

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

1,293

(2)

 

 

Keynote Systems, Inc. and Hawaii Ultimate Parent Corp., Inc.

 

Web and mobile cloud performance testing and monitoring services provider

 

First lien senior secured loan ($182,345 par due 2/2020)

 

9.50% (Libor + 8.50%/Q)

 

8/22/2013

 

182,345

 

182,345

(2)(26)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

8/22/2013

 

2,970

 

4,496

(2)

 

 

 

 

 

 

Class B common stock (1,956,522 shares)

 

 

 

8/22/2013

 

30

 

45

(2)

 

 

 

 

 

 

 

 

 

 

 

 

185,345

 

186,886

 

 

 

Market Track Holdings, LLC

 

Business media consulting services company

 

Preferred stock (1,500 shares)

 

 

 

12/13/2013

 

1,982

 

2,191

 

 

 

 

 

 

 

Common stock (15,000 shares)

 

 

 

12/13/2013

 

1,982

 

2,191

 

 

 

 

 

 

 

 

 

 

 

 

 

3,964

 

4,382

 

 

 

Maximus Holdings, LLC

 

Provider of software simulation tools and related services

 

Warrants to purchase up to 1,050,013 shares of common stock

 

 

 

12/13/2013

 

 

643

 

 

 

Multi-Ad Services, Inc. (6)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

788

 

2,185

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

2,185

 

 

 

MVL Group, Inc. (7)

 

Marketing research provider

 

Senior subordinated loan ($226 par due 7/2012)

 

 

 

4/1/2010

 

226

 

226

(2)(25)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

11



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

226

 

226

 

 

 

NComputing, Inc.

 

Desktop virtualization hardware and software technology service provider

 

Warrant to purchase up to 462,726 shares of Series C preferred stock

 

 

 

3/20/2013

 

 

23

(2)

 

 

OpenSky Project, Inc.

 

Social commerce platform operator

 

First lien senior secured loan ($3,000 par due 9/2017)

 

10.00%

 

6/4/2014

 

2,957

 

3,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 46,996 shares of Series D preferred stock

 

 

 

6/4/2014

 

48

 

48

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,005

 

3,048

 

 

 

PHL Investors, Inc., and PHL Holding Co. (7)

 

Mortgage services

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

1,102

(2)

 

 

PSSI Holdings, LLC

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

First lien senior secured loan ($946 par due 6/2018)

 

6.00% (Libor + 5.00%/S)

 

8/7/2013

 

946

 

946

(2)(26)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

179

(2)

 

 

Rainstor, Inc.

 

Database solution provider designed to manage Big Data for large enterprises

 

First lien senior secured loan ($1,900 par due 4/2016)

 

11.25%

 

3/28/2013

 

1,869

 

1,662

(2)

 

 

 

 

 

 

Warrant to purchase up to 142,210 shares of Series C preferred stock

 

 

 

3/28/2013

 

88

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,957

 

1,662

 

 

 

Rocket Fuel Inc.

 

Provider of open and integrated software for digital marketing optimization

 

Common stock (79,396 units)

 

 

 

9/9/2014

 

278

 

1,165

(2)

 

 

Ship Investor & Cy S.C.A. (8)

 

Payment processing company

 

Common stock (936,693 shares)

 

 

 

12/13/2013

 

1,729

 

3,032

 

 

 

Summit Business Media Parent Holding Company LLC

 

Business media consulting services

 

Limited liability company membership interest (45.98% interest)

 

 

 

5/20/2011

 

 

697

(2)

 

 

Tripwire, Inc.

 

IT security software provider

 

First lien senior secured loan ($84,738 par due 5/2018)

 

7.00% (Libor + 5.75%/Q)

 

5/23/2011

 

84,738

 

84,738

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($49,750 par due 5/2018)

 

7.00% (Libor + 5.75%/Q)

 

5/23/2011

 

49,750

 

49,750

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($9,950 par due 5/2018)

 

7.00% (Libor + 5.75%/Q)

 

5/23/2011

 

9,950

 

9,950

(4)(26)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

5/23/2011

 

2,970

 

9,740

(2)

 

 

 

 

 

 

Class B common stock (2,655,638 shares)

 

 

 

5/23/2011

 

30

 

98

(2)

 

 

 

 

 

 

 

 

 

 

 

 

147,438

 

154,276

 

 

 

Velocity Holdings Corp.

 

Hosted enterprise resource planning application management services provider

 

Common units (1,713,546 units)

 

 

 

12/13/2013

 

4,503

 

3,445

 

 

 

Venturehouse-Cibernet Investors, LLC

 

Financial settlement services for intercarrier wireless roaming

 

Equity interest

 

 

 

4/1/2010

 

 

(2)

 

 

VSS-Tranzact Holdings, LLC (6)

 

Management consulting services

 

Common membership interest (5.98% interest)

 

 

 

10/26/2007

 

10,204

 

15,261

 

 

 

 

 

 

 

 

 

 

 

 

 

597,218

 

601,926

 

11.47

%

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Academy Holdings, LLC

 

Provider of education, training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

First lien senior secured loan ($23,425 par due 6/2019)

 

7.00% (Libor + 6.00%/Q)

 

6/27/2014

 

23,425

 

23,425

(2)(13)(26)

 

 

 

 

 

 

First lien senior secured loan ($14,615 par due 6/2019)

 

4.00% (Libor + 3.00%/Q)

 

6/27/2014

 

14,615

 

14,615

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($52,039 par due 6/2019)

 

4.00% (Libor + 3.00%/Q)

 

6/27/2014

 

52,039

 

52,039

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($4,280 par due 6/2019)

 

7.00% (Libor + 6.00%/Q)

 

6/27/2014

 

4,280

 

4,280

(4)(13)(26)

 

 

 

12



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

94,359

 

94,359

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp. (6)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

9,290

 

 

 

ELC Acquisition Corp., ELC Holdings Corporation, and Excelligence Learning Corporation (6)

 

Developer, manufacturer and retailer of educational products

 

Preferred stock (99,492 shares)

 

12.00% PIK

 

8/1/2011

 

11,358

 

11,358

 

 

 

 

 

 

 

Common stock (50,800 shares)

 

 

 

8/1/2011

 

 

177

 

 

 

 

 

 

 

 

 

 

 

 

 

11,358

 

11,535

 

 

 

Infilaw Holding, LLC

 

Operator of for-profit law schools

 

First lien senior secured revolving loan

 

 

 

8/25/2011

 

 

(2)(28)

 

 

 

 

 

 

First lien senior secured loan ($14,148 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

14,148

 

14,148

(3)(26)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

124,890

(2)(26)

 

 

 

 

 

 

Series B preferred stock (3.91 units)

 

 

 

10/19/2012

 

9,245

 

12,366

(2)

 

 

 

 

 

 

 

 

 

 

 

 

148,283

 

151,404

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private school operator

 

First lien senior secured loan ($57,620 par due 12/2016)

 

 

 

4/24/2013

 

53,340

 

46,144

(2)(25)

 

 

 

 

 

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

59,029

 

46,144

 

 

 

Lakeland Tours, LLC

 

Educational travel provider

 

First lien senior secured revolving loan ($18,000 par due 1/2017)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

18,000

 

18,000

(2)(26)(29)

 

 

 

 

 

 

First lien senior secured loan ($1,522 par due 1/2017)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

1,521

 

1,522

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($82,989 par due 1/2017)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

82,940

 

82,989

(2)(15)(26)

 

 

 

 

 

 

First lien senior secured loan ($7,292 par due 1/2017)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

7,280

 

7,292

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($40,362 par due 1/2017)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

40,297

 

40,362

(3)(15)(26)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

5,341

(2)

 

 

 

 

 

 

 

 

 

 

 

 

155,038

 

155,506

 

 

 

PIH Corporation

 

Franchisor of education-based early childhood centers

 

First lien senior secured revolving loan ($621 par due 6/2016)

 

7.25% (Libor + 6.25%/M)

 

12/13/2013

 

621

 

621

(26)

 

 

 

 

 

 

First lien senior secured loan ($36,794 par due 6/2016)

 

7.25% (Libor + 6.25%/M)

 

12/13/2013

 

37,543

 

36,794

(26)

 

 

 

 

 

 

 

 

 

 

 

 

38,164

 

37,415

 

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (8,800 shares)

 

 

 

7/30/2008

 

2,200

 

3,000

 

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

24,277

 

 

 

 

 

 

 

Warrants to purchase up to 27,890 shares

 

 

 

12/8/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

27,277

 

 

 

Regent Education, Inc.

 

Provider of software solutions designed to optimize the financial aid and enrollment processes

 

First lien senior secured loan ($3,000 par due 1/2018)

 

10.00%

 

7/1/2014

 

2,929

 

2,910

 

 

 

 

 

 

 

Warrant to purchase up to 987,771 shares of Series CC preferred stock

 

 

 

7/1/2014

 

 

79

 

 

 

 

 

 

 

 

 

 

 

 

 

2,929

 

2,989

 

 

 

RuffaloCODY, LLC

 

Provider of student fundraising and enrollment management services

 

First lien senior secured revolving loan ($346 par due 5/2019)

 

5.57% (Libor + 4.32%/Q)

 

5/29/2013

 

346

 

346

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($2,040 par due 5/2019)

 

5.57% (Libor + 4.32%/Q)

 

5/29/2013

 

2,040

 

2,040

(2)(26)

 

 

 

13



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($29,550 par due 5/2019)

 

5.57% (Libor + 4.32%/Q)

 

5/29/2013

 

29,550

 

29,550

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($3,710 par due 5/2019)

 

5.57% (Libor + 4.32%/Q)

 

5/29/2013

 

3,710

 

3,710

(4)(26)

 

 

 

 

 

 

First lien senior secured loan ($8,028 par due 5/2019)

 

5.57% (Libor + 4.32%/Q)

 

5/29/2013

 

8,028

 

8,028

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

43,674

 

43,674

 

 

 

 

 

 

 

 

 

 

 

 

 

581,354

 

579,593

 

11.04

%

Consumer Products- Non-durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Feradyne Outdoors, LLC and Bowhunter Holdings, LLC

 

Provider of branded archery and bowhunting accessories

 

First lien senior secured loan ($50,100 par due 3/2019)

 

6.55% (Libor + 5.55%/Q)

 

4/24/2014

 

50,100

 

49,660

(2)(22)(26)

 

 

 

 

 

 

First lien senior secured loan ($7,001 par due 3/2019)

 

4.00% (Libor + 3.00%/Q)

 

4/24/2014

 

7,001

 

6,940

(2)(26)

 

 

 

 

 

 

Common units (300 units)

 

 

 

4/24/2014

 

3,000

 

2,277

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,101

 

58,877

 

 

 

Gilchrist & Soames, Inc.

 

Personal care manufacturer

 

First lien senior secured revolving loan ($8,150 par due 12/2014)

 

6.25% (Libor + 5.00%/M)

 

4/1/2010

 

8,150

 

8,150

(2)(26)

 

 

 

 

 

 

First lien senior secured revolving loan ($550 par due 12/2014)

 

6.25% (Libor + 5.00%/M)

 

4/1/2010

 

550

 

550

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($22,851 par due 12/2014)

 

13.44% Cash, 2.00% PIK

 

4/1/2010

 

22,851

 

22,622

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,551

 

31,322

 

 

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

Preferred stock (455 shares)

 

6.00% PIK

 

10/31/2011

 

4,669

 

4,669

(2)

 

 

 

 

 

 

Common stock (455 shares)

 

 

 

10/31/2011

 

 

1,088

(2)

 

 

 

 

 

 

 

 

 

 

 

 

4,669

 

5,757

 

 

 

Indra Holdings Corp.

 

Designer, marketer, and distributor of rain and cold weather products

 

Second lien senior secured loan ($80,000 par due 11/2021)

 

8.50% (Libor + 7.50%/Q)

 

5/1/2014

 

78,770

 

80,000

(2)(26)

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of OTC healthcare products

 

Warrants to purchase up to 1,489 shares of preferred stock

 

 

 

7/27/2011

 

 

1,214

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,654,678 shares of common stock

 

 

 

7/27/2011

 

 

3

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

1,217

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel

 

First lien senior secured loan ($30,862 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

30,770

 

30,862

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($81 par due 4/2018)

 

9.25% (Base Rate + 6.00%/Q)

 

4/2/2012

 

81

 

81

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($8,722 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

8,696

 

8,722

(4)(26)

 

 

 

 

 

 

First lien senior secured loan ($23 par due 4/2018)

 

9.25% (Base Rate + 6.00%/Q)

 

4/2/2012

 

23

 

23

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

39,570

 

39,688

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

2,059

(2)

 

 

Shock Doctor, Inc. and BRP Hold 14, LLC

 

Developer, marketer and distributor of sports protection equipment and accessories

 

First lien senior secured revolving loan ($315 par due 3/2020)

 

10.00% (Base Rate + 6.75%/Q)

 

3/14/2014

 

315

 

315

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($32,627 par due 3/2020)

 

8.75% (Libor + 7.75%/Q)

 

3/14/2014

 

32,627

 

32,627

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($53,865 par due 3/2020)

 

8.75% (Libor + 7.75%/Q)

 

3/14/2014

 

53,865

 

53,865

(3)(26)

 

 

 

 

 

 

Class A preferred units (50,000 units)

 

 

 

3/14/2014

 

5,000

 

5,123

(2)

 

 

 

 

 

 

 

 

 

 

 

 

91,807

 

91,930

 

 

 

The Step2 Company, LLC (7)

 

Toy manufacturer

 

Second lien senior secured loan ($26,896 par due 9/2019)

 

10.00%

 

4/1/2010

 

26,706

 

26,896

(2)

 

 

 

 

 

 

Second lien senior secured loan ($35,833 par due 9/2019)

 

 

 

4/1/2010

 

30,802

 

7,665

(2)(25)

 

 

 

14



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Second lien senior secured loan ($4,500 par due 9/2019)

 

10.00%

 

3/13/2014

 

4,500

 

4,500

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2010

 

24

 

 

 

 

 

 

 

 

Warrants to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,032

 

39,061

 

 

 

The Thymes, LLC (7)

 

Cosmetic products manufacturer

 

Preferred units (6,283 units)

 

 

 

6/21/2007

 

4,014

 

3,590

 

 

 

 

 

 

 

Common units (5,400 units)

 

 

 

6/21/2007

 

 

9,446

 

 

 

 

 

 

 

 

 

 

 

 

 

4,014

 

13,036

 

 

 

Woodstream Corporation

 

Pet products manufacturer

 

First lien senior secured loan ($4,817 par due 8/2016)

 

6.00% (Libor + 5.00%/Q)

 

4/18/2012

 

4,817

 

4,817

(4)(26)

 

 

 

 

 

 

First lien senior secured loan ($12 par due 8/2016)

 

7.00% (Base Rate + 3.75%/Q)

 

4/18/2012

 

12

 

12

(4)(26)

 

 

 

 

 

 

Senior subordinated loan ($80,000 par due 2/2017)

 

11.50% (11.50%/Q)

 

4/18/2012

 

77,964

 

80,000

(2)

 

 

 

 

 

 

Common stock (4,254 shares)

 

 

 

1/22/2010

 

1,222

 

2,336

(2)

 

 

 

 

 

 

 

 

 

 

 

 

84,015

 

87,165

 

 

 

 

 

 

 

 

 

 

 

 

 

457,529

 

450,112

 

8.57

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC (7)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

1,140

 

5,839

 

 

 

Callidus Capital Corporation (7)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,727

 

 

 

Ciena Capital LLC (7)

 

Real estate and small business loan servicer

 

First lien senior secured revolving loan ($14,000 par due 12/2014)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($22,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

22,000

 

22,000

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

53,375

 

20,343

(2)

 

 

 

 

 

 

 

 

 

 

 

 

89,375

 

56,343

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

Cook Inlet Alternative Risk, LLC

 

Risk management services

 

Senior subordinated loan ($1,000 par due 9/2015)

 

9.00%

 

9/30/2011

 

1,000

 

1,000

(2)

 

 

Gordian Acquisition Corp.

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

(2)

 

 

Imperial Capital Group LLC

 

Investment services

 

Class A common units (23,130 units)

 

 

 

5/10/2007

 

11,248

 

15,781

(2)

 

 

 

 

 

 

2006 Class B common units (7,578 units)

 

 

 

5/10/2007

 

2

 

4

(2)

 

 

 

 

 

 

2007 Class B common units (945 units)

 

 

 

5/10/2007

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

11,250

 

15,785

 

 

 

Ivy Hill Asset Management, L.P. (7)(9)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

258,883

 

 

 

Javlin Three LLC, Javlin Four LLC, and Javlin Five LLC (9)

 

Asset-backed financial services company

 

First lien senior secured revolving loan ($40,800 par due 6/2017)

 

8.41% (Libor + 8.25%/M)

 

6/24/2014

 

40,800

 

40,800

(2)

 

 

 

 

 

 

 

 

 

 

 

 

345,526

 

408,377

 

7.78

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambrios Technologies Corporation

 

Nanotechnology-based solutions for electronic devices and computers

 

First lien senior secured loan ($1,667 par due 8/2015)

 

12.00%

 

8/7/2012

 

1,667

 

1,667

(2)

 

 

 

 

 

 

Warrants to purchase up to 400,000 shares of Series D-4 convertible preferred stock

 

 

 

8/7/2012

 

 

13

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,667

 

1,680

 

 

 

Component Hardware Group, Inc.

 

Commercial equipment

 

First lien senior secured loan ($8,164 par due 7/2019)

 

5.25% (Libor + 4.25%/Q)

 

7/1/2013

 

8,164

 

8,164

(4)(26)

 

 

Harvey Tool Company, LLC and Harvey Tool Holding, LLC

 

Cutting tool provider to the metalworking industry

 

First lien senior secured loan ($24,875 par due 3/2020)

 

5.75% (Libor + 4.75%/Q)

 

3/28/2014

 

24,875

 

24,875

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($62 par due 3/2020)

 

7.00% (Base Rate + 3.75%/Q)

 

3/28/2014

 

62

 

62

(2)(26)

 

 

 

 

 

 

Class A membership units (750 units)

 

 

 

3/28/2014

 

750

 

905

(2)

 

 

 

15



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

25,687

 

25,842

 

 

 

Ioxus, Inc.

 

Energy storage devices

 

First lien senior secured loan ($10,000 par due 11/2017)

 

9.00%

 

4/29/2014

 

9,645

 

10,000

(2)

 

 

 

 

 

 

Warrant to purchase up to 538,314 shares of Series C preferred stock

 

 

 

4/29/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,645

 

10,000

 

 

 

Mac Lean-Fogg Company

 

Provider of intelligent transportation systems products in the traffic and rail industries

 

Senior subordinated loan ($101,380 par due 10/2023)

 

9.50% Cash, 1.50% PIK

 

10/31/2013

 

101,380

 

101,380

(2)

 

 

MWI Holdings, Inc.

 

Engineered springs, fasteners, and other precision components

 

First lien senior secured loan ($38,274 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

38,274

 

38,274

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

10,000

 

10,000

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

48,274

 

48,274

 

 

 

NetShape Technologies, Inc.

 

Metal precision engineered components

 

First lien senior secured revolving loan ($972 par due 12/2014)

 

7.50% (Libor + 6.50%/Q)

 

4/1/2010

 

972

 

972

(2)(26)

 

 

Niagara Fiber Intermediate Corp.

 

Insoluble fiber filler products

 

First lien senior secured revolving loan ($933 par due 5/2018)

 

7.75% (Base Rate + 4.50%/M)

 

5/8/2014

 

916

 

933

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($15,541 par due 5/2018)

 

6.75% (Libor + 5.50%/M)

 

5/8/2014

 

15,400

 

15,541

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

16,316

 

16,474

 

 

 

Pelican Products, Inc.

 

Flashlights

 

Second lien senior secured loan ($40,000 par due 4/2021)

 

9.25% (Libor + 8.25%/Q)

 

4/11/2014

 

39,945

 

40,000

(2)(26)

 

 

Protective Industries, Inc. dba Caplugs

 

Plastic protection products

 

First lien senior secured loan ($990 par due 10/2019)

 

6.25% (Libor + 5.25%/M)

 

11/30/2012

 

990

 

990

(2)(26)

 

 

 

 

 

 

Preferred stock (2,379,361 shares)

 

 

 

5/23/2011

 

1,298

 

6,469

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,288

 

7,459

 

 

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components manufacturer

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

SI Holdings, Inc.

 

Elastomeric parts, mid-sized composite structures, and composite tooling

 

Common stock (1,500 shares)

 

 

 

5/30/2014

 

1,500

 

1,726

(2)

 

 

TPTM Merger Corp.

 

Time temperature indicator products

 

First lien senior secured loan ($15,790 par due 9/2018)

 

6.25% (Libor + 5.25%/Q)

 

9/12/2013

 

15,790

 

15,790

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($9,950 par due 9/2018)

 

6.25% (Libor + 5.25%/Q)

 

9/12/2013

 

9,950

 

9,950

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

25,740

 

25,740

 

 

 

 

 

 

 

 

 

 

 

 

 

282,578

 

287,711

 

5.48

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc., ADF Restaurant Group, LLC, and ARG Restaurant Holdings, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($28,581 par due 12/2018)

 

9.25% (Libor + 8.25%/Q)

 

11/27/2006

 

28,581

 

27,724

(2)(20)(26)

 

 

 

 

 

 

First lien senior secured loan ($10,919 par due 12/2018)

 

9.25% (Libor + 8.25%/Q)

 

11/27/2006

 

10,922

 

10,591

(3)(20)(26)

 

 

 

 

 

 

Promissory note ($18,225 par due 12/2018)

 

 

 

11/27/2006

 

13,770

 

7,462

(2)

 

 

 

 

 

 

Warrants to purchase up to 23,750 units of Series D common stock

 

 

 

12/18/2013

 

24

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

53,297

 

45,777

 

 

 

Benihana, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($306 par due 1/2019)

 

7.50% (Base Rate + 4.25%/Q)

 

8/21/2012

 

306

 

306

(4)(26)

 

 

 

 

 

 

First lien senior secured loan ($4,583 par due 1/2019)

 

6.75% (Libor + 5.50%/Q)

 

8/21/2012

 

4,583

 

4,583

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

4,889

 

4,889

 

 

 

Garden Fresh Restaurant Corp.

 

Restaurant owner and operator

 

First lien senior secured revolving loan

 

 

 

10/3/2013

 

 

(2)(28)

 

 

 

 

 

 

First lien senior secured loan ($42,602 par due 7/2018)

 

10.00% (Libor + 8.50%/M)

 

10/3/2013

 

42,602

 

42,602

(3)(26)

 

 

Hojeij Branded Foods, Inc.

 

Airport restaurant operator

 

First lien senior secured revolving loan ($450 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

450

 

450

(2)(26)(29)

 

 

 

16



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($30,612 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

30,260

 

30,612

(2)(26)

 

 

 

 

 

 

Warrants to purchase up to 7.5% of membership interest

 

 

 

2/15/2012

 

 

434

(2)

 

 

 

 

 

 

Warrants to purchase up to 324 shares of Class A common stock

 

 

 

2/15/2012

 

669

 

6,249

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,379

 

37,745

 

 

 

Orion Foods, LLC (fka Hot Stuff Foods, LLC) (7)

 

Convenience food service retailer

 

First lien senior secured revolving loan ($2,016 par due 9/2015)

 

10.75% (Base Rate + 7.50%/M)

 

4/1/2010

 

2,016

 

1,837

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($32,478 par due 9/2015)

 

10.00% (Libor + 8.50%/Q)

 

4/1/2010

 

32,478

 

29,591

(2)(26)

 

 

 

 

 

 

Second lien senior secured loan ($19,420 par due 9/2015)

 

 

 

4/1/2010

 

 

(2)(25)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

34,494

 

31,428

 

 

 

OTG Management, LLC

 

Airport restaurant operator

 

First lien senior secured loan ($45,200 par due 12/2017)

 

8.75% (Libor + 7.25%/M)

 

12/11/2012

 

45,200

 

45,200

(2)(26)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

2,186

(2)

 

 

 

 

 

 

Warrants to purchase up to 7.73% of common units

 

 

 

6/19/2008

 

100

 

4,360

(2)

 

 

 

 

 

 

 

 

 

 

 

 

48,300

 

51,746

 

 

 

Papa Murphy’s Holdings, Inc.

 

Restaurant owner and operator

 

Common stock (147,983 shares)

 

 

 

12/13/2013

 

1,065

 

1,509

 

 

 

Performance Food Group, Inc. and Wellspring Distribution Corp

 

Food service distributor

 

Second lien senior secured loan ($24,389 par due 11/2019)

 

6.25% (Libor + 5.25%/Q)

 

5/14/2013

 

24,291

 

24,389

(2)(26)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/3/2008

 

6,303

 

9,060

(2)

 

 

 

 

 

 

 

 

 

 

 

 

30,594

 

33,449

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

First lien senior secured loan ($37,406 par due 2/2019)

 

8.75% (Libor + 7.75%/M)

 

3/13/2014

 

37,071

 

35,162

(2)(26)

 

 

S.B. Restaurant Company

 

Restaurant owner and operator

 

Preferred stock (46,690 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 257,429 shares of common stock

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

283,691

 

284,307

 

5.42

%

Containers-Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GS Pretium Holdings, Inc.

 

Manufacturer and supplier of high performance plastic containers

 

Common stock (500,000 shares)

 

 

 

6/2/2014

 

500

 

442

(2)

 

 

ICSH, Inc.

 

Industrial container manufacturer, reconditioner and servicer

 

First lien senior secured revolving loan

 

 

 

8/31/2011

 

 

(2)(28)

 

 

 

 

 

 

First lien senior secured loan ($49,513 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

49,522

 

49,513

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($53,656 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

53,656

 

53,656

(3)(26)

 

 

 

 

 

 

 

 

 

 

 

 

103,178

 

103,169

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC, and MStar Holding Corporation

 

Keg management solutions provider

 

Second lien senior secured loan ($142,500 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

142,500

 

142,500

(2)(26)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

12/14/2012

 

3,951

 

6,600

(2)

 

 

 

 

 

 

 

 

 

 

 

 

146,451

 

149,100

 

 

 

 

 

 

 

 

 

 

 

 

 

250,129

 

252,711

 

4.81

%

Hotel Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Castle Management Borrower LLC

 

Hotel operator

 

First lien senior secured revolving loan ($4,995 par due 9/2020)

 

7.50% (Libor + 6.50%/Q)

 

9/18/2014

 

4,995

 

4,995

(2)(26)

 

 

 

17



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($155,000 par due 9/2020)

 

7.50% (Libor + 6.50%/Q)

 

9/18/2014

 

155,000

 

155,000

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

159,995

 

159,995

 

 

 

 

 

 

 

 

 

 

 

 

 

159,995

 

159,995

 

3.05

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cadence Aerospace, LLC (fka PRV Aerospace, LLC)

 

Aerospace precision components manufacturer

 

First lien senior secured loan ($4,425 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

4,397

 

4,425

(4)(26)

 

 

 

 

 

 

Second lien senior secured loan ($79,657 par due 5/2019)

 

10.50% (Libor + 9.25%/Q)

 

5/10/2012

 

79,657

 

76,471

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

84,054

 

80,896

 

 

 

ILC Industries, LLC

 

Designer and manufacturer of protective cases and technically advanced lighting systems

 

First lien senior secured loan ($29,812 par due 7/2020)

 

5.75% (Libor + 4.75%/Q)

 

7/15/2014

 

29,812

 

29,812

(2)(26)

 

 

 

 

 

 

Second lien senior secured loan ($40,000 par due 7/2021)

 

9.50% (Libor + 8.50%/Q)

 

7/15/2014

 

40,000

 

40,000

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

69,812

 

69,812

 

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

118

 

118

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

2,264

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,409

 

2,382

 

 

 

 

 

 

 

 

 

 

 

 

 

156,275

 

153,090

 

2.92

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulton Holdings Corp.

 

Airport restaurant operator

 

First lien senior secured loan ($43,000 par due 5/2018)

 

8.50%

 

5/10/2013

 

43,000

 

43,000

(2)(14)

 

 

 

 

 

 

First lien senior secured loan ($40,000 par due 5/2018)

 

8.50%

 

5/28/2010

 

40,000

 

40,000

(3)(14)

 

 

 

 

 

 

Common stock (19,672 shares)

 

 

 

5/28/2010

 

1,461

 

2,686

(2)

 

 

 

 

 

 

 

 

 

 

 

 

84,461

 

85,686

 

 

 

Paper Source, Inc. and Pine Holdings, Inc.

 

Retailer of fine and artisanal paper products

 

First lien senior secured revolving loan ($333 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

333

 

333

(2)(26)

 

 

 

 

 

 

First lien senior secured revolving loan ($667 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

667

 

667

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($8,885 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

8,885

 

8,885

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($9,925 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

9,925

 

9,925

(4)(26)

 

 

 

 

 

 

Class A common stock (36,364 shares)

 

 

 

9/23/2013

 

6,000

 

7,122

(2)

 

 

 

 

 

 

 

 

 

 

 

 

25,810

 

26,932

 

 

 

Things Remembered, Inc.

 

Personalized gifts retailer

 

First lien senior secured loan ($14,590 par due 5/2018)

 

8.25% (Libor + 6.75%/Q)

 

5/24/2012

 

14,590

 

14,007

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

124,861

 

126,625

 

2.41

%

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lonestar Prospects, Ltd.

 

Sand proppant producer and distributor to the oil and natural gas industry

 

First lien senior secured loan ($75,000 par due 9/2018)

 

8.50% (Libor + 7.50%/Q)

 

9/18/2014

 

75,000

 

75,000

(2)(26)

 

 

UL Holding Co., LLC and Universal Lubricants, LLC (6)

 

Petroleum product manufacturer

 

Second lien senior secured loan ($10,904 par due 12/2016)

 

 

 

4/30/2012

 

8,911

 

7,885

(2)(25)

 

 

 

 

 

 

Second lien senior secured loan ($2,160 par due 12/2016)

 

 

 

4/30/2012

 

1,753

 

1,562

(2)(25)

 

 

 

 

 

 

Second lien senior secured loan ($49,466 par due 12/2016)

 

 

 

4/30/2012

 

40,134

 

35,771

(2)(25)

 

 

 

 

 

 

Class A common units (10,782 units)

 

 

 

6/17/2011

 

1,512

 

(2)

 

 

 

 

 

 

Class B-5 common units (599,200 units)

 

 

 

6/17/2011

 

5,472

 

(2)

 

 

 

 

 

 

Class B-4 common units (50,000 units)

 

 

 

4/25/2008

 

500

 

(2)

 

 

 

 

 

 

Class C common units (618,091 units)

 

 

 

4/25/2008

 

 

(2)

 

 

 

18



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Warrant to purchase up to 422,852 shares of Class A units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 16,856 shares of Class B-1 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 33,712 shares of Class B-2 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 17,433 shares of Class B-3 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 47,265 shares of Class B-5 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 35,082 shares of Class B-6 units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

Warrant to purchase up to 615,547 shares of Class C units

 

 

 

5/2/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

58,282

 

45,218

 

 

 

 

 

 

 

 

 

 

 

 

 

133,282

 

120,218

 

2.29

%

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CH Hold Corp

 

Collision repair company

 

First lien senior secured loan ($17,750 par due 11/2019)

 

5.50% (Libor + 4.75%/Q)

 

7/25/2014

 

17,750

 

17,750

(2)(26)

 

 

Driven Brands, Inc. and Driven Holdings, LLC

 

Automotive aftermarket car care franchisor

 

First lien senior secured loan ($993 par due 3/2017)

 

6.00% (Libor + 5.00%/Q)

 

12/16/2011

 

993

 

993

(2)(26)

 

 

 

 

 

 

Preferred stock (247,500 units)

 

 

 

12/16/2011

 

2,475

 

3,027

(2)

 

 

 

 

 

 

Common stock (25,000 units)

 

 

 

12/16/2011

 

25

 

1,027

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,493

 

5,047

 

 

 

Eckler Industries, Inc.

 

Restoration parts and accessories provider for classic automobiles

 

First lien senior secured revolving loan ($4,900 par due 7/2017)

 

8.25% (Base Rate + 5.00%/Q)

 

7/12/2012

 

4,900

 

4,900

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($8,025 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

8,025

 

8,025

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($30,124 par due 7/2017)

 

7.25% (Libor + 6.00%/Q)

 

7/12/2012

 

30,124

 

30,124

(3)(26)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

1,464

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

45,049

 

44,513

 

 

 

EcoMotors, Inc.

 

Engine developer

 

First lien senior secured loan ($4,242 par due 10/2016)

 

10.83%

 

12/28/2012

 

4,162

 

4,242

(2)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 6/2017)

 

10.83%

 

12/28/2012

 

4,882

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($3,583 par due 7/2016)

 

10.13%

 

12/28/2012

 

3,526

 

3,583

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C preferred stock

 

 

 

12/28/2012

 

 

43

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,570

 

12,868

 

 

 

SK SPV IV, LLC

 

Collision repair site operators

 

Series A common stock (12,500 units)

 

 

 

8/18/2014

 

625

 

1,998

(2)

 

 

 

 

 

 

Series B common stock (12,500 units)

 

 

 

8/18/2014

 

625

 

1,998

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,250

 

3,996

 

 

 

TA THI Buyer, Inc. and TA THI Parent, Inc.

 

Collision repair company

 

First lien senior secured loan ($30,000 par due 7/2020)

 

6.50% (Libor + 5.50%/Q)

 

7/28/2014

 

30,000

 

30,000

(2)(26)

 

 

 

 

 

 

Series A Preferred stock (50,000 shares)

 

 

 

7/28/2014

 

5,000

 

5,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

35,000

 

35,000

 

 

 

 

 

 

 

 

 

 

 

 

 

115,112

 

119,174

 

2.27

%

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC and New 10th Street, LLC (7)

 

Real estate holding company

 

First lien senior secured loan ($25,002 par due 11/2019)

 

7.00% Cash, 1.00% PIK

 

3/31/2014

 

25,002

 

25,002

(2)

 

 

 

 

 

 

Senior subordinated loan ($26,897 par due 11/2019)

 

7.00% Cash, 1.00% PIK

 

4/1/2010

 

26,897

 

26,897

(2)

 

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

54,476

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

52,518

 

106,400

 

 

 

 

19



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

American Commercial Coatings, Inc.

 

Real estate property

 

Commercial mortgage loan ($1,947 par due 12/2025)

 

8.75% (Libor + 7.25%/Q)

 

4/1/2010

 

568

 

1,220

(26)

 

 

Cleveland East Equity, LLC

 

Hotel operator

 

Real estate equity interests

 

 

 

4/1/2010

 

26

 

3,310

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

 

 

 

Crescent Hotels & Resorts, LLC and affiliates (7)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

 

 

4/1/2010

 

 

(2)(25)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPH, Inc.

 

Hotel property

 

Real estate equity interests

 

 

 

4/1/2010

 

2,291

 

2,533

 

 

 

 

 

 

 

 

 

 

 

 

 

55,403

 

113,463

 

2.16

%

Chemicals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Argotec, LLC

 

Thermoplastic polyurethane films

 

First lien senior secured revolving loan ($1,887 par due 5/2018)

 

7.00% (Base Rate + 3.75%/M)

 

5/31/2013

 

1,887

 

1,887

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($18,475 par due 5/2019)

 

5.75% (Libor + 4.75%/M)

 

5/31/2013

 

18,475

 

18,475

(2)(26)

 

 

 

 

 

 

 

 

 

 

 

 

20,362

 

20,362

 

 

 

K2 Pure Solutions Nocal, L.P.

 

Chemical producer

 

First lien senior secured revolving loan ($4,256 par due 8/2019)

 

8.13% (Libor + 7.13%/M)

 

8/19/2013

 

4,256

 

4,171

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($21,366 par due 8/2019)

 

7.00% (Libor + 6.00%/M)

 

8/19/2013

 

21,366

 

20,938

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($39,750 par due 8/2019)

 

7.00% (Libor + 6.00%/M)

 

8/19/2013

 

39,750

 

38,955

(3)(26)

 

 

 

 

 

 

First lien senior secured loan ($19,875 par due 8/2019)

 

7.00% (Libor + 6.00%/M)

 

8/19/2013

 

19,875

 

19,477

(4)(26)

 

 

 

 

 

 

 

 

 

 

 

 

85,247

 

83,541

 

 

 

Liquid Light, Inc.

 

Developer and licensor of process technology for the conversion of carbon dioxide into major chemicals

 

First lien senior secured loan ($3,000 par due 11/2017)

 

10.00%

 

8/13/2014

 

2,925

 

2,925

(2)

 

 

 

 

 

 

Warrant to purchase up to 86,009 shares of Series B preferred stock

 

 

 

8/13/2014

 

77

 

77

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,002

 

3,002

 

 

 

 

 

 

 

 

 

 

 

 

 

108,611

 

106,905

 

2.04

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, and Cameron Holdings of NC, Inc.

 

Broadband communication services

 

Warrants to purchase up to 208 shares

 

 

 

11/7/2007

 

 

8,516

 

 

 

 

 

 

 

Warrants to purchase up to 200 shares

 

 

 

9/1/2010

 

 

4,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,022

 

 

 

EUNetworks Group Limited (8)

 

Broadband bandwidth infrastructure provider

 

First lien senior secured loan ($25,071 par due 5/2019)

 

7.50% (Libor + 6.50%/M)

 

12/13/2013

 

27,554

 

25,321

(26)

 

 

Quantance, Inc.

 

Designer of semiconductor products to the mobile wireless market

 

First lien senior secured loan ($3,236 par due 9/2016)

 

10.25%

 

8/23/2013

 

3,169

 

3,236

(2)

 

 

 

 

 

 

Warrant to purchase up to 130,432 shares of Series D Preferred Stock

 

 

 

8/23/2013

 

74

 

102

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,243

 

3,338

 

 

 

Startec Equity, LLC (7)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

Wilcon Holdings LLC

 

Communications infrastructure provider

 

Class A common stock (2,000,000 shares)

 

 

 

12/13/2013

 

1,829

 

1,962

 

 

 

 

 

 

 

 

 

 

 

 

 

32,626

 

43,643

 

0.83

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

First lien senior secured revolving loan ($4,000 par due 10/2014)

 

8.50%

 

10/31/2012

 

4,000

 

4,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($3,667 par due 11/2016)

 

9.60%

 

10/31/2012

 

3,667

 

3,760

(2)(24)

 

 

 

 

 

 

First lien senior secured loan ($3,692 par due 9/2017)

 

9.60%

 

10/31/2012

 

3,692

 

3,692

(2)

 

 

 

20



Table of Contents

 

As of September 30, 2014

(dollar amounts in thousands)

(unaudited)

 

Company(1)

 

Business Description

 

Investment

 

Interest
(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

11,359

 

11,452

 

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

First lien senior secured loan ($20,562 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

3/6/2011

 

20,562

 

20,151

(2)(26)

 

 

 

 

 

 

First lien senior secured loan ($9,550 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

3/6/2011

 

9,550

 

9,359

(4)(26)

 

 

 

 

 

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

2,593

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,181

 

32,109

 

 

 

 

 

 

 

 

 

 

 

 

 

42,540

 

43,561

 

0.83

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

First lien senior secured loan ($34,000 par due 3/2019)

 

7.25% (Libor + 6.00%/M)

 

10/11/2007

 

34,000

 

34,000

(2)(12)(26)

 

 

CFW Co-Invest, L.P. and NCP Curves, L.P.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

3,451

(2)

 

 

 

 

 

 

Limited partnership interest (2,218,235 shares)

 

 

 

7/31/2012

 

2,218

 

1,844

(2)(8)

 

 

 

 

 

 

 

 

 

 

 

 

6,370

 

5,295

 

 

 

 

 

 

 

 

 

 

 

 

 

40,370

 

39,295

 

0.75

%

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PODS Funding Corp. II

 

Storage and warehousing

 

First lien senior secured loan ($3,929 par due 12/2018)

 

7.00% (Libor + 6.00%/Q)

 

12/19/13

 

3,929

 

3,929

(26)

 

 

 

 

 

 

First lien senior secured loan ($34,119 par due 12/2018)

 

7.00% (Libor + 6.00%/Q)

 

12/19/13

 

34,119

 

34,119

(26)

 

 

United Road Towing, Inc.

 

Towing company

 

Warrants to purchase up to 607 shares

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,048

 

38,048

 

0.72

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Genomatica, Inc.

 

Developer of a biotechnology platform for the production of chemical products

 

Warrant to purchase 322,422 shares of Series D preferred stock

 

 

 

3/28/2013

 

 

6

(2)

 

 

RE Community Holdings II, Inc., Pegasus Community Energy, LLC., and MPH Energy Holdings, LP

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

15

(2)

 

 

 

 

 

 

Limited partnership interest (3.13% interest)

 

 

 

1/8/2014

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

8,839

 

15

 

 

 

Waste Pro USA, Inc

 

Waste management services

 

Preferred Class A common equity (611,615 shares)

 

 

 

11/9/2006

 

12,263

 

30,660

(2)

 

 

 

 

 

 

 

 

 

 

 

 

21,102

 

30,681

 

0.58

%

Housing- Building Materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kinestal Technologies, Inc.

 

Designer of adaptive, dynamic glass for the commercial and residential markets

 

First lien senior secured loan ($6,500 par due 8/2017)

 

10.00%

 

4/22/2014

 

6,379

 

6,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 325,000 shares of Series A preferred stock

 

 

 

4/22/2014

 

73

 

73

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,452

 

6,573

 

 

 

 

 

 

 

 

 

 

 

 

 

6,452

 

6,573

 

0.13

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distant Lands Trading Co.

 

Coffee manufacturer

 

Class A common stock (1,294 shares)

 

 

 

4/1/2010

 

980

 

77

(2)

 

 

 

 

 

 

Class A-1 common stock (2,157 shares)

 

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

77

 

 

 

 

 

 

 

 

 

 

 

 

 

980

 

77

 

0.00

%

 

 

 

 

 

 

 

 

 

 

$

8,600,794

 

$

8,783,580

 

167.32

%

 

21



Table of Contents

 


(1)                                 Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of September 30, 2014 represented 167% of the Company’s net assets or 95% of the Company’s total assets, are subject to legal restrictions on sales.

 

(2)                                 These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

(3)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital CP Funding LLC (“Ares Capital CP”), are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                                 These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                                 Investments without an interest rate are non-income producing.

 

(6)                                 As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” of a portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended September 30, 2014 in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to Control) are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net realized
gains (losses)

 

Net
unrealized
gains (losses)

 

Apple & Eve, LLC and US Juice Partners, LLC

 

$

 

$

 

$

5,000

 

$

 

$

 

$

 

$

 

$

4,344

 

$

(205

)

Campus Management Corp. and Campus Management Acquisition Corp.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

5,954

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.

 

$

 

$

4,454

 

$

5,000

 

$

3,041

 

$

 

$

1,019

 

$

181

 

$

 

$

3,445

 

Crown Health Care Laundry Services, Inc. and Crown Laundry Holdings, LLC

 

$

28,550

 

$

123

 

$

 

$

1,154

 

$

590

 

$

 

$

86

 

$

 

$

(176

)

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC

 

$

702

 

$

702

 

$

 

$

3

 

$

 

$

 

$

26

 

$

 

$

(1,386

)

DESRI Wind Development Acquisition Holdings, L.L.C

 

$

15,556

 

$

 

$

 

$

166

 

$

369

 

$

 

$

 

$

 

$

 

The Dwyer Group

 

$

14,418

 

$

46,377

 

$

 

$

2,772

 

$

60

 

$

2,279

 

$

179

 

$

21,141

 

$

(11,791

)

ELC Acquisition Corp. and ELC Holdings Corporation

 

$

 

$

 

$

 

$

 

$

 

$

1,072

 

$

 

$

 

$

(1,168

)

Insight Pharmaceuticals Corporation

 

$

 

$

19,187

 

$

12,070

 

$

1,765

 

$

 

$

 

$

 

$

33,075

 

$

(2,544

)

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

199

 

$

 

$

 

$

(32

)

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

430

 

Soteria Imaging Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

38

 

$

 

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

10,024

 

UL Holding Co., LLC

 

$

 

$

3,487

 

$

 

$

 

$

 

$

 

$

 

$

 

$

7,056

 

 

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Table of Contents

 

(7)                                 As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended September 30, 2014 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net realized
gains (losses)

 

Net
unrealized
gains (losses)

 

10th Street, LLC and New 10th Street, LLC

 

$

24,895

 

$

 

$

 

$

2,952

 

$

455

 

$

 

$

 

$

 

$

47,219

 

AllBridge Financial, LLC

 

$

 

$

3,937

 

$

 

$

 

$

 

$

382

 

$

 

$

 

$

58

 

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

14

 

Ciena Capital LLC

 

$

 

$

4,000

 

$

 

$

2,881

 

$

 

$

 

$

 

$

 

$

9,417

 

Citipostal Inc.

 

$

 

$

70,270

 

$

 

$

60

 

$

 

$

 

$

17

 

$

(20,247

)

$

25,270

 

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

 

$

 

$

 

$

42

 

$

 

$

 

$

 

HCI Equity, LLC

 

$

 

$

112

 

$

 

$

 

$

 

$

89

 

$

 

$

 

$

178

 

HCP Acquisition Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Hot Light Brands, Inc.

 

$

 

$

90

 

$

 

$

 

$

 

$

 

$

 

$

144

 

$

(163

)

Ivy Hill Asset Management, L.P.

 

$

 

$

 

$

 

$

 

$

 

$

40,000

 

$

 

$

 

$

(21,471

)

MVL Group, Inc.

 

$

 

$

30,040

 

$

 

$

 

$

 

$

 

$

 

$

(27,709

)

$

27,781

 

Orion Foods, LLC

 

$

3,000

 

$

29,466

 

$

 

$

3,327

 

$

 

$

 

$

625

 

$

1,624

 

$

(4,847

)

Pillar Processing LLC, PHL Investors, Inc., and PHL Holding Co.

 

$

 

$

9,844

 

$

 

$

 

$

 

$

 

$

 

$

(6,592

)

$

6,522

 

Senior Secured Loan Fund LLC*

 

$

348,508

 

$

139,561

 

$

 

$

205,433

 

$

24,978

 

$

 

$

21,098

 

$

 

$

3,134

 

Startec Equity, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

The Step2 Company, LLC

 

$

4,500

 

$

 

$

 

$

2,169

 

$

 

$

 

$

 

$

 

$

(18,436

)

The Thymes, LLC

 

$

 

$

840

 

$

 

$

 

$

 

$

158

 

$

 

$

 

$

2,810

 

 


*                                         Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company co-invests through the Senior Secured Loan Fund LLC d/b/a the “Senior Secured Loan Program” (the “SSLP”). The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(8)                                 Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(9)                                 Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                          In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies (“BDCs”) the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) under the Investment Company Act) (i.e., not eligible to be included in a BDC’s 70% “qualifying assets” basket). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which stated that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which the U.S. Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”.  The Company provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a BDC to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, the Company has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified such entities, which include the SSLP, as “non-qualifying assets” should the Staff ultimately disagree with the Company’s position.

 

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Table of Contents

 

(11)                          Variable rate loans to the Company’s 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), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

(12)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $11 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(13)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $68 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(14)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 6.00% on $11 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.25% on $53 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $25 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.13% on $55 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $17 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(19)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.75% on $24 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(20)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $21 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(21)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $71 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

24



Table of Contents

 

(22)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.55% on $28 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(23)                          In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $88 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder

 

(24)                          The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company.  The fair value of such fee is included in the fair value of the debt investment.

 

(25)                          Loan was on non-accrual status as of September 30, 2014.

 

(26)                          Loan includes interest rate floor feature.

 

(27)                         In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, which may result in a return to the Company greater than the contractual stated interest rate.

 

(28)                          As of September 30, 2014, no amounts were funded by the Company under this first lien senior secured revolving loan; however, there were letters of credit issued and outstanding through a financial intermediary under the loan.  See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(29)                          As of September 30, 2014, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also letters of credit issued and outstanding through a financial intermediary under the loan.  See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(30)                          As of September 30, 2014, no amounts were funded by the Company under this letter of credit facility; however, there were letters of credit issued and outstanding through a financial intermediary under the letter of credit facility.  See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Investment Funds and Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CIC Flex, LP (9)

 

Investment partnership

 

Limited partnership units (0.94 units)

 

 

 

9/7/2007

 

$

867

 

$

2,851

(2)

 

 

Covestia Capital Partners, LP (9)

 

Investment partnership

 

Limited partnership interest (47.00% interest)

 

 

 

6/17/2008

 

826

 

1,177

(2)

 

 

Dynamic India Fund IV, LLC (9)

 

Investment company

 

Member interest (5.44% interest)

 

 

 

4/1/2010

 

4,822

 

3,285

 

 

 

HCI Equity, LLC (7)(8)(9)

 

Investment company

 

Member interest (100.00% interest)

 

 

 

4/1/2010

 

112

 

334

 

 

 

Imperial Capital Private Opportunities, LP (9)

 

Investment partnership

 

Limited partnership interest (80.00% interest)

 

 

 

5/10/2007

 

3,315

 

10,231

(2)

 

 

Partnership Capital Growth Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (25.00% interest)

 

 

 

6/16/2006

 

1,411

 

3,939

(2)

 

 

Partnership Capital Growth Investors III, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.50% interest)

 

 

 

10/5/2011

 

2,804

 

2,588

(2)

 

 

Piper Jaffray Merchant Banking Fund I, L.P. (9)

 

Investment partnership

 

Limited partnership interest (2.00% interest)

 

 

 

8/16/2012

 

632

 

563

(2)

 

 

Senior Secured Loan Fund LLC (7)(10)

 

Co-investment vehicle

 

Subordinated certificates ($1,745,192 par due 12/2024)

 

8.24% (Libor + 8.00%/Q)(26)

 

10/30/2009

 

1,745,192

 

1,771,369

 

 

 

 

 

 

 

Membership interest (87.50% interest)

 

 

 

10/30/2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,745,192

 

1,771,369

 

 

 

VSC Investors LLC (9)

 

Investment company

 

Membership interest (1.95% interest)

 

 

 

1/24/2008

 

745

 

1,211

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,760,726

 

1,797,548

 

36.65

%

Healthcare-Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alegeus Technologies Holdings Corp.

 

Benefits administration and transaction processing provider

 

Preferred stock (2,997 shares)

 

 

 

12/13/2013

 

3,087

 

3,087

 

 

 

 

 

 

 

Common stock (3 shares)

 

 

 

12/13/2013

 

3

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

3,090

 

3,090

 

 

 

ATI Phyiscal Therapy Holdings, LLC

 

Outpatient rehabilitation services provider

 

Class C common stock (51,005 shares)

 

 

 

12/13/2013

 

53

 

53

 

 

 

AxelaCare Holdings, Inc. and AxelaCare Investment Holdings, L.P.

 

Provider of home infusion services

 

First lien senior secured loan ($4,458 par due 4/2019)

 

5.75% (Libor + 4.50%/Q)

 

4/12/2013

 

4,458

 

4,458

(2)(25)

 

 

 

 

 

 

Preferred units (8,218,160 units)

 

 

 

4/12/2013

 

822

 

855

(2)

 

 

 

 

 

 

Common units (83,010 units)

 

 

 

4/12/2013

 

8

 

9

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,288

 

5,322

 

 

 

California Forensic Medical Group, Incorporated

 

Correctional facility healthcare operator

 

First lien senior secured loan ($53,640 par due 11/2018)

 

9.25% (Libor + 8.00%/Q)

 

11/16/2012

 

53,640

 

53,640

(3)(25)

 

 

CCS Group Holdings, LLC

 

Correctional facility healthcare operator

 

Class A units (601,937 units)

 

 

 

8/19/2010

 

602

 

1,546

(2)

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings LLC (6)

 

Healthcare analysis services provider

 

Class A common stock (9,679 shares)

 

 

 

6/15/2007

 

2,543

 

4,014

(2)

 

 

 

 

 

 

Class C common stock (1,546 shares)

 

 

 

6/15/2007

 

 

641

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,543

 

4,655

 

 

 

Dialysis Newco, Inc.

 

Dialysis provider

 

First lien senior secured loan ($15,509 par due 8/2020)

 

5.25% (Libor + 4.25%/Q)

 

8/16/2013

 

15,509

 

15,509

(2)(25)

 

 

 

 

 

 

Second lien senior secured loan ($56,500 par due 2/2021)

 

9.75% (Libor + 8.50%/Q)

 

8/16/2013

 

56,500

 

56,500

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

72,009

 

72,009

 

 

 

Genocea Biosciences, Inc.

 

Vaccine discovery technology company

 

First lien senior secured loan ($10,000 par due 4/2017)

 

8.00%

 

9/30/2013

 

9,805

 

10,000

(2)

 

 

 

26



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Warrant to purchase up to 689,655 shares of Series C convertible preferred stock

 

 

 

9/30/2013

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

9,805

 

10,000

 

 

 

GI Advo Opco, LLC

 

Residential behavioral treatment services provider

 

First lien senior secured loan ($15,005 par due 6/2017)

 

6.00% (Libor + 4.75%/Q)

 

12/13/2013

 

15,448

 

15,455

(25)

 

 

 

 

 

 

First lien senior secured loan ($13 par due 6/2017)

 

7.00% (Base Rate + 3.75%/Q)

 

12/13/2013

 

13

 

13

(25)

 

 

 

 

 

 

 

 

 

 

 

 

15,461

 

15,468

 

 

 

INC Research, Inc.

 

Pharmaceutical and biotechnology consulting services

 

Common stock (1,410,000 shares)

 

 

 

9/27/2010

 

1,512

 

1,758

(2)

 

 

Intermedix Corporation

 

Revenue cycle management provider to the emergency healthcare industry

 

Second lien senior secured loan ($112,000 par due 6/2019)

 

10.25% (Libor + 9.00%/Q)

 

12/27/2012

 

112,000

 

112,000

(2)(25)

 

 

JHP Group Holdings, Inc.

 

Manufacturer of speciality pharmaceutical products

 

Series A preferred stock (1,000,000 shares)

 

6.00% PIK

 

2/19/2013

 

272

 

2,673

(2)

 

 

LM Acquisition Holdings, LLC (8)

 

Developer and manufacturer of medical equipment

 

Class A units (426 units)

 

 

 

9/27/2013

 

1,000

 

1,195

(2)

 

 

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC

 

Healthcare professional provider

 

First lien senior secured loan ($134,115 par due 3/2018)

 

9.00% (Libor + 8.00%/Q)

 

9/15/2010

 

134,721

 

135,457

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($56,134 par due 3/2018)

 

9.00% (Libor + 8.00%/Q)

 

9/15/2010

 

56,134

 

56,695

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($4,668 par due 3/2018)

 

9.00% (Libor + 8.00%/Q)

 

3/6/2012

 

4,668

 

4,715

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

195,523

 

196,867

 

 

 

Monte Nido Holdings, LLC

 

Outpatient eating disorder treatment provider

 

First lien senior secured loan ($44,750 par due 12/2019)

 

7.75% (Libor + 6.75%/Q)

 

12/20/2013

 

44,750

 

44,750

(2)(19)(25)

 

 

MW Dental Holding Corp.

 

Dental services provider

 

First lien senior secured revolving loan ($4,500 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

4,500

 

4,500

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($12,582 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

12,582

 

12,582

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($12,460 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

12,460

 

12,460

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($48,757 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

48,757

 

48,757

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($9,800 par due 4/2017)

 

8.50% (Libor + 7.00%/M)

 

4/12/2011

 

9,800

 

9,800

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

88,099

 

88,099

 

 

 

Napa Management Services Corporation

 

Anesthesia management services provider

 

First lien senior secured loan ($23,496 par due 4/2018)

 

6.50% (Libor + 5.25%/Q)

 

4/15/2011

 

23,496

 

23,496

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($33,266 par due 4/2018)

 

6.50% (Libor + 5.25%/Q)

 

4/15/2011

 

33,203

 

33,266

(3)(25)

 

 

 

 

 

 

Common units (5,000 units)

 

 

 

4/15/2011

 

5,000

 

8,896

(2)

 

 

 

 

 

 

 

 

 

 

 

 

61,699

 

65,658

 

 

 

National Healing Corporation and National Healing Holding Corp.

 

Wound care service and equipment provider

 

Second lien senior secured loan ($10,000 par due 2/2020)

 

9.25% (Libor + 8.00%/S)

 

12/13/2013

 

10,297

 

10,301

(25)

 

 

 

 

 

 

Preferred stock (869,565 shares)

 

 

 

12/13/2013

 

1,296

 

1,296

 

 

 

 

 

 

 

 

 

 

 

 

 

11,593

 

11,597

 

 

 

Netsmart Technologies, Inc. and NS Holdings, Inc.

 

Healthcare technology provider

 

First lien senior secured loan ($2,833 par due 12/2017)

 

7.25% (Libor + 6.00%/Q)

 

12/18/2012

 

2,833

 

2,833

(2)(17)(25)

 

 

 

 

 

 

First lien senior secured loan ($36,259 par due 12/2017)

 

7.25% (Libor + 6.00%/Q)

 

12/18/2012

 

36,259

 

36,259

(2)(17)(25)

 

 

 

 

 

 

Common stock (2,500,000 shares)

 

 

 

6/21/2010

 

2,500

 

2,710

(2)

 

 

 

 

 

 

 

 

 

 

 

 

41,592

 

41,802

 

 

 

New Trident Holdcorp, Inc.

 

Outsourced mobile diagnostic

 

Second lien senior

 

10.25% (Libor +

 

8/6/2013

 

78,465

 

80,000

(2)(25)

 

 

 

27



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

healthcare service provider

 

secured loan ($80,000 par due 7/2020)

 

9.00%/Q)

 

 

 

 

 

 

 

 

 

OmniSYS Acquisition Corporation, OmniSYS, LLC, and OSYS Holdings, LLC

 

Provider of technology-enabled solutions to pharmacies

 

First lien senior secured loan ($21,000 par due 11/2018)

 

8.50% (Libor + 7.50%/Q)

 

11/21/2013

 

21,000

 

21,000

(2)(25)

 

 

 

 

 

 

Limited liability company membership interest (1.57% interest)

 

 

 

11/21/2013

 

1,000

 

1,000

(2)

 

 

 

 

 

 

 

 

 

 

 

 

22,000

 

22,000

 

 

 

PerfectServe, Inc.

 

Communications software platform provider for hospitals and physician practices

 

First lien senior secured loan ($3,500 par due 4/2017)

 

10.00%

 

12/26/2013

 

3,465

 

3,500

 

 

 

 

 

 

 

Warrants to purchase up to 34,113 units of Series C preferred stock

 

 

 

12/26/2013

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

3,465

 

3,550

 

 

 

PG Mergersub, Inc. and PGA Holdings, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Second lien senior secured loan ($2,368 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

4/19/2012

 

2,439

 

2,376

(25)

 

 

 

 

 

 

Second lien senior secured loan ($21,316 par due 10/2018)

 

8.25% (Libor + 7.00%/Q)

 

4/19/2012

 

21,316

 

21,380

(2)(25)

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

125

 

16

(2)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

825

(2)

 

 

 

 

 

 

 

 

 

 

 

 

24,047

 

24,597

 

 

 

Physiotherapy Associates Holdings, Inc.

 

Outpatient rehabilitation physical therapy provider

 

Class A common stock (100,000 shares)

 

 

 

12/13/2013

 

3,090

 

3,090

 

 

 

POS I Corp. (fka Vantage Oncology, Inc.)

 

Radiation oncology care provider

 

Common stock (62,157 shares)

 

 

 

2/3/2011

 

4,670

 

1,375

(2)

 

 

RCHP, Inc.

 

Operator of general acute care hospitals

 

First lien senior secured loan ($14,887 par due 11/2018)

 

7.00% (Libor + 5.75%/Q)

 

11/4/2011

 

14,888

 

14,664

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($60,518 par due 11/2018)

 

7.00% (Libor + 5.75%/Q)

 

11/4/2011

 

60,496

 

59,611

(3)(25)

 

 

 

 

 

 

Second lien senior secured loan ($85,000 par due 5/2019)

 

11.50% (Libor + 10.00%/Q)

 

11/4/2011

 

85,000

 

85,000

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

160,384

 

159,275

 

 

 

Reed Group, Ltd.

 

Medical disability management services provider

 

Equity interests

 

 

 

4/1/2010

 

 

(2)

 

 

Respicardia, Inc.

 

Developer of implantable therapies to improve cardiovascular health

 

First lien senior secured loan ($3,800 par due 7/2015)

 

11.00%

 

6/28/2012

 

3,787

 

3,800

(2)

 

 

 

 

 

 

Warrants to purchase up to 99,094 shares of Series C preferred stock

 

 

 

6/26/2012

 

38

 

29

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,825

 

3,829

 

 

 

Sage Products Holdings III, LLC

 

Patient infection control and preventive care solutions provider

 

Second lien senior secured loan ($75,000 par due 6/2020)

 

9.25% (Libor + 8.00%/Q)

 

12/13/2012

 

75,000

 

75,000

(2)(25)

 

 

Sorbent Therapeutics, Inc.

 

Orally-administered drug developer

 

First lien senior secured loan ($6,500 par due 9/2016)

 

10.25%

 

4/23/2013

 

6,500

 

6,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 727,272 shares of Series C preferred stock

 

 

 

4/23/2013

 

 

25

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,500

 

6,525

 

 

 

Soteria Imaging Services, LLC (6)

 

Outpatient medical imaging provider

 

Preferred member units (1,823,179 units)

 

 

 

4/1/2010

 

 

 

 

 

SurgiQuest, Inc.

 

Medical device company

 

First lien senior secured loan ($6,281 par due 10/2017)

 

10.00%

 

9/28/2012

 

6,133

 

6,281

(2)

 

 

 

 

 

 

First lien senior secured loan ($2,000 par due 10/2017)

 

10.69%

 

9/28/2012

 

1,953

 

2,000

(2)

 

 

 

 

 

 

Warrants to purchase up to 54,672 shares of

 

 

 

9/28/2012

 

 

(2)

 

 

 

 

 

 

Series D-4 convertible preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,086

 

8,281

 

 

 

U.S. Anesthesia Partners, Inc.

 

Anesthesiology service provider

 

First lien senior secured loan ($30,000 par due 12/2019)

 

6.00% (Libor + 5.00%/Q)

 

12/31/2013

 

30,000

 

30,000

(2)(25)

 

 

 

28



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Young Innovations, Inc.

 

Dental supplies and equipment manufacturer

 

First lien senior secured loan ($9,697 par due 1/2019)

 

5.75% (Libor + 4.50%/Q)

 

1/31/2013

 

9,697

 

9,697

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($32 par due 1/2019)

 

6.75% (Base Rate + 3.50%/Q)

 

1/31/2013

 

32

 

32

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($13,304 par due 1/2019)

 

5.75% (Libor + 4.50%/Q)

 

1/31/2013

 

13,304

 

13,304

(4)(25)

 

 

 

 

 

 

First lien senior secured loan ($44 par due 1/2019)

 

6.75% (Base Rate + 3.50%/Q)

 

1/31/2013

 

44

 

44

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

23,077

 

23,077

 

 

 

 

 

 

 

 

 

 

 

 

 

1,163,140

 

1,172,781

 

23.91

%

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2329497 Ontario Inc. (8)

 

Provider of outsourced data center infrastructure and related services

 

Second lien senior secured loan ($42,333 par due 6/2019)

 

10.50% (Libor + 9.25%/M)

 

12/13/2013

 

43,551

 

43,603

(25)

 

 

Access CIG, LLC

 

Records and information management services provider

 

First lien senior secured loan ($992 par due 10/2017)

 

7.00% (Libor + 5.75%/M)

 

10/5/2012

 

992

 

992

(2)(25)

 

 

BluePay Processing, Inc.

 

Technology-enabled payment processing solutions provider

 

First lien senior secured loan ($6,000 par due 8/2019)

 

5.00% (Libor + 4.00%/Q)

 

8/30/2013

 

6,000

 

6,000

(2)(25)

 

 

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C. (6)

 

Payroll and accounting services provider to the entertainment industry

 

First lien senior secured loan ($18,107 par due 12/2017)

 

7.25% (Libor + 6.25%/Q)

 

12/24/2012

 

18,107

 

18,107

(2)(18)(25)

 

 

 

 

 

 

First lien senior secured loan ($45,267 par due 12/2017)

 

7.25% (Libor + 6.25%/Q)

 

12/24/2012

 

45,267

 

45,267

(3)(18)(25)

 

 

 

 

 

 

Class A membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

4,021

(2)

 

 

 

 

 

 

Class B membership units (2,500,000 units)

 

 

 

12/24/2012

 

2,500

 

4,021

(2)

 

 

 

 

 

 

 

 

 

 

 

 

68,374

 

71,416

 

 

 

CIBT Investment Holdings, LLC

 

Expedited travel document processing services

 

Class A shares (2,500 shares)

 

 

 

12/15/2011

 

2,500

 

3,658

(2)

 

 

CitiPostal Inc. (7)

 

Document storage and management services

 

First lien senior secured revolving loan ($3,500 par due 12/2014)

 

6.50% (Libor + 4.50%/M)

 

4/1/2010

 

3,500

 

3,500

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($53,731 par due 12/2014)

 

 

 

4/1/2010

 

53,731

 

41,501

(2)(24)

 

 

 

 

 

 

Senior subordinated loan ($20,193 par due 12/2015)

 

 

 

4/1/2010

 

13,038

 

(2)(24)

 

 

 

 

 

 

Common stock (37,024 shares)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70,269

 

45,001

 

 

 

Command Alkon, Inc.

 

Software solutions provider to the ready-mix concrete industry

 

Second lien senior secured loan ($10,000 par due 3/2018)

 

8.75% (Libor + 7.50%/M)

 

9/28/2012

 

10,000

 

10,000

(2)(25)

 

 

 

 

 

 

Second lien senior secured loan ($34,000 par due 5/2019)

 

8.75% (Libor + 7.50%/Q)

 

9/28/2012

 

34,000

 

34,000

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

44,000

 

44,000

 

 

 

Coverall North America, Inc.

 

Commercial janitorial services provider

 

Letter of credit facility

 

 

 

1/17/2013

 

 

(2)(29)

 

 

eCommerce Industries, Inc.

 

Business critical enterprise resource planning software provider

 

First lien senior secured loan ($19,936 par due 10/2016)

 

8.00% (Libor + 6.75%/Q)

 

12/13/2013

 

19,936

 

20,217

(22)(25)

 

 

GHS Interactive Security, LLC and LG Security Holdings, LLC

 

Originates residential security alarm contracts

 

First lien senior secured loan ($2,091 par due 5/2018)

 

7.50% (Libor + 6.00%/Q)

 

12/13/2013

 

2,153

 

2,153

(25)

 

 

 

 

 

 

Class A membership units (1,560,000 units)

 

 

 

12/13/2013

 

1,607

 

1,607

 

 

 

 

 

 

 

 

 

 

 

 

 

3,760

 

3,760

 

 

 

HCPro, Inc. and HCP Acquisition Holdings, LLC (7)

 

Healthcare compliance advisory services

 

Senior subordinated loan ($9,004 par due 8/2014)

 

 

 

3/5/2013

 

2,692

 

(2)(24)

 

 

 

 

 

 

Class A units (14,293,110 units)

 

 

 

6/26/2008

 

12,793

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,485

 

 

 

 

IfByPhone Inc.

 

Voice-based marketing automation software provider

 

First lien senior secured loan ($1,533 par due 11/2015)

 

11.00%

 

10/15/2012

 

1,490

 

1,533

(2)

 

 

 

29



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($833 par due 1/2016)

 

11.00%

 

10/15/2012

 

833

 

833

(2)

 

 

 

 

 

 

Warrant to purchase up to 124,300 shares of Series C preferred stock

 

 

 

10/15/2012

 

88

 

64

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,411

 

2,430

 

 

 

Investor Group Services, LLC (6)

 

Business consulting for private equity and corporate clients

 

Limited liability company membership interest (8.5% interest)

 

 

 

6/22/2006

 

 

633

 

 

 

IronPlanet, Inc.

 

Online auction platform provider for used heavy equipment

 

First lien senior secured revolving loan ($5,000 par due 9/2015)

 

8.00%

 

9/24/2013

 

5,000

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($7,500 par due 7/2017)

 

9.25%

 

9/24/2013

 

7,155

 

7,275

(2)

 

 

 

 

 

 

Warrant to purchase to up to 133,333 shares of Series C preferred stock

 

 

 

9/24/2013

 

214

 

246

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,369

 

12,521

 

 

 

Itel Laboratories, Inc.

 

Data services provider for building materials to property insurance industry

 

Preferred units (1,798,391 units)

 

 

 

6/29/2012

 

1,000

 

995

(2)

 

 

Keynote Systems, Inc. and Hawaii Ultimate Parent Corp., Inc.

 

Web and mobile cloud performance testing and monitoring services provider

 

First lien senior secured loan ($164,587 par due 2/2020)

 

9.50% (Libor + 8.50%/Q)

 

8/22/2013

 

164,587

 

164,587

(2)(25)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

8/22/2013

 

2,970

 

3,429

(2)

 

 

 

 

 

 

Class B common stock (1,956,522 shares)

 

 

 

8/22/2013

 

30

 

35

(2)

 

 

 

 

 

 

 

 

 

 

 

 

167,587

 

168,051

 

 

 

Market Track Holdings, LLC

 

Business media consulting services company

 

Preferred stock (1,500 shares)

 

 

 

12/13/2013

 

1,982

 

1,982

 

 

 

 

 

 

 

Common stock (15,000 shares)

 

 

 

12/13/2013

 

1,982

 

1,982

 

 

 

 

 

 

 

 

 

 

 

 

 

3,964

 

3,964

 

 

 

MSC.Software Corporation and Maximus Holdings, LLC

 

Provider of software simulation tools and related services

 

First lien senior secured loan ($42,750 par due 11/2017)

 

8.50% (Libor + 7.25%/Q)

 

12/13/2013

 

44,015

 

44,033

(21)(25)

 

 

 

 

 

 

Warrants to purchase up to 1,050,013 shares of common stock

 

 

 

12/13/2013

 

424

 

424

 

 

 

 

 

 

 

 

 

 

 

 

 

44,439

 

44,457

 

 

 

Multi-Ad Services, Inc. (6)

 

Marketing services and software provider

 

Preferred units (1,725,280 units)

 

 

 

4/1/2010

 

788

 

1,754

 

 

 

 

 

 

 

Common units (1,725,280 units)

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

1,754

 

 

 

MVL Group, Inc. (7)

 

Marketing research provider

 

Junior subordinated loan ($185 par due 7/2012)

 

 

 

4/1/2010

 

 

(2)(24)

 

 

 

 

 

 

Senior subordinated loan ($33,337 par due 7/2012)

 

 

 

4/1/2010

 

30,265

 

2,485

(2)(24)

 

 

 

 

 

 

Common stock (560,716 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

30,265

 

2,485

 

 

 

NComputing, Inc.

 

Desktop virtualization hardware and software technology service provider

 

First lien senior secured loan ($6,500 par due 7/2016)

 

10.50%

 

3/20/2013

 

6,500

 

6,695

(2)

 

 

 

 

 

 

Warrant to purchase up to 462,726 shares of Series C preferred stock

 

 

 

3/20/2013

 

 

56

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,500

 

6,751

 

 

 

Pillar Processing LLC, PHL Investors, Inc., and PHL Holding Co. (6)

 

Mortgage services

 

First lien senior secured loan ($4,658 par due 11/2018)

 

 

 

7/31/2008

 

3,982

 

3,321

(2)(24)

 

 

 

 

 

 

First lien senior secured loan ($7,375 par due 5/2019)

 

 

 

11/20/2007

 

5,862

 

(2)(24)

 

 

 

 

 

 

Class A common stock (576 shares)

 

 

 

7/31/2012

 

3,768

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

13,612

 

3,321

 

 

 

Platform Acquisition, Inc.

 

Data center and managed cloud services provider

 

Common stock (48,604 shares)

 

 

 

12/13/2013

 

7,536

 

7,536

 

 

 

 

30



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Powersport Auctioneer Holdings, LLC

 

Powersport vehicle auction operator

 

Common units (1,972 units)

 

 

 

3/2/2012

 

1,000

 

879

(2)

 

 

PSSI Holdings, LLC

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

First lien senior secured loan ($1,000 par due 6/2018)

 

6.00% (Libor + 5.00%/Q)

 

8/7/2013

 

1,000

 

1,000

(2)(25)

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

154

(2)

 

 

Rainstor, Inc.

 

Database solutions provider

 

First lien senior secured loan ($2,800 par due 4/2016)

 

11.25%

 

3/28/2013

 

2,735

 

2,800

(2)

 

 

 

 

 

 

Warrant to purchase up to 142,210 shares of Series C preferred stock

 

 

 

3/28/2013

 

88

 

70

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,823

 

2,870

 

 

 

Summit Business Media Parent Holding Company LLC

 

Business media consulting services

 

Limited liability company membership interest (45.98% interest)

 

 

 

5/20/2011

 

 

1,458

(2)

 

 

TOA Technologies, Inc.

 

Cloud based, mobile workforce management applications provider

 

First lien senior secured loan ($12,567 par due 11/2016)

 

10.25%

 

10/31/2012

 

12,124

 

12,567

(2)

 

 

 

 

 

 

Warrant to purchase up to 2,509,770 shares of Series D preferred stock

 

 

 

10/31/2012

 

605

 

1,201

(2)

 

 

 

 

 

 

 

 

 

 

 

 

12,729

 

13,768

 

 

 

Tripwire, Inc.

 

IT security software provider

 

First lien senior secured loan ($74,684 par due 5/2018)

 

7.50% (Libor + 6.25%/Q)

 

5/23/2011

 

74,684

 

74,684

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($10,266 par due 5/2018)

 

7.50% (Libor + 6.25%/Q)

 

5/23/2011

 

10,266

 

10,266

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($49,875 par due 5/2018)

 

7.50% (Libor + 6.25%/Q)

 

5/23/2011

 

49,875

 

49,875

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($9,975 par due 5/2018)

 

7.50% (Libor + 6.25%/Q)

 

5/23/2011

 

9,975

 

9,975

(4)(25)

 

 

 

 

 

 

Class B common stock (2,655,638 shares)

 

 

 

5/23/2011

 

30

 

84

(2)

 

 

 

 

 

 

Class A common stock (2,970 shares)

 

 

 

5/23/2011

 

2,970

 

8,315

(2)

 

 

 

 

 

 

 

 

 

 

 

 

147,800

 

153,199

 

 

 

Venturehouse-Cibernet Investors, LLC

 

Financial settlement services for intercarrier wireless roaming

 

Equity interest

 

 

 

4/1/2010

 

 

(2)

 

 

VSS-Tranzact Holdings, LLC (6)

 

Management consulting services

 

Common membership interest (5.98% interest)

 

 

 

10/26/2007

 

10,204

 

5,236

 

 

 

VTE Holdings Corp.

 

Hosted enterprise resource planning application management services provider

 

Common units (1,500,000 units)

 

 

 

12/13/2013

 

3,862

 

3,862

 

 

 

Worldpay (UK) Limited, Worldpay ECommerce Limited, Ship US Bidco, Inc., Ship Investor & Cy S.C.A. (8)

 

Payment processing company

 

First lien senior secured loan ($5,341 par due 10/2017)

 

6.00% (Libor + 4.75%/Q)

 

12/13/2013

 

5,432

 

5,394

(25)

 

 

 

 

 

 

Common stock (936,693 shares)

 

 

 

12/13/2013

 

2,698

 

2,732

 

 

 

 

 

 

 

 

 

 

 

 

 

8,129

 

8,126

 

 

 

X Plus Two Solutions, Inc. and X Plus One Solutions, Inc.

 

Provider of open and integrated software for digital marketing optimization

 

First lien senior secured revolving loan ($8,600 par due 9/2014)

 

8.50%

 

4/1/2013

 

8,600

 

8,600

(2)

 

 

 

 

 

 

First lien senior secured loan ($7,000 par due 3/2017)

 

10.00%

 

4/1/2013

 

6,645

 

6,860

(2)

 

 

 

 

 

 

Warrant to purchase up to 999,167 shares of Series C preferred stock

 

 

 

4/1/2013

 

284

 

299

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,529

 

15,759

 

 

 

 

 

 

 

 

 

 

 

 

 

768,665

 

699,856

 

14.27

%

Services-Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investments and Ventures Corp.

 

SCUBA diver training and certification provider

 

First lien senior secured loan ($24,512 par due 8/2018)

 

7.00% (Libor + 5.75%/Q)

 

8/9/2012

 

24,512

 

24,512

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($8,719 par due 8/2018)

 

7.00% (Libor + 5.75%/Q)

 

8/9/2012

 

8,719

 

8,719

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

33,231

 

33,231

 

 

 

 

31


 


Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Community Education Centers, Inc.

 

Offender re-entry and in-prison treatment services provider

 

First lien senior secured loan ($14,286 par due 12/2014)

 

6.25% (Libor + 5.25%/Q)

 

12/10/2010

 

14,286

 

14,286

(2)(15)(25)

 

 

 

 

 

 

Second lien senior secured loan ($35,283 par due 12/2015)

 

15.24% (Libor + 10.00% Cash, 5.00% PIK/Q)

 

12/10/2010

 

35,283

 

34,225

(2)

 

 

 

 

 

 

Second lien senior secured loan ($10,649 par due 12/2015)

 

15.26% (Libor + 10.00% Cash, 5.00% PIK/Q)

 

12/10/2010

 

10,649

 

10,330

(2)

 

 

 

 

 

 

Warrants to purchase up to 654,618 shares

 

 

 

12/10/2010

 

 

979

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,218

 

59,820

 

 

 

Competitor Group, Inc. and Calera XVI, LLC

 

Endurance sports media and event operator

 

First lien senior secured revolving loan ($2,850 par due 11/2018)

 

10.00% (Base Rate + 6.75%/Q)

 

11/30/2012

 

2,850

 

2,508

(2)(25)

 

 

 

 

 

 

First lien senior secured revolving loan ($900 par due 11/2018)

 

9.00% (Libor + 7.75%/Q)

 

11/30/2012

 

900

 

792

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($24,380 par due 11/2018)

 

10.00% (Libor + 7.75% Cash, 1.00% PIK /Q)

 

11/30/2012

 

24,380

 

21,454

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($29,853 par due 11/2018)

 

10.00% (Libor + 7.75% Cash, 1.00% PIK /Q)

 

11/30/2012

 

29,853

 

26,271

(3)(25)

 

 

 

 

 

 

Membership units (2,500,000 units)

 

 

 

11/30/2012

 

2,513

 

17

(2)(9)

 

 

 

 

 

 

 

 

 

 

 

 

60,496

 

51,042

 

 

 

Fox Hill Holdings, Inc.

 

Third party claims administrator on behalf of insurance carriers

 

First lien senior secured loan ($7,442 par due 6/2018)

 

6.75% (Libor + 5.75%/Q)

 

10/31/2013

 

7,442

 

7,442

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($39 par due 6/2018)

 

8.00% (Base Rate + 4.75%/Q)

 

10/31/2013

 

39

 

39

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

7,481

 

7,481

 

 

 

ISS #2, LLC

 

Provider of repairs, refurbishments and services to the broader industrial end user markets

 

First lien senior secured loan ($14,950 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

14,950

 

14,950

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($44,775 par due 6/2018)

 

6.50% (Libor + 5.50%/Q)

 

6/5/2013

 

44,775

 

44,775

(3)(25)

 

 

 

 

 

 

 

 

 

 

 

 

59,725

 

59,725

 

 

 

Massage Envy, LLC

 

Franchisor in the massage industry

 

First lien senior secured loan ($29,177 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

29,177

 

29,177

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($49,291 par due 9/2018)

 

8.50% (Libor + 7.25%/Q)

 

9/27/2012

 

49,291

 

49,291

(3)(25)

 

 

 

 

 

 

Common stock (3,000,000 shares)

 

 

 

9/27/2012

 

3,000

 

3,532

(2)

 

 

 

 

 

 

 

 

 

 

 

 

81,468

 

82,000

 

 

 

McKenzie Sports Products, LLC

 

Designer, manufacturer, and distributor of hunting-related supplies and supplies

 

First lien senior secured loan ($8,140 par due 3/2017)

 

5.75% (Libor + 4.75%/M)

 

3/30/2012

 

8,140

 

8,140

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($9,302 par due 3/2017)

 

5.75% (Libor + 4.75%/M)

 

3/30/2012

 

9,302

 

9,302

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

17,442

 

17,442

 

 

 

Spin HoldCo Inc.

 

Laundry service and equipment provider

 

Second lien senior secured loan ($140,000 par due 5/2020)

 

9.00% (Libor + 7.75%/Q)

 

5/14/2013

 

140,000

 

140,000

(2)(25)

 

 

The Dwyer Group (6)

 

Operator of multiple franchise concepts primarily related to home maintenance or repairs

 

Senior subordinated loan ($25,686 par due 6/2018)

 

12.00% Cash, 1.50% PIK

 

12/22/2010

 

25,686

 

25,686

(2)

 

 

 

 

 

 

Series A preferred units (13,292,377 units)

 

8.00% PIK

 

12/22/2010

 

6,859

 

18,650

(2)

 

 

 

 

 

 

 

 

 

 

 

 

32,545

 

44,336

 

 

 

Wash Multifamily Laundry Systems, LLC

 

Laundry service and equipment provider

 

Second lien senior secured loan ($78,000 par due 2/2020)

 

9.75% (Libor + 8.50%/Q)

 

6/26/2012

 

78,000

 

78,000

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

570,606

 

573,077

 

11.69

%

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Academy Holdings, LLC

 

Provider of education, training, certification, networking, and consulting services to medical coders and other healthcare professionals

 

First lien senior secured revolving loan ($2,250 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

2,250

 

2,250

(2)(25)

 

 

 

32



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($56,236 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

56,236

 

56,236

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($4,651 par due 3/2019)

 

6.00% (Libor + 5.00%/Q)

 

3/18/2011

 

4,651

 

4,651

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

63,137

 

63,137

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp. (6)

 

Education software developer

 

Preferred stock (485,159 shares)

 

 

 

2/8/2008

 

10,520

 

3,337

(2)

 

 

ELC Acquisition Corp., ELC Holdings Corporation, and Excelligence Learning Corporation (6)

 

Developer, manufacturer and retailer of educational products

 

Preferred stock (99,492 shares)

 

12.00% PIK

 

8/1/2011

 

10,286

 

10,286

(2)

 

 

 

 

 

 

Common stock (50,800 shares)

 

 

 

8/1/2011

 

 

1,345

(2)

 

 

 

 

 

 

 

 

 

 

 

 

10,286

 

11,631

 

 

 

Infilaw Holding, LLC

 

Operator of for-profit law schools

 

First lien senior secured revolving loan

 

 

 

8/25/2011

 

 

(2)(27)

 

 

 

 

 

 

First lien senior secured loan ($1 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

1

 

1

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($14,362 par due 8/2016)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

14,362

 

14,362

(3)(25)

 

 

 

 

 

 

Series A preferred units (124,890 units)

 

9.50% (Libor + 8.50%/Q)

 

8/25/2011

 

124,890

 

124,890

(2)(25)

 

 

 

 

 

 

Series B preferred units (3.91 units)

 

 

 

10/19/2012

 

9,245

 

11,060

(2)

 

 

 

 

 

 

 

 

 

 

 

 

148,498

 

150,313

 

 

 

Instituto de Banca y Comercio, Inc. & Leeds IV Advisors, Inc.

 

Private school operator

 

First lien senior secured loan ($39,459 par due 6/2015)

 

 

 

4/24/2013

 

39,385

 

35,514

(3)(24)

 

 

 

 

 

 

First lien senior secured loan ($14,774 par due 6/2015)

 

 

 

4/24/2013

 

14,746

 

13,297

(4)(24)

 

 

 

 

 

 

Series B preferred stock (1,750,000 shares)

 

 

 

8/5/2010

 

5,000

 

(2)

 

 

 

 

 

 

Series C preferred stock (2,512,586 shares)

 

 

 

6/7/2010

 

689

 

(2)

 

 

 

 

 

 

Common stock (20 shares)

 

 

 

6/7/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

59,820

 

48,811

 

 

 

Lakeland Tours, LLC

 

Educational travel provider

 

First lien senior secured revolving loan

 

 

 

10/4/2011

 

 

(2)(27)

 

 

 

 

 

 

First lien senior secured loan ($83,140 par due 12/2016)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

83,067

 

83,131

(2)(14)(25)

 

 

 

 

 

 

First lien senior secured loan ($1,585 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

1,585

 

1,585

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($40,362 par due 12/2016)

 

8.50% (Libor + 7.50%/Q)

 

10/4/2011

 

40,277

 

40,362

(3)(14)(25)

 

 

 

 

 

 

First lien senior secured loan ($8,297 par due 12/2016)

 

5.25% (Libor + 4.25%/Q)

 

10/4/2011

 

8,280

 

8,297

(3)(25)

 

 

 

 

 

 

Common stock (5,000 shares)

 

 

 

10/4/2011

 

5,000

 

5,117

(2)

 

 

 

 

 

 

 

 

 

 

 

 

138,209

 

138,492

 

 

 

PIH Corporation

 

Franchisor of education-based early childhood centers

 

First lien senior secured revolving loan ($621 par due 6/2016)

 

7.25% (Libor + 6.25%/M)

 

12/13/2013

 

621

 

621

(25)

 

 

 

 

 

 

First lien senior secured loan ($39,062 par due 6/2016)

 

7.25% (Libor + 6.25%/M)

 

12/13/2013

 

39,570

 

39,594

(25)

 

 

 

 

 

 

 

 

 

 

 

 

40,191

 

40,215

 

 

 

R3 Education, Inc. and EIC Acquisitions Corp.

 

Medical school operator

 

Preferred stock (8,800 shares)

 

 

 

7/30/2008

 

2,200

 

1,936

(2)

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

29,584

(2)

 

 

 

 

 

 

Warrants to purchase up to 27,890 shares

 

 

 

12/8/2009

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

31,520

 

 

 

RuffaloCODY, LLC

 

Provider of student fundraising and enrollment management services

 

First lien senior secured loan ($634 par due 5/2019)

 

6.50% (Base Rate + 3.25%/Q)

 

5/29/2013

 

634

 

634

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($24,996 par due 5/2019)

 

5.50% (Libor + 4.25%/Q)

 

5/29/2013

 

24,996

 

24,996

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

25,630

 

25,630

 

 

 

 

33



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

 

 

 

 

 

 

514,291

 

513,086

 

10.46

%

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alphabet Energy, Inc.

 

Technology developer to convert waste-heat into electricity

 

First lien senior secured loan ($3,000 par due 7/2017)

 

9.62%

 

12/16/2013

 

2,721

 

2,850

(2)

 

 

 

 

 

 

Warrants to purchase up to 59,524 units of Series B preferred stock

 

 

 

12/16/2013

 

146

 

146

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,867

 

2,996

 

 

 

Brush Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($89,892 par due 8/2020)

 

6.25% (Libor + 5.25%/Q)

 

8/1/2013

 

89,892

 

89,892

(2)(25)

 

 

Centinela Funding, LLC

 

Solar power generation facility developer and operator

 

Senior subordinated loan ($56,000 par due 11/2020)

 

10.00% (Libor + 8.75%/Q)

 

11/14/2012

 

56,000

 

56,000

(2)(25)

 

 

Joule Unlimited Technologies, Inc. and Stichting Joule Global Foundation

 

Renewable fuel and chemical production developer

 

First lien senior secured loan ($7,500 par due 2/2017)

 

10.00%

 

7/25/2013

 

7,433

 

7,500

(2)

 

 

 

 

 

 

Warrant to purchase up to 32,051 shares of Series C-2 preferred stock

 

 

 

7/25/2013

 

 

34

(2)(8)

 

 

 

 

 

 

 

 

 

 

 

 

7,433

 

7,534

 

 

 

La Paloma Generating Company, LLC

 

Natural gas fired, combined cycle plant operator

 

Second lien senior secured loan ($68,000 par due 8/2018)

 

10.25% (Libor + 8.75%/M)

 

8/9/2011

 

67,060

 

67,320

(2)(25)

 

 

Panda Sherman Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($32,500 par due 9/2018)

 

9.00% (Libor + 7.50%/Q)

 

9/14/2012

 

32,500

 

32,500

(2)(25)

 

 

Panda Temple Power II, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($20,000 par due 4/2019)

 

7.25% (Libor + 6.00%/Q)

 

4/3/2013

 

19,820

 

20,000

(2)(25)

 

 

Panda Temple Power, LLC

 

Gas turbine power generation facilities operator

 

First lien senior secured loan ($60,000 par due 7/2018)

 

11.50% (Libor + 10.00%/Q)

 

7/17/2012

 

58,402

 

60,000

(2)(25)

 

 

Sunrun Solar Owner Holdco X, LLC

 

Residential solar energy provider

 

First lien senior secured loan ($59,749 par due 6/2019)

 

9.50% (Libor + 8.25%/Q)

 

6/7/2013

 

59,749

 

59,749

(2)(25)

 

 

Sunrun Solar Owner Holdco XIII,  LLC

 

Residential solar energy provider

 

First lien senior secured loan ($19,300 par due 12/2019)

 

9.50% (Libor + 7.25% Cash, 1.00% PIK /Q)

 

11/27/2013

 

19,079

 

19,300

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

412,802

 

415,291

 

8.47

%

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc., ADF Restaurant Group, LLC, and ARG Restaurant Holdings, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($33,581 par due 12/2018)

 

10.50% (Base Rate + 7.25%/Q)

 

11/27/2006

 

33,581

 

33,581

(2)(20) (25)

 

 

 

 

 

 

First lien senior secured loan ($10,919 par due 12/2018)

 

10.50% (Base Rate + 7.25%/Q)

 

11/27/2006

 

10,922

 

10,919

(3)(20) (25)

 

 

 

 

 

 

Promissory note ($16,558 par due 12/2018)

 

13.00% PIK

 

11/27/2006

 

13,273

 

15,997

(2)

 

 

 

 

 

 

Warrants to purchase up to 23,750 units of Series D common stock

 

 

 

12/18/2013

 

24

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

57,800

 

60,497

 

 

 

Benihana, Inc.

 

Restaurant owner and operator

 

First lien senior secured loan ($4,925 par due 2/2018)

 

6.75% (Libor + 5.50%/Q)

 

8/21/2012

 

4,925

 

4,925

(4)(25)

 

 

Garden Fresh Restaurant Corp.

 

Restaurant owner and operator

 

First lien senior secured revolving loan

 

 

 

10/3/2013

 

 

(2)(27)

 

 

 

 

 

 

First lien senior secured loan ($43,750 par due 7/2018)

 

10.00% (Libor + 8.50%/M)

 

10/3/2013

 

43,750

 

43,750

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

43,750

 

43,750

 

 

 

Hojeij Branded Foods, Inc.

 

Airport restaurant operator

 

First lien senior secured revolving loan ($450 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

450

 

450

(2)(25) (28)

 

 

 

 

 

 

First lien senior secured loan ($12,500 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

12,500

 

12,500

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($15,000 par due 2/2017)

 

9.00% (Libor + 8.00%/Q)

 

2/15/2012

 

14,543

 

15,000

(2)(25)

 

 

 

 

 

 

Warrants to purchase up to 7.5% of membership interest

 

 

 

2/15/2012

 

 

299

(2)

 

 

 

 

 

 

Warrants to purchase up to 324 shares of Class A common stock

 

 

 

2/15/2012

 

669

 

4,307

(2)

 

 

 

 

 

 

 

 

 

 

 

 

28,162

 

32,556

 

 

 

 

34



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Orion Foods, LLC (fka Hot Stuff Foods, LLC) (7)

 

Convenience food service retailer

 

First lien senior secured revolving loan ($9,500 par due 9/2014)

 

10.75% (Base Rate + 7.50%/M)

 

4/1/2010

 

9,500

 

9,500

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($33,037 par due 9/2014)

 

10.00% (Libor + 8.50%/Q)

 

4/1/2010

 

33,037

 

33,037

(3)(25)

 

 

 

 

 

 

Second lien senior secured loan ($37,552 par due 9/2014)

 

 

 

4/1/2010

 

18,423

 

20,205

(2)(24)

 

 

 

 

 

 

Preferred units (10,000 units)

 

 

 

10/28/2010

 

 

(2)

 

 

 

 

 

 

Class A common units (25,001 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Class B common units (1,122,452 units)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

60,960

 

62,742

 

 

 

OTG Management, LLC

 

Airport restaurant operator

 

First lien senior secured loan ($25,000 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

25,000

 

25,000

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($7,075 par due 12/2017)

 

8.75% (Libor + 7.25%/Q)

 

12/11/2012

 

7,075

 

7,075

(2)(25)

 

 

 

 

 

 

Common units (3,000,000 units)

 

 

 

1/5/2011

 

3,000

 

3,638

(2)

 

 

 

 

 

 

Warrants to purchase up to 7.73% of common units

 

 

 

6/19/2008

 

100

 

7,257

(2)

 

 

 

 

 

 

 

 

 

 

 

 

35,175

 

42,970

 

 

 

Performance Food Group, Inc. and Wellspring Distribution Corp

 

Food service distributor

 

Second lien senior secured loan ($74,625 par due 11/2019)

 

6.25% (Libor + 5.25%/Q)

 

5/14/2013

 

74,282

 

74,850

(2)(25)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/3/2008

 

6,303

 

6,529

(2)

 

 

 

 

 

 

 

 

 

 

 

 

80,585

 

81,379

 

 

 

PMI Holdings, Inc.

 

Restaurant owner and operator

 

Preferred stock (46,025 shares)

 

 

 

12/13/2013

 

687

 

687

 

 

 

 

 

 

 

Common stock (22,401 shares)

 

 

 

12/13/2013

 

379

 

379

 

 

 

 

 

 

 

 

 

 

 

 

 

1,066

 

1,066

 

 

 

Restaurant Holding Company, LLC

 

Fast food restaurant operator

 

First lien senior secured loan ($60,125 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

59,303

 

58,922

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($9,250 par due 2/2017)

 

9.00% (Libor + 7.50%/M)

 

2/17/2012

 

9,122

 

9,065

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

68,425

 

67,987

 

 

 

S.B. Restaurant Company

 

Restaurant owner and operator

 

Preferred stock (46,690 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 257,429 shares of common stock

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

380,848

 

397,872

 

8.11

%

Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllBridge Financial, LLC (7)

 

Asset management services

 

Equity interests

 

 

 

4/1/2010

 

5,077

 

9,718

 

 

 

Callidus Capital Corporation (7)

 

Asset management services

 

Common stock (100 shares)

 

 

 

4/1/2010

 

3,000

 

1,713

 

 

 

Ciena Capital LLC (7)

 

Real estate and small business loan servicer

 

First lien senior secured revolving loan ($14,000 par due 12/2014)

 

6.00%

 

11/29/2010

 

14,000

 

14,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($26,000 par due 12/2016)

 

12.00%

 

11/29/2010

 

26,000

 

26,000

(2)

 

 

 

 

 

 

Equity interests

 

 

 

11/29/2010

 

53,374

 

10,926

(2)

 

 

 

 

 

 

 

 

 

 

 

 

93,374

 

50,926

 

 

 

Commercial Credit Group, Inc.

 

Commercial equipment finance and leasing company

 

Senior subordinated loan ($28,000 par due 5/2018)

 

12.75%

 

5/10/2012

 

28,000

 

28,000

(2)

 

 

Cook Inlet Alternative Risk, LLC

 

Risk management services

 

Senior subordinated loan ($1,750 par due 9/2015)

 

9.00%

 

9/30/2011

 

1,750

 

1,750

(2)

 

 

Gordian Acquisition Corp.

 

Financial services firm

 

Common stock (526 shares)

 

 

 

11/30/2012

 

 

(2)

 

 

Imperial Capital Group LLC

 

Investment services

 

2006 Class B common units (2,526 units)

 

 

 

5/10/2007

 

3

 

5

(2)

 

 

 

 

 

 

2007 Class B common units (315 units)

 

 

 

5/10/2007

 

 

1

(2)

 

 

 

 

 

 

Class A common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

19,672

(2)

 

 

 

 

 

 

 

 

 

 

 

 

15,000

 

19,678

 

 

 

 

35



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Ivy Hill Asset Management, L.P. (7)(9)

 

Asset management services

 

Member interest (100.00% interest)

 

 

 

6/15/2009

 

170,961

 

280,353

 

 

 

 

 

 

 

 

 

 

 

 

 

317,162

 

392,138

 

8.00

%

Consumer Products-Non-durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gilchrist & Soames, Inc.

 

Personal care manufacturer

 

First lien senior secured revolving loan ($8,700 par due 12/2014)

 

6.25% (Libor + 5.00%/M)

 

4/1/2010

 

8,700

 

8,700

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($22,508 par due 12/2014)

 

13.44% Cash, 2.00% PIK

 

4/1/2010

 

22,504

 

21,833

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,204

 

30,533

 

 

 

Implus Footcare, LLC

 

Provider of footwear and other accessories

 

Preferred stock (455 shares)

 

6.00% PIK

 

10/31/2011

 

5,172

 

5,172

(2)

 

 

 

 

 

 

Common stock (455 shares)

 

 

 

10/31/2011

 

455

 

170

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,627

 

5,342

 

 

 

Insight Pharmaceuticals Corporation (6)

 

OTC drug products manufacturer

 

Second lien senior secured loan ($19,310 par due 8/2017)

 

13.25% (Libor + 11.75%/Q)

 

8/26/2011

 

19,165

 

19,310

(2)(25)

 

 

 

 

 

 

Class A common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

7,234

(2)

 

 

 

 

 

 

Class B common stock (155,000 shares)

 

 

 

8/26/2011

 

6,035

 

7,234

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,235

 

33,778

 

 

 

Matrixx Initiatives, Inc. and Wonder Holdings Acquisition Corp.

 

Developer and marketer of over-the-counter healthcare products

 

Warrants to purchase up to 1,654,678 shares of common stock

 

 

 

7/27/2011

 

 

1,219

(2)

 

 

 

 

 

 

Warrants to purchase up to 1,489 shares of preferred stock

 

 

 

7/27/2011

 

 

1,144

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

2,363

 

 

 

Oak Parent, Inc.

 

Manufacturer of athletic apparel 

 

First lien senior secured loan ($31,295 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

31,184

 

31,294

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($86 par due 4/2018)

 

9.25% (Base Rate + 6.00%/S)

 

4/2/2012

 

85

 

86

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($8,844 par due 4/2018)

 

7.50% (Libor + 7.00%/Q)

 

4/2/2012

 

8,813

 

8,844

(4)(25)

 

 

 

 

 

 

First lien senior secured loan ($24 par due 4/2018)

 

9.25% (Base Rate + 6.00%/S)

 

4/2/2012

 

24

 

24

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

40,106

 

40,248

 

 

 

PG-ACP Co-Invest, LLC

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

Class A membership units (1,000,0000 units)

 

 

 

8/29/2012

 

1,000

 

1,526

(2)

 

 

The Step2 Company, LLC

 

Toy manufacturer

 

Second lien senior secured loan ($25,600 par due 4/2015)

 

10.00%

 

4/1/2010

 

25,089

 

25,088

(2)

 

 

 

 

 

 

Second lien senior secured loan ($32,865 par due 4/2015)

 

10.00%

 

4/1/2010

 

30,802

 

26,292

(2)

 

 

 

 

 

 

Common units (1,116,879 units)

 

 

 

4/1/2010

 

24

 

 

 

 

 

 

 

 

Warrants to purchase up to 3,157,895 units

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55,915

 

51,380

 

 

 

The Thymes, LLC (7)

 

Cosmetic products manufacturer

 

Preferred units (6,283 units)

 

8.00% PIK

 

6/21/2007

 

4,696

 

4,221

 

 

 

 

 

 

 

Common units (5,400 units)

 

 

 

6/21/2007

 

 

6,687

 

 

 

 

 

 

 

 

 

 

 

 

 

4,696

 

10,908

 

 

 

Woodstream Corporation

 

Pet products manufacturer

 

First lien senior secured loan ($8,465 par due 8/2016)

 

6.00% (Libor + 5.00%/Q)

 

4/18/2012

 

8,465

 

8,465

(4)(25)

 

 

 

 

 

 

Senior subordinated loan ($80,000 par due 2/2017)

 

11.50%

 

4/18/2012

 

77,412

 

80,000

(2)

 

 

 

 

 

 

Common stock (4,254 shares)

 

 

 

1/22/2010

 

1,222

 

2,685

(2)

 

 

 

 

 

 

 

 

 

 

 

 

87,099

 

91,150

 

 

 

 

 

 

 

 

 

 

 

 

 

256,882

 

267,228

 

5.45

%

Containers-Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ICSH, Inc.

 

Industrial container manufacturer, reconditioner and servicer

 

First lien senior secured revolving loan

 

 

 

8/31/2011

 

 

(2)(27)

 

 

 

 

 

 

First lien senior secured loan ($27,740 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

27,777

 

27,740

(2)(25)

 

 

 

36



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

First lien senior secured loan ($61,518 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

61,518

 

61,518

(3)(25)

 

 

 

 

 

 

First lien senior secured loan ($14,718 par due 8/2016)

 

7.00% (Libor + 6.00%/Q)

 

8/31/2011

 

14,718

 

14,718

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

104,013

 

103,976

 

 

 

Microstar Logistics LLC, Microstar Global Asset Management LLC, and MStar Holding Corporation

 

Keg management solutions provider

 

Second lien senior secured loan ($142,500 par due 12/2018)

 

8.50% (Libor + 7.50%/Q)

 

12/14/2012

 

142,500

 

142,500

(2)(25)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

12/14/2012

 

5,000

 

7,223

(2)

 

 

 

 

 

 

 

 

 

 

 

 

147,500

 

149,723

 

 

 

Pregis Corporation, Pregis Intellipack Corp., and Pregis Innovative Packaging Inc.

 

Provider of highly-customized, tailored protective packaging solutions

 

First lien senior secured loan ($975 par due 3/2017)

 

7.75% (Libor + 6.25%/M)

 

4/25/2012

 

975

 

975

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($5 par due 3/2017)

 

8.50% (Base Rate + 5.25%/Q)

 

4/25/2012

 

5

 

5

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

252,493

 

254,679

 

5.19

%

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambrios Technologies Corporation

 

Nanotechnology-based solutions for electronic devices and computers

 

First lien senior secured loan ($3,030 par due 8/2015)

 

12.00%

 

8/7/2012

 

3,030

 

3,030

(2)

 

 

 

 

 

 

Warrants to purchase up to 400,000 shares of Series D-4 convertible preferred stock

 

 

 

8/7/2012

 

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,030

 

3,036

 

 

 

Component Hardware Group, Inc.

 

Commercial equipment

 

First lien senior secured loan ($23,701 par due 7/2019)

 

5.50% (Libor + 4.50%/M)

 

7/1/2013

 

23,701

 

23,701

(2)(25)

 

 

Lighting Science Group Corporation

 

Advanced lighting products

 

Letter of credit facility

 

 

 

9/20/2011

 

 

(2)(29)

 

 

Mac Lean-Fogg Company

 

Provider of intelligent transportation systems products in the traffic and rail industries

 

Senior subordinated loan ($100,251 par due 10/2023)

 

9.50% Cash, 1.50% PIK

 

10/31/2013

 

100,251

 

100,251

(2)

 

 

MWI Holdings, Inc.

 

Provider of engineered springs, fasteners, and other precision components

 

First lien senior secured loan ($38,274 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

38,274

 

38,274

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 3/2019)

 

9.38% (Libor + 8.13%/Q)

 

6/15/2011

 

10,000

 

10,000

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

48,274

 

48,274

 

 

 

NetShape Technologies, Inc.

 

Metal precision engineered components

 

First lien senior secured revolving loan ($538 par due 12/2014)

 

7.50% (Libor + 6.50%/Q)

 

4/1/2010

 

538

 

538

(2)(25)

 

 

Pelican Products, Inc.

 

Flashlights

 

First lien senior secured loan ($2,317 par due 7/2018)

 

6.25% (Libor + 5.00%/Q)

 

7/13/2012

 

2,317

 

2,317

(4)(25)

 

 

 

 

 

 

Second lien senior secured loan ($32,000 par due 6/2019)

 

11.50% (Libor + 10.00%/Q)

 

7/13/2012

 

32,000

 

32,000

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

34,317

 

34,317

 

 

 

Protective Industries, Inc. dba Caplugs

 

Plastic protection products

 

First lien senior secured loan ($997 par due 10/2019)

 

6.75% (Libor + 5.75%/Q)

 

11/30/2012

 

997

 

997

(2)(25)

 

 

 

 

 

 

Preferred stock (2,379,361 shares)

 

 

 

5/23/2011

 

1,298

 

4,837

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,295

 

5,834

 

 

 

Saw Mill PCG Partners LLC

 

Metal precision engineered components

 

Common units (1,000 units)

 

 

 

1/30/2007

 

1,000

 

(2)

 

 

SSH Environmental Industries, Inc. and SSH Non-Destructive Testing, Inc.

 

Magnetic sensors and supporting sensor products

 

First lien senior secured loan ($11,140 par due 12/2016)

 

9.00% (Libor + 7.50%/Q)

 

3/23/2012

 

10,990

 

11,140

(2)(25)

 

 

TPTM Merger Corp.

 

Time temperature indicator products

 

First lien senior secured revolving loan ($950 par due 9/2018)

 

6.25% (Libor + 5.25%/Q)

 

9/12/2013

 

950

 

950

(2)(25)

 

 

 

 

 

 

First lien senior secured revolving loan ($540 par due 9/2018)

 

7.50% (Base Rate + 4.25%/Q)

 

9/12/2013

 

540

 

540

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($25,935 par due 9/2018)

 

6.25% (Libor + 5.25%/Q)

 

9/12/2013

 

25,935

 

25,935

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

27,425

 

27,425

 

 

 

 

 

 

 

 

 

 

 

 

 

251,821

 

254,516

 

5.19

%

 

37



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Automotive Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Driven Holdings, LLC

 

Automotive aftermarket car care franchisor

 

Preferred stock (247,500 units)

 

 

 

12/16/2011

 

2,475

 

2,852

(2)

 

 

 

 

 

 

Common stock (25,000 units)

 

 

 

12/16/2011

 

25

 

808

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

3,660

 

 

 

Eckler Industries, Inc.

 

Restoration parts and accessories provider for classic automobiles

 

First lien senior secured revolving loan ($2,000 par due 7/2017)

 

8.25% (Base Rate + 5.00%/Q)

 

7/12/2012

 

2,000

 

2,000

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($8,172 par due 7/2017)

 

7.25% (Libor + 6.00%/M)

 

7/12/2012

 

8,172

 

8,172

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($30,609 par due 7/2017)

 

7.25% (Libor + 6.00%/M)

 

7/12/2012

 

30,609

 

30,609

(3)(25)

 

 

 

 

 

 

Series A preferred stock (1,800 shares)

 

 

 

7/12/2012

 

1,800

 

2,031

(2)

 

 

 

 

 

 

Common stock (20,000 shares)

 

 

 

7/12/2012

 

200

 

116

(2)

 

 

 

 

 

 

 

 

 

 

 

 

42,781

 

42,928

 

 

 

EcoMotors, Inc.

 

Engine developer

 

First lien senior secured loan ($5,000 par due 10/2016)

 

10.83%

 

12/28/2012

 

4,869

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($5,000 par due 6/2017)

 

10.83%

 

12/28/2012

 

4,853

 

5,000

(2)

 

 

 

 

 

 

First lien senior secured loan ($4,833 par due 7/2016)

 

10.13%

 

12/28/2012

 

4,724

 

4,833

(2)

 

 

 

 

 

 

Warrant to purchase up to 321,888 shares of Series C preferred stock

 

 

 

12/28/2012

 

 

43

(2)

 

 

 

 

 

 

 

 

 

 

 

 

14,446

 

14,876

 

 

 

Service King Paint & Body, LLC

 

Collision repair site operators

 

First lien senior secured loan ($7,617 par due 8/2017)

 

4.00% (Libor + 3.00%/Q)

 

8/20/2012

 

7,617

 

7,617

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($46,898 par due 8/2017)

 

6.00% (Libor + 5.00%/Q)

 

8/20/2012

 

46,898

 

46,898

(2)(16)(25)

 

 

 

 

 

 

First lien senior secured loan ($6,398 par due 8/2017)

 

4.00% (Libor + 3.00%/Q)

 

8/20/2012

 

6,398

 

6,398

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($72,135 par due 8/2017)

 

6.00% (Libor + 5.00%/Q)

 

8/20/2012

 

72,135

 

72,135

(2)(16)(25)

 

 

 

 

 

 

First lien senior secured loan ($9,646 par due 8/2017)

 

4.00% (Libor + 3.00%/Q)

 

8/20/2012

 

9,646

 

9,646

(4)(25)

 

 

 

 

 

 

First lien senior secured loan ($10,000 par due 8/2017)

 

6.00% (Libor + 5.00%/Q)

 

8/20/2012

 

10,000

 

10,000

(3)(16)(25)

 

 

 

 

 

 

Membership interest

 

 

 

8/20/2012

 

5,000

 

6,948

(2)

 

 

 

 

 

 

 

 

 

 

 

 

157,694

 

159,642

 

 

 

 

 

 

 

 

 

 

 

 

 

217,421

 

221,106

 

4.51

%

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulton Holdings Corp. (12)

 

Airport restaurant operator

 

First lien senior secured loan ($43,000 par due 5/2018)

 

8.50%

 

5/10/2013

 

43,000

 

43,000

(2)(12)

 

 

 

 

 

 

First lien senior secured loan ($40,000 par due 5/2018)

 

8.50%

 

5/28/2010

 

40,000

 

40,000

(3)(12)

 

 

 

 

 

 

Common stock (19,672 shares)

 

 

 

5/28/2010

 

1,461

 

2,086

(2)

 

 

 

 

 

 

 

 

 

 

 

 

84,461

 

85,086

 

 

 

Paper Source, Inc. and Pine Holdings, Inc.

 

Retailer of fine and artisanal papers, gifts, gift wrap, greeting cards and envelopes

 

First lien senior secured loan ($18,952 par due 9/2018)

 

7.25% (Libor + 6.25%/Q)

 

9/23/2013

 

18,952

 

18,952

(2)(25)

 

 

 

 

 

 

Class A common stock (36,364 shares)

 

 

 

9/23/2013

 

6,000

 

6,660

(2)

 

 

 

 

 

 

 

 

 

 

 

 

24,952

 

25,612

 

 

 

Things Remembered Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

First lien senior secured loan ($14,813 par due 5/2018)

 

8.00% (Libor + 6.50%/Q)

 

5/24/2012

 

14,813

 

14,813

(4)(25)

 

 

 

 

 

 

 

 

 

 

 

 

124,226

 

125,511

 

2.56

%

Chemicals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Argotec, LLC

 

Thermoplastic polyurethane films

 

First lien senior secured revolving loan ($625 par due 5/2018)

 

7.00% (Base Rate + 3.75%/M)

 

5/31/2013

 

625

 

625

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($5,788 par due 5/2019)

 

5.75% (Libor + 4.75%/M)

 

5/31/2013

 

5,788

 

5,788

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($74 par due 5/2019)

 

7.00% (Base Rate + 3.75%/Q)

 

5/31/2013

 

74

 

74

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

6,487

 

6,487

 

 

 

 

38



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Emerald Performance Materials, LLC

 

Polymers and performance materials manufacturer

 

First lien senior secured loan ($17,730 par due 5/2018)

 

6.75% (Libor + 5.50%/Q)

 

12/13/2013

 

18,256

 

18,262

(25)

 

 

K2 Pure Solutions Nocal, L.P.

 

Chemical producer

 

First lien senior secured revolving loan ($2,256 par due 8/2019)

 

8.13% (Libor + 7.13%/M)

 

8/19/2013

 

2,256

 

2,211

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($41,500 par due 8/2019)

 

7.00% (Libor + 6.00%/M)

 

8/19/2013

 

41,500

 

40,670

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($40,000 par due 8/2019) 

 

7.00% (Libor + 6.00%/M)

 

8/19/2013

 

40,000

 

39,200

(3)(25)

 

 

 

 

 

 

 

 

 

 

 

 

83,756

 

82,081

 

 

 

 

 

 

 

 

 

 

 

 

 

108,499

 

106,830

 

2.18

%

Aerospace and Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cadence Aerospace, LLC (fka PRV Aerospace, LLC)

 

Aerospace precision components manufacturer

 

First lien senior secured loan ($4,459 par due 5/2018)

 

6.50% (Libor + 5.25%/Q)

 

5/15/2012

 

4,425

 

4,459

(4)(25)

 

 

 

 

 

 

First lien senior secured loan ($65 par due 5/2018)

 

7.50% (Base Rate + 4.25%/Q)

 

5/15/2012

 

65

 

65

(4)(25)

 

 

 

 

 

 

Second lien senior secured loan ($79,657 par due 5/2019)

 

10.50% (Libor + 9.25%/Q)

 

5/10/2012

 

79,657

 

77,267

(2)(25)

 

 

 

 

 

 

 

 

 

 

 

 

84,147

 

81,791

 

 

 

ILC Industries, LLC

 

Designer and manufacturer of protective cases and technically advanced lighting systems

 

First lien senior secured loan ($19,192 par due 7/2018)

 

8.00% (Libor + 6.50%/Q)

 

7/13/2012

 

18,885

 

19,192

(4)(25)

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Senior preferred stock (775 shares)

 

8.00% PIK

 

1/17/2008

 

111

 

111

(2)

 

 

 

 

 

 

Common stock (1,885,195 shares)

 

 

 

1/17/2008

 

2,291

 

1,722

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,402

 

1,833

 

 

 

 

 

 

 

 

 

 

 

 

 

105,434

 

102,816

 

2.10

%

Transportation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eberle Design, Inc.

 

Provider of intelligent transportation systems products in the traffic and rail industries

 

First lien senior secured loan ($30,500 par due 8/2018)

 

7.50% (Libor + 6.25%/Q)

 

8/26/2013

 

30,359

 

30,500

(2)(25)

 

 

PODS Funding Corp. II

 

Storage and warehousing

 

First lien senior secured loan ($35,897 par due 12/2018)

 

7.00% (Libor + 6.00%/Q)

 

12/19/2013

 

35,897

 

35,897

(25)

 

 

United Road Towing, Inc.

 

Towing company

 

Warrants to purchase up to 607 shares

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66,256

 

66,397

 

1.35

%

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Batanga, Inc.

 

Independent digital media company

 

First lien senior secured revolving loan ($3,000 par due 4/2014)

 

8.50%

 

10/31/2012

 

3,000

 

3,000

(2)(23)

 

 

 

 

 

 

First lien senior secured loan ($4,936 par due 11/2016)

 

9.60%

 

10/31/2012

 

4,936

 

5,030

(2)(23)

 

 

 

 

 

 

First lien senior secured loan ($4,500 par due 9/2017)

 

9.60%

 

10/31/2012

 

4,500

 

4,500

(2)(23)

 

 

 

 

 

 

 

 

 

 

 

 

12,436

 

12,530

 

 

 

Earthcolor Group, LLC

 

Printing management services

 

Limited liability company interests (9.30%)

 

 

 

5/18/2012

 

 

 

 

 

Encompass Digital Media, Inc.

 

Provider of outsourced network origination and transmission services for media companies

 

First lien senior secured loan ($19,651 par due 8/2017)

 

6.75% (Libor + 5.50%/Q)

 

12/13/2013

 

20,233

 

20,241

(25)

 

 

The Teaching Company, LLC and The Teaching Company Holdings, Inc.

 

Education publications provider

 

First lien senior secured loan ($20,886 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

20,886

 

20,469

(2)(25)

 

 

 

 

 

 

First lien senior secured loan ($9,701 par due 3/2017)

 

9.00% (Libor + 7.50%/Q)

 

9/29/2006

 

9,701

 

9,507

(4)(25)

 

 

 

 

 

 

Preferred stock (10,663 shares)

 

 

 

9/29/2006

 

1,066

 

2,282

(2)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

5

(2)

 

 

 

 

 

 

 

 

 

 

 

 

31,656

 

32,263

 

 

 

 

 

 

 

 

 

 

 

 

 

64,325

 

65,034

 

1.33

%

Commercial Real Estate Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10th Street, LLC (6)

 

Real estate holding company

 

Senior subordinated loan ($26,250 par due 11/2014)

 

8.93% Cash, 4.07% PIK

 

4/1/2010

 

26,250

 

26,250

(2)

 

 

 

39



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

 

 

 

 

Member interest (10.00% interest)

 

 

 

4/1/2010

 

594

 

7,257

 

 

 

 

 

 

 

Option (25,000 units)

 

 

 

4/1/2010

 

25

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

26,869

 

33,532

 

 

 

American Commercial Coatings, Inc.

 

Real estate property

 

Commercial mortgage loan ($2,275 par due 12/2025)

 

8.75% (Libor + 7.50%/Q)

 

4/1/2010

 

664

 

1,500

 

 

 

Cleveland East Equity, LLC

 

Hotel operator

 

Real estate equity interests

 

 

 

4/1/2010

 

1,026

 

5,305

 

 

 

Commons R-3, LLC

 

Real estate developer

 

Real estate equity interests

 

 

 

4/1/2010

 

 

 

 

 

Crescent Hotels & Resorts, LLC and affiliates (7)

 

Hotel operator

 

Senior subordinated loan ($2,236 par due 9/2011)

 

 

 

4/1/2010

 

 

(2)(24)

 

 

 

 

 

 

Senior subordinated loan ($2,092 par due 6/2017)

 

 

 

4/1/2010

 

 

(2)(24)

 

 

 

 

 

 

Common equity interest

 

 

 

4/1/2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,026

 

5,305

 

 

 

Hot Light Brands, Inc. (7)

 

Real estate holding company

 

First lien senior secured loan ($31,384 par due 2/2011)

 

 

 

4/1/2010

 

90

 

253

(2)(24)

 

 

 

 

 

 

Common stock (93,500 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

90

 

253

 

 

 

NPH, Inc.

 

Hotel property

 

Real estate equity interests

 

 

 

4/1/2010

 

5,291

 

5,532

 

 

 

 

 

 

 

 

 

 

 

 

 

33,940

 

46,122

 

0.94

%

Oil and Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geotrace Technologies, Inc.

 

Reservoir processing and development

 

Warrants to purchase up to 69,978 shares of common stock

 

 

 

4/1/2010

 

88

 

(2)

 

 

 

 

 

 

Warrants to purchase up to 210,453 shares of preferred stock

 

 

 

4/1/2010

 

2,805

 

638

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,893

 

638

 

 

 

UL Holding Co., LLC and Universal Lubricants, LLC (6)

 

Petroleum product manufacturer

 

Second lien senior secured loan ($10,093 par due 12/2014)

 

 

 

4/30/2012

 

9,519

 

7,260

(2)(24)

 

 

 

 

 

 

Second lien senior secured loan ($42,812 par due 12/2014)

 

 

 

4/30/2012

 

40,097

 

30,795

(2)(24)

 

 

 

 

 

 

Second lien senior secured loan ($4,994 par due 12/2014)

 

 

 

4/30/2012

 

4,668

 

3,592

(2)(24)

 

 

 

 

 

 

Class A common units (151,236 units)

 

 

 

6/17/2011

 

1,512

 

(2)

 

 

 

 

 

 

Class B-5 common units (599,200 units)

 

 

 

4/25/2008

 

5,472

 

(2)

 

 

 

 

 

 

Class B-4 common units (50,000 units)

 

 

 

6/17/2011

 

500

 

(2)

 

 

 

 

 

 

Class C common units (758,546 units)

 

 

 

4/25/2008

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

61,768

 

41,647

 

 

 

 

 

 

 

 

 

 

 

 

 

64,661

 

42,285

 

0.86

%

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

First lien senior secured loan ($34,000 par due 3/2019)

 

7.25% (Libor + 6.00%/M)

 

10/11/2007

 

34,000

 

34,000

(2)(13)(25)

 

 

CFW Co-Invest, L.P. and NCP Curves, L.P.

 

Health club franchisor

 

Limited partnership interest (4,152,165 shares)

 

 

 

7/31/2012

 

4,152

 

2,913

(2)

 

 

 

 

 

 

Limited partnership interest (2,218,235 shares)

 

 

 

7/31/2012

 

2,218

 

1,556

(2)

 

 

 

 

 

 

 

 

 

 

 

 

6,370

 

4,469

 

 

 

 

 

 

 

 

 

 

 

 

 

40,370

 

38,469

 

0.78

%

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC, American Broadband Holding Company, and Cameron Holdings of NC, Inc.

 

Broadband communication services

 

Warrants to purchase up to 378 shares

 

 

 

11/7/2007

 

 

6,833

(2)

 

 

 

 

 

 

Warrants to purchase up to 200 shares

 

 

 

9/1/2010

 

 

3,615

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

10,448

 

 

 

EUNetworks Group Limited (8)

 

Broadband bandwidth infrastructure provider

 

First lien senior secured loan ($20,567 par due 5/2019)

 

7.50% (Libor + 6.50%/Q)

 

12/13/2013

 

21,192

 

21,185

(25)

 

 

 

40



Table of Contents

 

As of December 31, 2013

(dollar amounts in thousands)

 

Company(1)

 

Business Description

 

Investment

 

Interest(5)(11)

 

Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Percentage
of Net
Assets

 

Quantance, Inc.

 

Designer of semiconductor products to the mobile wireless market

 

First lien senior secured loan ($3,500 par due 9/2016)

 

10.25%

 

8/23/2013

 

3,402

 

3,465

(2)

 

 

 

 

 

 

Warrant to purchase up to 130,432 shares of Series D preferred stock

 

 

 

8/23/2013

 

74

 

74

(2)

 

 

 

 

 

 

 

 

 

 

 

 

3,476

 

3,539

 

 

 

Startec Equity, LLC (7)

 

Communication services

 

Member interest

 

 

 

4/1/2010

 

 

 

 

 

Wilcon Holdings LLC

 

Communications infrastructure provider

 

Class A common stock (2,000,000 shares)

 

 

 

12/13/2013

 

1,829

 

1,829

 

 

 

 

 

 

 

 

 

 

 

 

 

26,497

 

37,001

 

0.75

%

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Genomatica, Inc.

 

Developer of a biotechnology platform for the production of chemical products

 

First lien senior secured loan ($1,500 par due 10/2016)

 

9.26%

 

3/28/2013

 

1,439

 

1,500

(2)

 

 

 

 

 

 

Warrant to purchase 322,422 shares of Series D preferred stock

 

 

 

3/28/2013

 

 

6

(2)

 

 

 

 

 

 

 

 

 

 

 

 

1,439

 

1,506

 

 

 

RE Community Holdings II, Inc.and Pegasus Community Energy, LLC.

 

Operator of municipal recycling facilities

 

Preferred stock (1,000 shares)

 

 

 

3/1/2011

 

8,839

 

532

(2)

 

 

Waste Pro USA, Inc.

 

Waste management services

 

Preferred Class A common equity (611,615 shares)

 

 

 

11/9/2006

 

12,263

 

27,898

(2)

 

 

 

 

 

 

 

 

 

 

 

 

22,541

 

29,936

 

0.61

%

Food and Beverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC (6)

 

Juice manufacturer

 

Senior units (50,000 units)

 

 

 

10/5/2007

 

5,000

 

5,205

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated loan ($2,750 par due 6/2015)

 

17.50% PIK

 

2/6/2008

 

2,750

 

2,750

(2)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,567

 

2,260

(2)

 

 

 

 

 

 

 

 

 

 

 

 

5,317

 

5,010

 

 

 

Distant Lands Trading Co.

 

Coffee manufacturer

 

Class A common stock (1,294 shares)

 

 

 

4/1/2010

 

980

 

(2)

 

 

 

 

 

 

Class A-1 common stock (2,157 shares)

 

 

 

4/1/2010

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,297

 

10,215

 

0.21

%

Wholesale Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BECO Holding Company, Inc.

 

Wholesale distributor of first response fire protection equipment and related parts

 

Common stock (25,000 shares)

 

 

 

7/30/2010

 

2,500

 

3,103

(2)

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

3,103

 

0.06

%

 

 

 

 

 

 

 

 

 

 

$

7,537,403

 

$

7,632,897

 

155.63

%

 


(1)                       Other than the Company’s investments listed in footnote 7 below (subject to the limitations set forth therein), the Company does not “Control” any of its portfolio companies, for the purposes of the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In general, under the Investment Company Act, the Company would “Control” a portfolio company if the Company owned more than 25% of its outstanding voting securities (i.e., securities with the right to elect directors) and/or had the power to exercise control over the management or policies of such portfolio company. All of the Company’s portfolio company investments, which as of December 31, 2013 represented 156% of the Company’s net assets or 94% of the Company’s total assets, are subject to legal restrictions on sales.

 

(2)                       These assets are pledged as collateral for the Revolving Credit Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Revolving Credit Facility (see Note 5 to the consolidated financial statements).

 

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Table of Contents

 

(3)                       These assets are owned by the Company’s consolidated subsidiary Ares Capital CP, are pledged as collateral for the Revolving Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the Revolving Funding Facility (see Note 5 to the consolidated financial statements).

 

(4)                       These assets are owned by the Company’s consolidated subsidiary Ares Capital JB Funding LLC (“ACJB”), are pledged as collateral for the SMBC Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than ACJB’s obligations under the SMBC Funding Facility (see Note 5 to the consolidated financial statements).

 

(5)                       Investments without an interest rate are non income producing.

 

(6)                       As defined in the Investment Company Act, the Company is deemed to be an “Affiliated Person” of a portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2013 in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to Control) are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

10th Street, LLC

 

$

 

$

 

$

 

$

3,361

 

$

 

$

 

$

 

$

 

$

6,781

 

Apple & Eve, LLC and US Juice Partners, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

3,807

 

Campus Management Corp. and Campus Management Acquisition Corp.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(3,252

)

Cast & Crew Payroll, LLC and Centerstage Co-Investors, L.L.C.

 

$

 

$

6,626

 

$

30,000

 

$

6,177

 

$

 

$

128

 

$

154

 

$

 

$

3,042

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

 

$

16,195

 

$

 

$

875

 

$

395

 

$

1,047

 

$

10

 

$

 

$

615

 

The Dwyer Group

 

$

 

$

 

$

 

$

3,458

 

$

 

$

522

 

$

 

$

 

$

4,166

 

ELC Acquisition Corp. and ELC Holdings Corporation

 

$

 

$

1,682

 

$

 

$

 

$

 

$

6,121

 

$

 

$

 

$

(2,667

)

Insight Pharmaceuticals Corporation

 

$

 

$

 

$

 

$

2,623

 

$

 

$

 

$

 

$

 

$

(2,114

)

Investor Group Services, LLC

 

$

 

$

 

$

 

$

 

$

 

$

176

 

$

 

$

142

 

$

(78

)

Multi-Ad Services, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(283

)

Pillar Processing LLC and PHL Holding Co.

 

$

 

$

3,527

 

$

 

$

 

$

 

$

 

$

 

$

46

 

$

(707

)

Soteria Imaging Services, LLC

 

$

 

$

2,049

 

$

 

$

 

$

 

$

 

$

 

$

(1,448

)

$

1,208

 

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

1,584

 

UL Holding Co., LLC

 

$

 

$

295

 

$

 

$

3,037

 

$

 

$

 

$

49

 

$

15

 

$

(13,225

)

 

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Table of Contents

 

(7)                       As defined in the Investment Company Act, the Company is deemed to be both an “Affiliated Person” and “Control” this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended December 31, 2013 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are as follows:

 

Company

 

Purchases
(cost)

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

AllBridge Financial, LLC

 

$

 

$

598

 

$

 

$

 

$

 

$

864

 

$

 

$

 

$

2,503

 

AWTP, LLC

 

$

 

$

 

$

10,333

 

$

1,237

 

$

 

$

 

$

269

 

$

8,740

 

$

(4,580

)

Callidus Capital Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(6

)

Ciena Capital LLC

 

$

 

$

6,000

 

$

 

$

4,495

 

$

 

$

 

$

 

$

 

$

(7,691

)

Citipostal, Inc.

 

$

4,000

 

$

4,738

 

$

 

$

5,473

 

$

 

$

 

$

(321

)

$

 

$

(13,787

)

Crescent Hotels & Resorts, LLC and affiliates

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

194

 

$

 

HCI Equity, LLC

 

$

 

$

340

 

$

 

$

 

$

 

$

 

$

 

$

 

$

227

 

HCP Acquisition Holdings, LLC

 

$

6,696

 

$

 

$

3,559

 

$

 

$

 

$

 

$

 

$

(809

)

$

(3,137

)

Hot Light Brands, Inc.

 

$

 

$

1,573

 

$

 

$

 

$

 

$

 

$

 

$

 

$

698

 

Ivy Hill Asset Management, L.P.

 

$

 

$

 

$

 

$

 

$

 

$

72,407

 

$

 

$

 

$

(13,904

)

MVL Group, Inc.

 

$

 

$

5,176

 

$

 

$

11

 

$

 

$

 

$

 

$

 

$

1,525

 

Orion Foods, LLC

 

$

2,700

 

$

6,712

 

$

 

$

4,285

 

$

 

$

 

$

808

 

$

 

$

7,669

 

Senior Secured Loan Fund LLC*

 

$

652,458

 

$

145,153

 

$

 

$

224,867

 

$

43,119

 

$

 

$

23,491

 

$

7,082

 

$

421

 

The Thymes, LLC

 

$

 

$

 

$

 

$

 

$

 

$

410

 

$

 

$

 

$

3,460

 

 

*                               Together with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”), the Company co invests through the Senior Secured Loan Fund LLC d/b/a the “Senior Secured Loan Program” (the “SSLP”). The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required); therefore, although the Company owns more than 25% of the voting securities of the SSLP, the Company does not believe that it has control over the SSLP (for purposes of the Investment Company Act or otherwise) because, among other things, these “voting securities” do not afford the Company the right to elect directors of the SSLP or any other special rights (see Note 4 to the consolidated financial statements).

 

(8)                       Non U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(9)                       Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.

 

(10)                In the first quarter of 2011, the staff of the Securities and Exchange Commission (the “Staff”) informally communicated to certain business development companies the Staff’s belief that certain entities, which would be classified as an “investment company” under the Investment Company Act but for the exception from the definition of “investment company” set forth in Rule 3a-7 promulgated under the Investment Company Act, could not be treated as eligible portfolio companies (as defined in Section 2(a)(46) under the Investment Company Act) (i.e., not eligible to be included in a BDC’s 70% “qualifying assets” basket). Subsequently, in August 2011 the Securities and Exchange Commission issued a concept release (the “Concept Release”) which stated that “[a]s a general matter, the Commission presently does not believe that Rule 3a-7 issuers are the type of small, developing and financially troubled businesses in which the U.S. Congress intended BDCs primarily to invest” and requested comment on whether or not a 3a-7 issuer should be considered an “eligible portfolio company”.  The Company provided a comment letter in respect of the Concept Release and continues to believe that the language of Section 2(a)(46) of the Investment Company Act permits a BDC to treat as “eligible portfolio companies” entities that rely on the 3a-7 exception. However, given the current uncertainty in this area (including the language in the Concept Release) and subsequent discussions with the Staff, the Company has, solely for purposes of calculating the composition of its portfolio pursuant to Section 55(a) of the Investment Company Act, identified such entities, which include the SSLP, as “non qualifying assets” should the Staff ultimately disagree with the Company’s position.

 

(11)                Variable rate loans to the Company’s 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), at the borrower’s option, which reset annually (A), semi annually (S), quarterly (Q), bi monthly (B), monthly (M) or daily (D). For each such loan, the Company has provided the interest rate in effect on the date presented.

 

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Table of Contents

 

(12)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 6.00% on $12 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(13)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $17 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(14)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.25% on $60 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(15)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 1.13% on $18 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(16)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.00% on $97 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(17)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.13% on $55 million aggregate principal amount of a “first out” tranche of the portfolio company’s senior term debt previously syndicated by the Company into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(18)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on $27 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(19)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.75% on $25 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(20)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 5.00% on $23 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(21)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 0.75% on $45 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

(22)                In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.75% on $36 million aggregate principal amount of a “first out” tranche of the portfolio company’s first lien senior secured loans, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

 

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(23)                The Company is entitled to receive a fixed fee upon the occurrence of certain events as defined in the credit agreement governing the Company’s debt investment in the portfolio company. The fair value of such fee is included in the fair value of the debt investment.

 

(24)                Loan was on non accrual status as of December 31, 2013.

 

(25)                Loan includes interest rate floor feature.

 

(26)                In addition to the interest earned based on the stated contractual interest rate of this security, the certificates entitle the holders thereof to receive a portion of the excess cash flow from the SSLP’s loan portfolio, which may result in a return to the Company greater than the contractual stated interest rate.

 

(27)                As of December 31, 2013, no amounts were funded by the Company under this first lien senior secured revolving loan; however, there were letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(28)                As of December 31, 2013, in addition to the amounts funded by the Company under this first lien senior secured revolving loan, there were also letters of credit issued and outstanding through a financial intermediary under the loan. See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

(29)                As of December 31, 2013, no amounts were funded by the Company under this letter of credit facility; however, there were letters of credit issued and outstanding through a financial intermediary under the letter of credit facility. See Note 7 to the consolidated financial statements for further information on letters of credit commitments related to certain portfolio companies.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2014

(in thousands, except per share data)

(unaudited)

 

 

 

Common Stock

 

Capital in
Excess of

 

Accumulated
Overdistributed
Net Investment

 

Accumulated Net
Realized Loss on
Investments,
Foreign Currency
Transactions,
Extinguishment of
Debt and Other

 

Net Unrealized
Gain on
Investments
and Foreign
Currency

 

Total
Stockholders’

 

 

 

Shares

 

Amount

 

Par Value

 

Income

 

Assets

 

Transactions

 

Equity

 

Balance at December 31, 2013

 

297,971

 

$

298

 

$

4,982,477

 

$

(8,785

)

$

(165,040

)

$

95,494

 

$

4,904,444

 

Issuances of common stock in add-on offerings (net of offering and underwriting costs)

 

15,525

 

15

 

257,611

 

 

 

 

257,626

 

Shares issued in connection with dividend reinvestment plan

 

612

 

1

 

10,846

 

 

 

 

10,847

 

Net increase in stockholders’ equity resulting from operations

 

 

 

 

309,617

 

40,060

 

87,885

 

437,562

 

Dividends declared and payable ($1.19 per share)

 

 

 

 

(360,831

)

 

 

(360,831

)

Balance at September 30, 2014

 

314,108

 

$

314

 

$

5,250,934

 

$

(59,999

)

$

(124,980

)

$

183,379

 

$

5,249,648

 

 

See accompanying notes to consolidated financial statements.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 

 

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

 

 

(unaudited)

 

(unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net increase in stockholders’ equity resulting from operations

 

$

437,562

 

$

354,637

 

Adjustments to reconcile net increase in stockholders’ equity resulting from operations:

 

 

 

 

 

Realized losses on extinguishment of debt

 

72

 

 

Net realized gains on investments and foreign currency transactions

 

(40,132

)

(29,272

)

Net unrealized gains on investments and foreign currency transactions

 

(87,885

)

(6,469

)

Net accretion of discount on investments

 

(2,094

)

(3,953

)

Increase in payment-in-kind interest and dividends

 

(8,137

)

(15,189

)

Collections of payment-in-kind interest and dividends

 

8,575

 

19,388

 

Amortization of debt issuance costs

 

12,115

 

10,444

 

Accretion of discount on notes payable

 

11,225

 

10,103

 

Depreciation

 

623

 

593

 

Proceeds from sales and repayments of investments

 

2,155,700

 

988,329

 

Purchases of investments

 

(3,085,126

)

(2,429,441

)

Changes in operating assets and liabilities:

 

 

 

 

 

Interest receivable

 

(44,003

)

(11,505

)

Other assets

 

(9,440

)

(1,327

)

Base management fees payable

 

3,415

 

4,352

 

Income based fees payable

 

2,344

 

4,634

 

Capital gains incentive fees payable

 

6,765

 

(4,375

)

Accounts payable and other liabilities

 

12,856

 

5,024

 

Interest and facility fees payable

 

(2,161

)

(1,743

)

Net cash used in operating activities

 

(627,726

)

(1,105,770

)

FINANCING ACTIVITIES:

 

 

 

 

 

Net proceeds from issuance of common stock

 

257,626

 

333,160

 

Borrowings on debt

 

2,777,052

 

4,294,491

 

Repayments and repurchases of debt

 

(2,095,423

)

(3,362,000

)

Debt issuance costs

 

(8,268

)

(9,068

)

Dividends paid

 

(345,012

)

(284,369

)

Net cash provided by financing activities

 

585,975

 

972,214

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

(41,751

)

(133,556

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

149,629

 

269,043

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

107,878

 

$

135,487

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

129,392

 

$

99,411

 

Taxes, including excise tax, paid during the period

 

$

20,310

 

$

13,012

 

Dividends declared and payable during the period

 

$

360,831

 

$

298,303

 

 

See accompanying notes to consolidated financial statements.

 

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ARES CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2014

(unaudited)

(in thousands, except per share data, percentages and as otherwise indicated;

for example, with the words “million,” “billion” or otherwise)

 

1.             ORGANIZATION

 

Ares Capital Corporation (the “Company” or “ARCC”) is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. The Company has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). The Company has elected to be treated as a regulated investment company, or a “RIC”, under the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs.

 

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component. To a lesser extent, the Company also makes equity investments.

 

The Company is externally managed by Ares Capital Management LLC (“Ares Capital Management” or the Company’s “investment adviser”), a subsidiary of Ares Management, L.P. (“Ares Management”), a publicly traded, leading global alternative asset manager, pursuant to an investment advisory and management agreement. Ares Operations LLC (“Ares Operations” or the Company’s “administrator”), a subsidiary of Ares Management, provides certain administrative and other services necessary for the Company to operate.

 

2.             SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and its consolidated subsidiaries. The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2014.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

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 gains or losses previously recognized, and include investments charged off during the period, net of recoveries.

 

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Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, the Company looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of the Company’s investments) are valued at fair value as determined in good faith by the Company’s board of directors, based on, among other things, the input of the Company’s investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of the Company’s board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12-month period (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 55% of the Company’s portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, the Company’s independent registered public accounting firm obtains an understanding of, and performs select procedures relating to, the Company’s investment valuation process within the context of performing the integrated audit.

 

As part of the valuation process, the Company may take into account the following types of factors, if relevant, in determining the fair value of the Company’s investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company considers the pricing indicated by the external event to corroborate its valuation.

 

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

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

The Company’s board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·      The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the Company’s portfolio management team.

 

·      Preliminary valuations are reviewed and discussed with the Company’s investment adviser’s management and investment professionals, and then valuation recommendations are presented to the Company’s board of directors.

 

·      The audit committee of the Company’s board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, who review a minimum of 50% of the Company’s portfolio at fair value.

 

·      The Company’s board of directors discusses valuations and ultimately determines the fair value of each investment in the Company’s portfolio without a readily available market quotation in good faith based on, among other things, the input of the Company’s investment adviser, audit committee and, where applicable, independent third-party valuation firms.

 

See Note 8 for more information on the Company’s valuation process.

 

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Interest and Dividend Income Recognition

 

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 yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

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 is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain payment-in-kind (“PIK”) provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to its portfolio companies and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

Other income includes fees for management and consulting services, loan guarantees, commitments, amendments and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)           Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

(2)           Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

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Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations, if any. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Accounting for Derivative Instruments

 

The Company does not utilize hedge accounting and instead marks its derivatives to market in the consolidated statement of operations.

 

Equity Offering Expenses

 

The Company’s offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method or the effective yield method, depending on the type of debt instrument.

 

Income Taxes

 

The Company has elected to be treated 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, the Company must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal corporate-level income taxes.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as such taxable income is earned.

 

Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes.

 

Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the Company’s board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such capital gains for investment.

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s board of directors authorizes, and the Company declares, a cash dividend, then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company intends to use primarily newly issued shares to implement the dividend reinvestment plan (so long as the Company is trading at a premium to net asset value). If the Company’s shares are trading at a significant enough discount to net asset value and the Company is otherwise permitted under applicable law to purchase such shares, the Company intends to purchase shares in the open market in connection with the Company’s obligations under the dividend reinvestment plan. However, the Company reserves the right to issue new shares of the Company’s common stock in connection with the Company’s obligations under the dividend reinvestment plan even if the Company’s shares are trading below net asset value.

 

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Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.” Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

 

3.            AGREEMENTS

 

Investment Advisory and Management Agreement

 

The Company is party to an investment advisory and management agreement (the “investment advisory and management agreement”) with Ares Capital Management. Subject to the overall supervision of the Company’s board of directors, Ares Capital Management provides investment advisory and management services to the Company. For providing these services, Ares Capital Management receives fees from the Company consisting of a base management fee, a fee based on the Company’s net investment income (“income based fee”) and a fee based on the Company’s net capital gains (“capital gains incentive fee”).

 

The base management fee is calculated at an annual rate of 1.5% based on the average value of the Company’s total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.

 

The income based fee is calculated and payable quarterly in arrears based on the Company’s net investment income excluding income based fees and capital gains incentive fees (“pre-incentive fee net investment income”) for the quarter.  Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the administration agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the income based fee and capital gains incentive fee accrued under GAAP). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that the Company has not yet received in cash. The Company’s investment adviser is not under any obligation to reimburse the Company for any part of the income based fees it received that was based on accrued interest that the Company never actually received.

 

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, unrealized capital appreciation, unrealized capital depreciation or income tax expense related to realized gains and losses. Because of the structure of the income based fee, it is possible that the Company may pay such fees in a quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable income based fee even if the Company has incurred a loss in that quarter due to realized and/or unrealized capital losses.

 

Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any income based fees and capital gains incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter. If market credit spreads rise, the Company may be able to invest its funds in debt instruments that provide for a higher return, which may increase the Company’s pre-incentive fee net investment income and make it easier for the Company’s investment adviser to surpass the fixed hurdle rate and receive an income based fee based on such net investment income. To the extent the Company has retained pre-incentive fee net investment income that has been used to calculate the income based fee, it is also included in the amount of the Company’s total assets (other than cash and cash equivalents but including assets purchased with borrowed funds) used to calculate the 1.5% base management fee.

 

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The Company pays its investment adviser an income based fee with respect to the Company’s pre-incentive fee net investment income in each calendar quarter as follows:

 

·      no income based fee in any calendar quarter in which the Company’s pre- incentive fee net investment income does not exceed the hurdle rate;

 

·      100% of the Company’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter. The Company refers to this portion of its pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.1875%) as the “catch-up” provision. The “catch-up” is meant to provide the Company’s investment adviser with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeded 2.1875% in any calendar quarter; and

 

·      20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter.

 

These calculations are adjusted for any share issuances or repurchases during the quarter.

 

The capital gains incentive fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each calendar year (or, upon termination of the investment advisory and management agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting (a) the sum of the Company’s cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (b) the Company’s cumulative aggregate realized capital gains, in each case calculated from October 8, 2004 (the date the Company completed its initial public offering). Realized capital gains and losses include gains and losses on investments and foreign currencies, gains and losses on extinguishment of debt and other assets, as well as any income tax expense related to realized gains and losses. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee for such year.

 

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company’s portfolio when sold and (b) the accreted or amortized cost basis of such investment.

 

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.

 

The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

Notwithstanding the foregoing, as a result of an amendment to the capital gains incentive fee under the investment advisory and management agreement that was adopted on June 6, 2011, if the Company is required by GAAP to record an investment at its fair value as of the time of acquisition instead of at the actual amount paid for such investment by the Company (including, for example, as a result of the application of the acquisition method of accounting), then solely for the purposes of calculating the Capital Gains Fee, the “accreted or amortized cost basis” of an investment shall be an amount (the “Contractual Cost Basis”) equal to (1) (x) the actual amount paid by the Company for such investment plus (y) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the accretion of such investment plus (z) any other adjustments made to the cost basis included in the Company’s financial statements, including PIK interest or additional amounts funded (net of repayments) minus (2) any amounts recorded in the Company’s financial statements as required by GAAP that are attributable to the amortization of such investment, whether such calculated Contractual Cost Basis is higher or lower than the fair value of such investment (as determined in accordance with GAAP) at the time of acquisition.

 

The Company defers cash payment of any income based fees and capital gains incentive fees otherwise earned by the Company’s investment adviser if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to the Company’s stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any income based fees and capital gains incentive fees payable during the period) is less than 7.0% of the Company’s net assets (defined as total assets less indebtedness) at the beginning of such period. Any deferred income based fees and capital gains incentive fees are carried over for payment in subsequent calculation periods to the extent such payment is payable under the investment advisory and management agreement.

 

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The Capital Gains Fee payable to the Company’s investment adviser as calculated under the investment advisory and management agreement (as described above) for the three and nine months ended September 30, 2014 was $0. However, in accordance with GAAP, the Company had cumulatively accrued a capital gains incentive fee of $87,702 as of September 30, 2014 that is not currently due under the investment advisory and management agreement. GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the Capital Gains Fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains incentive fee equal to 20% of such cumulative amount, less the aggregate amount of actual Capital Gains Fees paid or capital gains incentive fees accrued under GAAP in all prior periods. As of September 30, 2014, the Company has paid Capital Gains Fees since inception totaling $33,411, of which $17,425 was paid in the first quarter of 2014. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future.

 

For the three and nine months ended September 30, 2014, base management fees were $32,685 and $93,500, respectively, income based fees were $31,345 and $85,203, respectively, and capital gains incentive fees calculated in accordance with GAAP were $13,087 and $24,190, respectively.

 

For the three and nine months ended September 30, 2013, base management fees were $27,467 and $75,587, respectively, income based fees were $32,284 and $81,510, respectively, and the capital gains incentive fees calculated in accordance with GAAP were $2,915 and $7,148, respectively.

 

Administration Agreement

 

The Company is party to an administration agreement, referred to herein as the “administration agreement”, with its administrator, Ares Operations. Pursuant to the administration agreement, Ares Operations furnishes the Company with office equipment and clerical, bookkeeping and record keeping services at the Company’s office facilities. Under the administration agreement, Ares Operations also performs, or oversees the performance of, the Company’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, investor relations and technology, being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC. In addition, Ares Operations assists the Company in determining and publishing its net asset value, assists the Company in providing managerial assistance to its portfolio companies, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of its expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the Company’s administration agreement are equal to an amount based upon its allocable portion of Ares Operations’ overhead and other expenses (including travel expenses) incurred by Ares Operations in performing its obligations under the administration agreement, including the Company’s allocable portion of the compensation of certain of its officers (including the Company’s chief compliance officer, chief financial officer, chief accounting officer, general counsel, treasurer and assistant treasurer) and their respective staffs. The administration agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

 

For the three and nine months ended September 30, 2014, the Company incurred $3,105 and $9,661, respectively, in administrative fees. For the three and nine months ended September 30, 2013, the Company incurred $3,346 and $8,544, respectively, in administrative fees.  As of September 30, 2014, $3,105 of these fees were unpaid and included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

 

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4.             INVESTMENTS

 

As of September 30, 2014 and December 31, 2013, investments consisted of the following:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Amortized Cost(1)

 

Fair Value

 

Amortized Cost(1)

 

Fair Value

 

First lien senior secured loans

 

$

4,030,159

 

$

4,012,480

 

$

3,405,597

 

$

3,377,608

 

Second lien senior secured loans

 

1,487,954

 

1,451,583

 

1,335,761

 

1,319,191

 

Subordinated certificates of the SSLP (2)

 

1,954,145

 

1,983,457

 

1,745,192

 

1,771,369

 

Senior subordinated debt

 

470,235

 

469,377

 

364,094

 

323,171

 

Preferred equity securities

 

224,522

 

214,063

 

226,044

 

229,006

 

Other equity securities

 

430,893

 

645,557

 

453,732

 

600,214

 

Commercial real estate

 

2,886

 

7,063

 

6,983

 

12,338

 

Total

 

$

8,600,794

 

$

8,783,580

 

$

7,537,403

 

$

7,632,897

 

 


(1)           The amortized cost represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

(2)           The proceeds from these certificates were applied to co-investments with GE Global Sponsor Finance LLC and General Electric Capital Corporation to fund first lien senior secured loans to 49 and 47 different borrowers as of September 30, 2014 and December 31, 2013, respectively.

 

The industrial and geographic compositions of the Company’s portfolio at fair value as of September 30, 2014 and December 31, 2013 were as follows:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

Industry

 

 

 

 

 

Investment Funds and Vehicles (1)

 

22.9

%

23.6

%

Healthcare Services

 

13.9

 

15.4

 

Other Services

 

10.7

 

7.5

 

Energy

 

7.4

 

5.4

 

Business Services

 

6.9

 

9.2

 

Education

 

6.6

 

6.7

 

Consumer Products

 

5.1

 

3.5

 

Financial Services

 

4.7

 

5.1

 

Manufacturing

 

3.3

 

3.3

 

Restaurants and Food Services

 

3.2

 

5.2

 

Containers and Packaging

 

2.9

 

3.3

 

Hotel Services

 

1.8

 

 

Aerospace and Defense

 

1.7

 

1.4

 

Retail

 

1.4

 

1.6

 

Oil and Gas

 

1.4

 

0.6

 

Other

 

6.1

 

8.2

 

Total

 

100.0

%

100.0

%

 


(1)           Includes the Company’s investment in the SSLP, which had made first lien senior secured loans to 49 and 47 different borrowers as of September 30, 2014 and December 31, 2013, respectively. The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.

 

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Table of Contents

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

Geographic Region

 

 

 

 

 

West (1)

 

48.4

%

50.0

%

Midwest

 

19.8

 

15.8

 

Mid Atlantic

 

14.1

 

15.9

 

Southeast

 

13.9

 

13.6

 

Northeast

 

2.1

 

1.0

 

International

 

1.7

 

3.7

 

Total

 

100.0

%

100.0

%

 


(1)           Includes the Company’s investment in the SSLP, which represented 22.6% and 23.2% of the total investment portfolio at fair value as of September 30, 2014 and December 31, 2013, respectively.

 

As of September 30, 2014, 2.2% of total investments at amortized cost (or 1.6% of total investments at fair value) were on non-accrual status. As of December 31, 2013, 3.1% of total investments at amortized cost (or 2.1% of total investments at fair value) were on non-accrual status.

 

Senior Secured Loan Program

 

The Company co-invests in first lien senior secured loans of middle market companies with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”) through an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a the “Senior Secured Loan Program”) or the “SSLP.” The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of the Company and GE (with approval from a representative of each required). The Company provides capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”).

 

As of September 30, 2014 and December 31, 2013, GE and the Company had agreed to make $11.0 billion of capital available to the SSLP, of which approximately $9.5 billion and $8.7 billion in aggregate principal amount, respectively, was funded.  As of September 30, 2014 and December 31, 2013, the Company had agreed to make available to the SSLP approximately $2.3 billion, of which approximately $2.0 billion and $1.7 billion in aggregate principal amount, respectively, was funded.  Investment of any unfunded amount must be approved by the investment committee of the SSLP described above.

 

As of September 30, 2014 and December 31, 2013, the SSLP had total assets of $9.5 billion and $8.7 billion, respectively. As of September 30, 2014 and December 31, 2013, GE’s investment in the SSLP consisted of senior notes of $7.2 billion and $6.7 billion, respectively, and SSLP Certificates of $279.2 million and $249.3 million, respectively. The SSLP Certificates are junior in right of payment to the senior notes held by GE.  As of September 30, 2014 and December 31, 2013, the Company and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates.

 

The SSLP’s portfolio consisted of first lien senior secured loans to 49 and 47 different borrowers as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, the portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies.  As of September 30, 2014 and December 31, 2013, one loan was on non-accrual status, representing 0.9% and 1.0%, respectively, of the total loans at principal amount in the SSLP. As of September 30, 2014 and December 31, 2013, the largest loan to a single borrower in the SSLP’s portfolio in aggregate principal amount was $332.9 million and $321.7 million, respectively, and the five largest loans to borrowers in the SSLP totaled $1.5 billion as of the end of both such periods.  The portfolio companies in the SSLP are in industries similar to the companies in the Company’s portfolio.  Additionally, as of September 30, 2014 and December 31, 2013, the SSLP had commitments to fund various delayed draw investments to certain of its portfolio companies of $501.7 million and $510.4 million, respectively, which had been approved by the SSLP investment committee.  As of September 30, 2014 and December 31, 2013, the Company had commitments to co-invest in the SSLP for its portion of the SSLP’s commitments to fund such delayed draw investments of up to $92.8 million and $85.1 million, respectively.

 

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The amortized cost and fair value of the SSLP Certificates held by the Company were $2.0 billion and $2.0 billion, respectively, as of September 30, 2014 and $1.7 billion and $1.8 billion, respectively, as of December 31, 2013.  The SSLP Certificates pay a weighted average coupon of approximately LIBOR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, which may result in a return to the holders of the SSLP Certificates that is greater than the contractual coupon.  The Company’s yield on its investment in the SSLP at fair value was 13.5% and 14.8% as of September 30, 2014 and December 31, 2013, respectively.  For the three and nine months ended September 30, 2014, the Company earned interest income of $69.8 million and $205.4 million, respectively, from its investment in the SSLP Certificates.  For the three and nine months ended September 30, 2013, the Company earned interest income of $59.2 million and $161.2 million, respectively, from its investment in the SSLP Certificates.  The Company is also entitled to certain fees in connection with the SSLP. For the three and nine months ended September 30, 2014, in connection with the SSLP, the Company earned capital structuring service, sourcing and other fees totaling $17.1 million and $46.1 million, respectively. For the three and nine months ended September 30, 2013, in connection with the SSLP, the Company earned capital structuring service, sourcing and other fees totaling $19.9 million and $42.4 million, respectively.

 

Ivy Hill Asset Management, L.P.

 

Ivy Hill Asset Management, L.P. (“IHAM”) is an asset management services company and an SEC-registered investment adviser. The Company has made investments in IHAM, its wholly owned portfolio company and previously made investments in certain vehicles managed by IHAM. As of September 30, 2014, IHAM had assets under management (“IHAM AUM”)(1) of approximately $2.6 billion and managed 13 vehicles and served as the sub-manager/sub-servicer for three other vehicles (these vehicles managed or sub-managed/sub-serviced by IHAM are collectively referred to as the “IHAM Vehicles”). IHAM earns fee income from managing the IHAM Vehicles and has also invested in certain of these vehicles as part of its business strategy. As of September 30, 2014 and December 31, 2013, IHAM had total investments of $229 million and $170 million, respectively. For the three and nine months ended September 30, 2014, IHAM had management and incentive fee income of $4 million and $15 million, respectively, and other investment-related income of $6 million and $19 million, respectively. For the three and nine months ended September 30, 2013, IHAM had management and incentive fee income of $6 million and $16 million, respectively, and other investment-related income of $7 million and $44 million, respectively.

 

The amortized cost and fair value of the Company’s investment in IHAM was $171.0 million and $258.9 million, respectively, as of September 30, 2014, and $171.0 million and $280.4 million, respectively, as of December 31, 2013. For the three and nine months ended September 30, 2014, the Company received distributions consisting entirely of dividend income from IHAM of $10.0 million and $40.0 million, respectively. The dividend income for the nine months ended September 30, 2014 included an additional dividend of $10.0 million that was received in the first quarter of 2014, in addition to the quarterly dividends generally paid by IHAM. For the three and nine months ended September 30, 2013, the Company received distributions consisting entirely of dividend income from IHAM of $25.0 million and $62.4 million, respectively. The dividend income for the nine months ended September 30, 2013 included an additional dividend of $17.4 million and $15.0 million that was paid in the first quarter and third quarter of 2013, respectively, in addition to the quarterly dividends generally paid by IHAM. IHAM paid the additional dividends out of accumulated earnings that had previously been retained by IHAM.

 

From time to time, IHAM or certain IHAM Vehicles may purchase investments from, or sell investments to, the Company. For any such sales or purchases by the IHAM Vehicles to or from the Company, the IHAM Vehicles must obtain approval from third parties unaffiliated with the Company or IHAM, as applicable. During the nine months ended September 30, 2014, IHAM or certain of the IHAM Vehicles purchased $64.5 million of investments from the Company. No realized gains or losses were recognized on these transactions for the nine months ended September 30, 2014. During the nine months ended September 30, 2013, IHAM or certain of the IHAM Vehicles purchased $139.8 million of investments from the Company.  A net realized loss of $0.1 million was recorded on these transactions for the nine months ended September 30, 2013.  During the nine months ended September 30, 2014 and 2013, the Company purchased $20.2 million and $131.7 million of investments, respectively, from certain of the IHAM Vehicles.

 

IHAM is party to an administration agreement, referred to herein as the “IHAM administration agreement,” with Ares Operations. Pursuant to the IHAM administration agreement, Ares Operations provides IHAM with, among other things, office facilities, equipment, clerical, bookkeeping and record keeping services, services relating to the marketing and sale of interests in vehicles managed by IHAM, services of, and oversight of, custodians, depositories, accountants, attorneys, underwriters and such other persons in any other capacity deemed to be necessary. Under the IHAM administration agreement, IHAM reimburses Ares Operations for all of the actual costs associated with such services, including Ares Operations’ allocable portion of overhead and the cost of its officers, employees and respective staff in performing its obligations under the IHAM administration agreement.

 


(1)           IHAM AUM refers to the assets of the vehicles managed, sub-managed and sub-serviced by IHAM. It includes drawn and undrawn amounts, including certain amounts that are subject to regulatory leverage restrictions and/or borrowing base restrictions. IHAM AUM amounts are as of September 30, 2014 and are unaudited. Certain amounts are preliminary and remain subject to change, and differences may arise due to rounding.

 

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5.             DEBT

 

In accordance with the Investment Company Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing. As of September 30, 2014 the Company’s asset coverage was 243%.

 

The Company’s outstanding debt as of September 30, 2014 and December 31, 2013 were as follows:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Total
Aggregate
Principal
Amount
Committed/
Outstanding
(1)

 

Principal
Amount
Outstanding

 

Carrying
Value

 

Total
Aggregate
Principal
Amount
Committed/
Outstanding
(1)

 

Principal
Amount
Outstanding

 

Carrying
Value

 

Revolving Credit Facility

 

$

1,250,000

(2)

$

335,000

 

$

335,000

 

$

1,060,000

 

$

 

$

 

Revolving Funding Facility

 

540,000

(3)

324,000

 

324,000

 

620,000

 

185,000

 

185,000

 

SMBC Funding Facility

 

400,000

 

54,000

 

54,000

 

400,000

 

 

 

February 2016 Convertible Notes

 

575,000

 

575,000

 

562,805

(4)

575,000

 

575,000

 

556,456

(4)

June 2016 Convertible Notes

 

230,000

 

230,000

 

224,196

(4)

230,000

 

230,000

 

221,788

(4)

2017 Convertible Notes

 

162,500

 

162,500

 

159,936

(4)

162,500

 

162,500

 

159,220

(4)

2018 Convertible Notes

 

270,000

 

270,000

 

265,091

(4)

270,000

 

270,000

 

264,097

(4)

2019 Convertible Notes

 

300,000

 

300,000

 

295,913

(4)

300,000

 

300,000

 

295,279

(4)

2018 Notes

 

750,000

 

750,000

 

750,745

(5)

600,000

 

600,000

 

596,756

(5)

February 2022 Notes

 

143,750

 

143,750

 

143,750

 

143,750

 

143,750

 

143,750

 

October 2022 Notes

 

182,500

 

182,500

 

182,500

 

182,500

 

182,500

 

182,500

 

2040 Notes

 

200,000

 

200,000

 

200,000

 

200,000

 

200,000

 

200,000

 

2047 Notes

 

229,557

 

229,557

 

181,265

(6)

230,000

 

230,000

 

181,429

(6)

Total

 

$

5,233,307

 

$

3,756,307

 

$

3,679,201

 

$

4,973,750

 

$

3,078,750

 

$

2,986,275

 

 


(1)           Subject to borrowing base and leverage restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

(2)           Provides for a feature that allows the Company, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,755,000.

 

(3)           Provides for a feature that allows the Company and Ares Capital CP, under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865,000.

 

(4)           Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes (as defined below) less the unaccreted discount initially recorded upon issuance of the Convertible Unsecured Notes. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes was $12,195, $5,804, $2,564, $4,909 and $4,087, respectively, as of September 30, 2014. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes was $18,544, $8,212, $3,280, $5,903 and $4,721 respectively, as of December 31, 2013.

 

(5)           As of September 30, 2014, represents the aggregate principal amount outstanding plus the net unamortized premium of $745 that was initially recorded upon the issuances of the 2018 Notes. As of December 31, 2013, represents the aggregate principal amount less the unaccreted discount of $3,244 initially recognized on the first issuance of the 2018 Notes.

 

(6)           Represents the aggregate principal amount outstanding less the unaccreted purchased discount initially recorded as a part of the Allied Acquisition (as defined below). The total unaccreted purchased discount for the 2047 Notes was $48,292 and $48,571 as of September 30, 2014 and December 31, 2013, respectively.

 

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The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all the Company’s outstanding debt as of September 30, 2014 were 4.9% and 6.8 years, respectively, and as of December 31, 2013 were 5.3% and 7.9 years, respectively.

 

Revolving Credit Facility

 

The Company is party to a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which allows the Company to borrow up to $1,250,000 at any one time outstanding. The end of the revolving period and the stated maturity date for the Revolving Credit Facility are May 4, 2018 and May 4, 2019, respectively. The Revolving Credit Facility also includes a feature that allows, under certain circumstances, for an increase in the size of the facility to a maximum of $1,755,000. The Revolving Credit Facility generally requires payments of interest at the end of each LIBOR interest period, but no less frequently than quarterly, on LIBOR based loans, and monthly payments of interest on other loans. From the end of the revolving period to the stated maturity date, the Company is required to repay outstanding principal amounts under the Revolving Credit Facility on a monthly basis in an amount equal to 1/12th of the outstanding principal amount at the end of the revolving period.

 

Under the Revolving Credit Facility, the Company is required to comply with various covenants, reporting requirements and other customary requirements for similar revolving credit facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) maintaining a certain minimum stockholders’ equity, (e) maintaining a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of the Company and its consolidated subsidiaries of not less than 2.0:1.0, (f) limitations on pledging certain unencumbered assets, and (g) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. These covenants are subject to important limitations and exceptions that are described in the documents governing the Revolving Credit Facility. Borrowings under the Revolving Credit Facility (and the incurrence of certain other permitted debt) are also subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio that are pledged as collateral. As of September 30, 2014, the Company was in compliance in all material respects with the terms of the Revolving Credit Facility.

 

As of September 30, 2014 there was $335,000 outstanding under the Revolving Credit Facility. As of December 31, 2013, there were no amounts outstanding under the Revolving Credit Facility. The Revolving Credit Facility also provides for a sub-limit for the issuance of letters of credit for up to an aggregate amount of $200,000. As of September 30, 2014 and December 31, 2013, the Company had $30,369 and $47,898, respectively, in letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued. As of September 30, 2014, there was $884,631 available for borrowing (net of letters of credit issued) under the Revolving Credit Facility.

 

Since May 2, 2013, subject to certain exceptions, the interest rate charged on the Revolving Credit Facility is based on LIBOR plus an applicable spread of 2.00% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.00%. From May 5, 2012 through May 1, 2013, the interest rate charged on the Revolving Credit Facility was based on LIBOR plus an applicable spread of 2.25% or a “base rate” plus an applicable spread of 1.25%. As of September 30, 2014, the one, two, three and six month LIBOR was 0.16%, 0.20%, 0.24% and 0.33%, respectively. As of December 31, 2013, the one, two, three and six month LIBOR was 0.17%, 0.21%, 0.25% and 0.35%, respectively. In addition to the stated interest expense on the Revolving Credit Facility, the Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility. Since May 2, 2013, the Company is also required to pay a letter of credit fee of 2.25% per annum on letters of credit issued. From May 5, 2012 through May 1, 2013, the letter of credit fee was 2.50%.

 

The Revolving Credit Facility is secured by certain assets in the Company’s portfolio and excludes investments held by Ares Capital CP under the Revolving Funding Facility and those held by ACJB under the SMBC Funding Facility, each as discussed below, and certain other investments.

 

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For the three and nine months ended September 30, 2014 and 2013, the components of interest and credit facility fees expense for the Revolving Credit Facility were as follows:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Stated interest expense

 

$

137

 

$

1,700

 

$

137

 

$

2,353

 

Facility fees

 

1,320

 

855

 

3,786

 

2,933

 

Amortization of debt issuance costs

 

641

 

622

 

1,914

 

2,105

 

Total interest and credit facility fees expense

 

$

2,098

 

$

3,177

 

$

5,837

 

$

7,391

 

Cash paid for interest expense

 

$

43

 

$

1,736

 

$

43

 

$

2,097

 

Average stated interest rate

 

2.05

%

2.19

%

2.05

%

2.19

%

Average outstanding balance

 

$

26,141

 

$

304,163

 

$

8,810

 

$

141,751

 

 

Revolving Funding Facility

 

The Company’s consolidated subsidiary, Ares Capital CP Funding LLC (“Ares Capital CP”), is party to a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $540,000 at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are May 14, 2017 and May 14, 2019, respectively. The Revolving Funding Facility also includes a feature that allows, under certain circumstances, for an increase in the Revolving Funding Facility to a maximum of $865,000.

 

Amounts available to borrow under the Revolving Funding Facility are subject to a borrowing base that applies different advance rates to different types of assets held by Ares Capital CP. Ares Capital CP is also subject to limitations with respect to the loans securing the Revolving Funding Facility, including restrictions on sector concentrations, loan size, payment frequency and status, collateral interests, loans with fixed rates and loans with certain investment ratings, as well as restrictions on portfolio company leverage, which may also affect the borrowing base and therefore amounts available to borrow. The Company and Ares Capital CP are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Revolving Funding Facility. As of September 30, 2014, the Company and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

As of September 30, 2014 and December 31, 2013, there was $324,000 and $185,000 outstanding, respectively, under the Revolving Funding Facility. Since January 25, 2013, the interest charged on the Revolving Funding Facility is based on applicable spreads ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the Revolving Funding Facility. From January 18, 2012 through January 24, 2013, the interest rate charged on the Revolving Funding Facility was based on LIBOR plus an applicable spread of 2.50% or on a “base rate” plus an applicable spread of 1.50%. As of September 30, 2014 and December 31, 2013, the interest rate in effect was based on one month LIBOR, which was 0.16% and 0.17%, respectively. Through May 13, 2014, Ares Capital CP was required to pay a commitment fee between 0.50% and 1.75% per annum depending on the size of the unused portion of the Revolving Funding Facility. Since May 14, 2014, Ares Capital CP is required to pay a commitment fee between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility.

 

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For the three and nine months ended September 30, 2014 and 2013, the components of interest and credit facility fees expense, cash paid for interest expense, average stated interest rates (i.e., rate in effect plus the spread) and average outstanding balances for the Revolving Funding Facility were as follows:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Stated interest expense

 

$

1,811

 

$

2,244

 

$

2,354

 

$

4,445

 

Facility fees

 

435

 

438

 

3,731

 

2,791

 

Amortization of debt issuance costs

 

578

 

504

 

1,638

 

1,510

 

Total interest and credit facility fees expense

 

$

2,824

 

$

3,186

 

$

7,723

 

$

8,746

 

Cash paid for interest expense

 

$

324

 

$

1,727

 

$

2,066

 

$

4,231

 

Average stated interest rate

 

2.40

%

2.43

%

2.40

%

2.45

%

Average outstanding balance

 

$

294,739

 

$

360,641

 

$

129,088

 

$

239,546

 

 

SMBC Funding Facility

 

The Company’s consolidated subsidiary, Ares Capital JB Funding LLC (“ACJB”), is party to a revolving funding facility (as amended, the “SMBC Funding Facility”) with ACJB, as the borrower, and Sumitomo Mitsui Banking Corporation (“SMBC”), as the administrative agent, collateral agent, and lender, which allows ACJB to borrow up to $400,000 at any one time outstanding. The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2016 and September 14, 2021, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement.

 

Amounts available to borrow under the SMBC Funding Facility are subject to a borrowing base that applies an advance rate to assets held by ACJB. The Company and ACJB are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the documents governing the SMBC Funding Facility. As of September 30, 2014, the Company and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

As of September 30, 2014, there was $54,000 outstanding under the SMBC Funding Facility.  As of December 31, 2013, there were no amounts outstanding under the SMBC Funding Facility. Since December 19, 2013, subject to certain exceptions, the interest rate charged on the SMBC Funding Facility is based on one month LIBOR plus an applicable spread of 2.00% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.00%. Prior to and including December 19, 2013, subject to certain exceptions, the interest rate charged on the SMBC Funding Facility was based on one month LIBOR plus an applicable spread of 2.125% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.125%. As of September 30, 2014 and December 31, 2013, one-month LIBOR was 0.16% and 0.17%, respectively. ACJB was not required to pay a commitment fee until September 15, 2013 and through December 19, 2013, at which time ACJB was required to pay a commitment fee of up to 0.50% per annum depending on the size of the unused portion of the SMBC Funding Facility. From December 20, 2013 through March 14, 2014, ACJB was required to pay a commitment fee of up to 0.75% per annum depending on the size of the unused portion of the SMBC Funding Facility. After March 14, 2014, ACJB is required to pay a commitment fee of between 0.35% and 0.875% per annum depending on the size of the unused portion of the SMBC Funding Facility.

 

For the three and nine months ended September 30, 2014 and 2013, the components of interest and credit facility fees expense for the SMBC Funding Facility were as follows:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Stated interest expense

 

$

237

 

$

 

$

237

 

$

 

Facility fees

 

383

 

67

 

1,188

 

67

 

Amortization of debt issuance costs

 

281

 

269

 

843

 

773

 

Total interest and credit facility fees expense

 

$

901

 

$

336

 

$

2,268

 

$

840

 

Cash paid for interest expense

 

$

191

 

$

 

$

191

 

$

16

 

Average stated interest rate

 

2.13

%

%

2.13

%

%

Average outstanding balance

 

$

43,467

 

$

 

$

14,648

 

$

 

 

61


 


Table of Contents

 

Convertible Unsecured Notes

 

In January 2011, the Company issued $575,000 aggregate principal amount of unsecured convertible notes that mature on February 1, 2016 (the “February 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2011, the Company issued $230,000 aggregate principal amount of unsecured convertible notes that mature on June 1, 2016 (the “June 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2012, the Company issued $162,500 aggregate principal amount of unsecured convertible notes that mature on March 15, 2017 (the “2017 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In the fourth quarter of 2012, the Company issued $270,000 aggregate principal amount of unsecured convertible notes that mature on January 15, 2018 (the “2018 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In July 2013, the Company issued $300,000 aggregate principal amount of unsecured convertible notes that mature on January 15, 2019 (the “2019 Convertible Notes” and together with the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes, the “Convertible Unsecured Notes”), unless previously converted or repurchased in accordance with their terms. The Company does not have the right to redeem the Convertible Unsecured Notes prior to maturity. The February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes bear interest at a rate of 5.750%, 5.125%, 4.875%, 4.750% and 4.375%, respectively, per year, payable semi-annually.

 

In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election, at their respective conversion rates (listed below as of September 30, 2014) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the Convertible Unsecured Notes Indentures. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if the Company engages in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require the Company to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

Certain key terms related to the convertible features for each of the Convertible Unsecured Notes as of September 30, 2014 are listed below.

 

 

 

February 2016
Convertible Notes

 

June 2016
Convertible Notes

 

2017 Convertible
Notes

 

2018 Convertible
Notes

 

2019 Convertible
Notes

 

Conversion premium

 

17.5

%

17.5

%

17.5

%

17.5

%

15.0

%

Closing stock price at issuance

 

$

16.28

 

$

16.20

 

$

16.46

 

$

16.91

 

$

17.53

 

Closing stock price date

 

January 19, 2011

 

March 22, 2011

 

March 8, 2012

 

October 3, 2012

 

July 15, 2013

 

Conversion price (1)

 

$

18.56

 

$

18.47

 

$

19.02

 

$

19.70

 

$

20.05

 

Conversion rate (shares per one thousand dollar principal amount)(1)

 

53.8839

 

54.1501

 

52.5696

 

50.7591

 

49.8854

 

Conversion dates

 

August 15, 2015

 

December 15, 2015

 

September 15, 2016

 

July 15, 2017

 

July 15, 2018

 

 


(1)   Represents conversion price and conversion rate, as applicable, as of September 30, 2014, taking into account certain de minimis adjustments that will be made on the conversion date.

 

As of September 30, 2014, the principal amounts of each series of the Convertible Unsecured Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Company’s common stock.

 

The Convertible Unsecured Notes Indentures contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of the Convertible Unsecured Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the Convertible Unsecured Notes Indentures. As of September 30, 2014, the Company was in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures.

 

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Table of Contents

 

The Convertible Unsecured Notes are accounted for in accordance with ASC 470-20. Upon conversion of any of the Convertible Unsecured Notes, the Company intends to pay the outstanding principal amount in cash and to the extent that the conversion value exceeds the principal amount, the Company has the option to pay in cash or shares of the Company’s common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the Convertible Unsecured Notes Indentures. The Company has determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under GAAP. In accounting for the Convertible Unsecured Notes, the Company estimated at the time of issuance separate debt and equity components for each of the Convertible Unsecured Notes. An original issue discount equal to the equity components of the Convertible Unsecured Notes was recorded in “capital in excess of par value” in the accompanying consolidated balance sheet. Additionally, the issuance costs associated with the Convertible Unsecured Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.

 

The debt and equity component percentages, the issuance costs and the equity component amounts for each of the Convertible Unsecured Notes are listed below.

 

 

 

February 2016
Convertible Notes

 

June 2016
Convertible Notes

 

2017
Convertible Notes

 

2018
Convertible Notes

 

2019
Convertible Notes

 

Debt and equity component percentages, respectively(1)

 

93.0% and 7.0%

 

93.0% and 7.0%

 

97.0% and 3.0%

 

98.0% and 2.0%

 

99.8% and 0.2%

 

Debt issuance costs(1)

 

$

15,778

 

$

5,913

 

$

4,813

 

$

5,712

 

$

4,475

 

Equity issuance costs(1)

 

$

1,188

 

$

445

 

$

149

 

$

116

 

$

9

 

Equity component, net of issuance costs(2)

 

$

39,062

 

$

15,654

 

$

4,724

 

$

5,243

 

$

582

 

 


(1)   At time of issuance.

(2)   At time of issuance and as of September 30, 2014.

 

In addition to the original issue discount equal to the equity components of the Convertible Unsecured Notes, the 2018 Convertible Notes and the 2019 Convertible Notes were each issued at a discount. The Company records interest expense comprised of both stated interest expense as well as accretion of any original issue discount.

 

As of September 30, 2014, the components of the carrying value of the Convertible Unsecured Notes, the stated interest rate and the effective interest rate were as follows:

 

 

 

February 2016
Convertible Notes

 

June 2016
Convertible Notes

 

2017 Convertible
Notes

 

2018 Convertible
Notes

 

2019 Convertible
Notes

 

Principal amount of debt

 

$

575,000

 

$

230,000

 

$

162,500

 

$

270,000

 

$

300,000

 

Original issue discount, net of accretion

 

(12,195

)

(5,804

)

(2,564

)

(4,909

)

(4,087

)

Carrying value of debt

 

$

562,805

 

$

224,196

 

$

159,936

 

$

265,091

 

$

295,913

 

Stated interest rate

 

5.750

%

5.125

%

4.875

%

4.750

%

4.375

%

Effective interest rate(1)

 

7.2

%

6.5

%

5.5

%

5.2

%

4.7

%

 


(1)   The effective interest rate of the debt component of the Convertible Unsecured Notes is equal to the stated interest rate plus the accretion of original issue discount.

 

For the three and nine months ended September 30, 2014 and 2013, the components of interest expense and cash paid for interest expense for the Convertible Notes were as follows:

 

 

 

For the three months ended
September 30,

 

For the nine months ended September
30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Stated interest expense

 

$

19,680

 

$

19,024

 

$

59,042

 

$

51,822

 

Amortization of debt issuance costs

 

1,851

 

1,794

 

5,415

 

5,009

 

Accretion of original issue discount

 

3,763

 

3,476

 

11,100

 

9,933

 

Total interest expense

 

$

25,294

 

$

24,294

 

$

75,557

 

$

66,764

 

Cash paid for interest expense

 

$

33,467

 

$

30,289

 

$

72,718

 

$

56,675

 

 

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Table of Contents

 

Unsecured Notes

 

2018 Notes

 

In November 2013, the Company issued $600,000 aggregate principal amount of unsecured notes that mature on November 30, 2018 (the “2018 Notes”). The 2018 Notes bear interest at a rate of 4.875% per year, payable semi- annually and all principal is due upon maturity. The 2018 Notes may be redeemed in whole or in part at any time at the Company’s option at a redemption price equal to par plus a “make whole” premium, as determined pursuant to the indenture governing the 2018 Notes, and any accrued and unpaid interest. The 2018 Notes were issued at a discount at the time of issuance totaling $3,312. The Company records interest expense comprised of both stated interest expense as well as any accretion of any original issue discount. Total proceeds from the issuance of the 2018 Notes, net of the original issue discount, underwriting discounts and offering costs, were $586,014.

 

In January 2014, the Company issued an additional $150,000 aggregate principal amount of the 2018 Notes at a premium of 102.7% of their principal amount (the “Additional 2018 Notes”). The original issue premium recognized upon issuance of the Additional 2018 Notes totaled $4,050. Total proceeds from the issuance of the Additional 2018 Notes, net of underwriting discounts and offering costs, were approximately $151,900.

 

February 2022 Notes

 

In February 2012, the Company issued $143,750 aggregate principal amount of unsecured notes that mature on February 15, 2022 (the “February 2022 Notes”). The February 2022 Notes bear interest at a rate of 7.00% per year, payable quarterly and all principal is due upon maturity. The February 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after February 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the February 2022 Notes, net of underwriting discounts and offering costs, were $138,338.

 

October 2022 Notes

 

In September 2012 and October 2012, the Company issued $182,500 aggregate principal amount of unsecured notes that mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes bear interest at a rate of 5.875% per year, payable quarterly and all principal is due upon maturity. The October 2022 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 1, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the October 2022 Notes, net of underwriting discounts and offering costs, were $176,054.

 

2040 Notes

 

In October 2010, the Company issued $200,000 aggregate principal amount of unsecured notes that mature on October 15, 2040 (the “2040 Notes”). The 2040 Notes bear interest at a rate of 7.75% per year, payable quarterly and all principal is due upon maturity. The 2040 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest. Total proceeds from the issuance of the 2040 Notes, net of underwriting discounts and offering costs, were $192,664.

 

2047 Notes

 

As part of the acquisition of Allied Capital Corporation (“Allied Capital”) in April 2010 (the “Allied Acquisition”), the Company assumed $230,000 aggregate principal amount of unsecured notes due on April 15, 2047 (the “2047 Notes” and together with the 2018 Notes, the February 2022 Notes, the October 2022 Notes and the 2040 Notes, the “Unsecured Notes”). The 2047 Notes bear interest at a rate of 6.875%, payable quarterly and all principal is due upon maturity. The 2047 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option, at a par redemption price of $25.00 per security plus accrued and unpaid interest. During the nine months ended September 30, 2014, the Company purchased $443 aggregate principal amount of the 2047 Notes and as a result of these transactions, the Company recognized a realized loss of $72.  As of September 30, 2014 and December 31, 2013, the outstanding principal was $229,557 and $230,000, respectively, and the carrying value was $181,265 and $181,429, respectively. The carrying value represents the outstanding principal amount of the 2047 Notes less the unaccreted purchased discount initially recorded as a part of the Allied Acquisition.

 

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Table of Contents

 

For the three and nine months ended September 30, 2014 and 2013, the components of interest expense and cash paid for interest expense for the Unsecured Notes were as follows:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Stated interest expense

 

$

22,157

 

$

13,024

 

$

65,925

 

$

39,074

 

Amortization of debt issuance costs

 

799

 

349

 

2,305

 

1,047

 

Accretion of purchase discount

 

23

 

58

 

125

 

170

 

Total interest expense

 

$

22,979

 

$

13,431

 

$

68,355

 

$

40,291

 

Cash paid for interest expense

 

$

13,017

 

$

13,024

 

$

54,374

 

$

36,392

 

 

The Unsecured Notes contain certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act and to provide financial information to the holders of such notes under certain circumstances. These covenants are subject to important limitations and exceptions set forth in the indentures governing such notes. As of September 30, 2014, the Company was in compliance in all material respects with the terms of the respective indentures governing each of the Unsecured Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are the Company’s unsecured obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of its secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

 

6.             DERIVATIVE INSTRUMENTS

 

The Company may enter into forward currency contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. Forward contracts are considered undesignated derivative instruments.

 

Certain information related to the Company’s derivative financial instruments is presented below as of September 30, 2014:

 

 

 

As of September 30, 2014

 

Description

 

Notional
Amount

 

Maturity Date

 

Gross
Amount of
Recognized
Assets

 

Gross
Amount
Offset in the
Balance
Sheet

 

Net Amount
of Assets in
the Balance
Sheet

 

Balance Sheet
Location

 

Foreign currency forward contract

 

CAD

 45,000

 

1/8/2015

 

$

40,247

 

$

(40,064

)

$

183

 

Other assets

 

Foreign currency forward contract

 

5,000

 

11/21/2014

 

6,660

 

(6,317

)

343

 

Other assets

 

Total

 

 

 

 

 

$

46,907

 

$

(46,381

)

$

526

 

 

 

 

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7.             COMMITMENTS AND CONTINGENCIES

 

The Company has various commitments to fund investments in its portfolio as described below.

 

As of September 30, 2014 and December 31, 2013, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) the Company’s discretion:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

Total revolving and delayed draw commitments

 

$

769,214

 

$

834,444

 

Less: funded commitments

 

(139,373

)

(87,073

)

Total unfunded commitments

 

629,841

 

747,371

 

Less: commitments substantially at discretion of the Company

 

(6,000

)

(16,000

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

 

(1,660

)

Total net adjusted unfunded revolving and delayed draw commitments

 

$

623,841

 

$

729,711

 

 

Included within the total revolving and delayed draw commitments as of September 30, 2014 were commitments to issue up to $79,750 in letters of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2014, the Company had $20,399 in letters of credit issued and outstanding under these commitments on behalf of portfolio companies. In addition to these letters of credit included as a part of the total revolving and delayed draw commitments to portfolio companies, as of September 30, 2014 the Company also had $5,284 of letters of credit issued and outstanding on behalf of other portfolio companies. For all these letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of these letters of credit issued and outstanding are recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit $75 expire in 2014, $24,961 expire in 2015 and $647 expire in 2016.

 

The Company also has commitments to co-invest in the SSLP for the Company’s portion of the SSLP’s commitments to fund delayed draw investments to certain portfolio companies of the SSLP. See Note 4 for more information.

 

As of September 30, 2014 and December 31, 2013, the Company was party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

Total private equity commitments

 

$

109,500

 

$

59,500

 

Less: funded private equity commitments

 

(15,197

)

(11,891

)

Total unfunded private equity commitments

 

94,303

 

47,609

 

Less: private equity commitments substantially at discretion of the Company

 

(91,163

)

(43,206

)

Total net adjusted unfunded private equity commitments

 

$

3,140

 

$

4,403

 

 

In the ordinary course of business, the Company may sell certain of its investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales) the Company has, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions have given rise to liabilities in the past and may do so in the future.

 

8.             FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows ASC 825-10, which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. With the exception of the line items entitled “other assets” and “debt,” which are reported at amortized cost, all assets and liabilities approximate fair value on the balance sheet. The carrying value of the lines titled “interest receivable,” “receivable for open trades,” “payable for open trades,” “accounts payable and other liabilities,” “base management fees payable,” “income based fees payable,” “capital gains incentive fees payable” and “interest and facility fees payable” approximate fair value due to their short maturity.

 

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The Company also follows ASC 820-10, which expands the application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Company to assume that the portfolio investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

 

·      Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

·      Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

·      Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

In addition to using the above inputs in investment valuations, the Company continues to employ the net asset valuation policy approved by the Company’s board of directors that is consistent with ASC 820-10 (see Note 2). Consistent with the Company’s valuation policy, it evaluates the source of inputs, including any markets in which the Company’s investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. The Company’s valuation policy considers the fact that because there is not a readily available market value for most of the investments in the Company’s portfolio, the fair value of the investments must typically be determined using unobservable inputs.

 

The Company’s portfolio investments (other than as discussed below in the following paragraph) are typically valued using two different valuation techniques. The first valuation technique is an analysis of the enterprise value (“EV”) of the portfolio company. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s EBITDA (net income before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The Company may also employ other valuation multiples to determine EV, such as revenues or, in the case of certain portfolio companies in the energy industry, kilowatt capacity. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is performed to determine the value of equity investments, the value of debt investments in portfolio companies where the Company has control or could gain control through an option or warrant security, and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. The second valuation technique is a yield analysis, which is typically performed for non-credit impaired debt investments in portfolio companies where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the enterprise value of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

 

For other portfolio investments such as investments in collateralized loan obligations and the SSLP Certificates, discounted cash flow analysis is the primary technique utilized to determine fair value. Expected future cash flows associated with the investment are discounted to determine a present value using a discount rate that reflects estimated market return requirements.

 

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Table of Contents

 

The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of September 30, 2014 and December 31, 2013. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

 

 

 

As of September 30, 2014

 

 

 

 

 

 

 

Unobservable Input

 

Asset Category

 

Fair Value

 

Primary Valuation
Techniques

 

Input

 

Estimated
Range

 

Weighted
Average

 

First lien senior secured loans

 

$

4,012,480

 

Yield analysis

 

Market yield

 

4.0% - 19.9%

 

8.3

%

Second lien senior secured loans

 

1,451,583

 

Yield analysis

 

Market yield

 

6.3% - 20.8%

 

9.1

%

Subordinated certificates of the SSLP

 

1,983,457

 

Discounted cash flow

 

Discount rate

 

10.0% - 13.0%

 

11.5

%

Senior subordinated debt

 

469,377

 

Yield analysis

 

Market yield

 

8.3% - 14.0%

 

10.7

%

Preferred equity securities

 

214,063

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 15.7x

 

9.1

x

Other equity securities and other

 

649,661

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 14.5x

 

9.1

x

Total

 

$

8,780,621

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013

 

 

 

 

 

 

 

Unobservable Input

 

Asset Category

 

Fair
Value

 

Primary
Valuation Techniques

 

Input

 

Estimated
Range

 

Weighted
Average

 

First lien senior secured loans

 

$

3,377,608

 

Yield analysis

 

Market yield

 

4.0% - 19.0%

 

8.4

%

Second lien senior secured loans

 

1,319,191

 

Yield analysis

 

Market yield

 

6.1% - 25.3%

 

10.3

%

Subordinated certificates of the SSLP

 

1,771,369

 

Discounted cash flow

 

Discount rate

 

10.5% - 13.5%

 

12.3

%

Senior subordinated debt

 

323,171

 

Yield analysis

 

Market yield

 

9.0% - 17.5%

 

11.4

%

Preferred equity securities

 

229,006

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 11.6x

 

8.3

x

Other equity securities and other

 

612,552

 

EV market multiple analysis

 

EBITDA multiple

 

4.5x - 14.8x

 

8.6

x

Total

 

$

7,632,897

 

 

 

 

 

 

 

 

 

 

Changes in market yields, discount rates or EBITDA multiples, each in isolation, may change the fair value of certain of the Company’s investments. Generally, an increase in market yields or discount rates or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

 

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

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

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The following table presents fair value measurements of cash and cash equivalents, investments and derivatives as of September 30, 2014:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

107,878

 

$

107,878

 

$

 

$

 

Investments

 

$

8,783,580

 

$

2,959

 

$

 

$

8,780,621

 

Derivatives

 

$

526

 

$

 

$

526

 

$

 

 

The following table presents fair value measurements of cash and cash equivalents and investments as of December 31, 2013:

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

149,629

 

$

149,629

 

$

 

$

 

Investments

 

$

7,632,897

 

$

 

$

 

$

7,632,897

 

 

The following table presents changes in investments that use Level 3 inputs as of and for the three and nine months ended September 30, 2014:

 

 

 

As of and for the
three months ended
September 30, 2014

 

Balance as of June 30, 2014

 

$

8,065,826

 

Net realized gains

 

73,690

 

Net unrealized losses

 

(5,498

)

Purchases

 

1,350,079

 

Sales

 

(226,293

)

Redemptions

 

(480,582

)

Payment-in-kind interest and dividends

 

2,431

 

Net accretion of discount on securities

 

1,266

 

Net transfers in and/or out of Level 3

 

(298

)

Balance as of September 30, 2014

 

$

8,780,621

 

 

 

 

As of and for the
nine months ended
September 30, 2014

 

Balance as of December 31, 2013

 

$

7,632,897

 

Net realized gains

 

38,207

 

Net unrealized gains

 

86,124

 

Purchases

 

3,085,331

 

Sales

 

(606,222

)

Redemptions

 

(1,464,155

)

Payment-in-kind interest and dividends

 

8,137

 

Net accretion of discount on securities

 

2,094

 

Net transfers in and/or out of Level 3

 

(1,792

)

Balance as of September 30, 2014

 

$

8,780,621

 

 

As of September 30, 2014, the net unrealized appreciation on the investments that use Level 3 inputs was $181,170.

 

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Table of Contents

 

For the three and nine months ended September 30, 2014, the total amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the Company’s Level 3 assets still held as of September 30, 2014, and reported within the net unrealized gains (losses) from investments in the Company’s consolidated statement of operations was $47,286 and $73,318, respectively.

 

The following table presents changes in investments that use Level 3 inputs as of and for the three and nine months ended September 30, 2013:

 

 

 

 

As of and for the
three months ended
September 30, 2013

 

Balance as of June 30, 2013

 

$

6,814,960

 

Net realized gains

 

8,946

 

Net unrealized gains

 

5,629

 

Purchases

 

931,814

 

Sales

 

(218,033

)

Redemptions

 

(163,620

)

Payment-in-kind interest and dividends

 

4,606

 

Accretion of discount on securities

 

983

 

Net transfers in and/or out of Level 3

 

 

Balance as of September 30, 2013

 

$

7,385,285

 

 

 

 

As of and for the
nine months ended
September 30, 2013

 

Balance as of December 31, 2012

 

$

5,914,657

 

Net realized gains

 

20,710

 

Net unrealized gains

 

14,935

 

Purchases

 

2,428,449

 

Sales

 

(393,351

)

Redemptions

 

(619,257

)

Payment-in-kind interest and dividends

 

15,189

 

Accretion of discount on securities

 

3,953

 

Net transfers in and/or out of Level 3

 

 

Balance as of September 30, 2013

 

$

7,385,285

 

 

As of September 30, 2013, the net unrealized appreciation on the investments that use Level 3 inputs was $107,573.

 

For the three and nine months ended September 30, 2013, the total amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the Company’s Level 3 assets still held as of September 30, 2013 and reported within the net unrealized gains (losses) from investments in the Company’s consolidated statement of operations was $9,442 and $1,530, respectively.

 

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

 

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Following are the carrying and fair values of the Company’s debt obligations as of September 30, 2014 and December 31, 2013. Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available.

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Carrying
value(1)

 

Fair value

 

Carrying
value(1)

 

Fair value

 

Revolving Credit Facility

 

$

335,000

 

$

335,000

 

 

 

Revolving Funding Facility

 

324,000

 

324,000

 

185,000

 

185,000

 

SMBC Funding Facility

 

54,000

 

54,000

 

 

 

February 2016 Convertible Notes (principal amount outstanding of $575,000)

 

562,805

(2)

605,636

 

556,456

(2)

620,960

 

June 2016 Convertible Notes (principal amount outstanding of $230,000)

 

224,196

(2)

240,667

 

221,788

(2)

246,810

 

2017 Convertible Notes (principal amount outstanding of $162,500)

 

159,936

(2)

169,741

 

159,220

(2)

172,289

 

2018 Convertible Notes (principal amount outstanding of $270,000)

 

265,091

(2)

280,106

 

264,096

(2)

284,702

 

2019 Convertible Notes (principal amount outstanding of $300,000)

 

295,913

(2)

310,560

 

295,279

(2)

311,169

 

2018 Notes (principal amount outstanding of $750,000 and $600,000, respectively)

 

750,745

(3)

793,658

 

596,757

(3)

619,782

 

February 2022 Notes (principal amount outstanding of $143,750)

 

143,750

 

145,569

 

143,750

 

149,364

 

October 2022 Notes (principal amount outstanding of $182,500)

 

182,500

 

181,937

 

182,500

 

181,770

 

2040 Notes (principal amount outstanding of $200,000)

 

200,000

 

206,888

 

200,000

 

199,208

 

2047 Notes (principal amount outstanding of $229,557 and $230,000, respectively)

 

181,265

(4)

229,071

 

181,429

(4)

206,606

 

 

 

$

3,679,201

(5)

$

3,876,833

 

$

2,986,275

(5)

$

3,177,660

 

 


(1)           Except for the Convertible Unsecured Notes, the 2018 Notes and the 2047 Notes, all carrying values are the same as the principal amounts outstanding.

 

(2)           Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less the unaccreted discount initially recorded upon issuance of each respective series of the Convertible Unsecured Notes.

 

(3)           As of September 30, 2014, represents the aggregate principal amount outstanding plus the net unamortized premium that was initially recorded upon the issuances of the 2018 Notes. As of December 31, 2013, represents the aggregate principal amount outstanding of the 2018 Notes less the unaccreted discount initially recognized on the first issuance of the 2018 Notes.

 

(4)           Represents the aggregate principal amount outstanding of the 2047 Notes less the unaccreted purchased discount.

 

(5)           Total principal amount of debt outstanding totaled $3,756,307 and $3,078,750 as of September 30, 2014 and December 31, 2013, respectively.

 

The following table presents fair value measurements of the Company’s debt obligations as of September 30, 2014 and December 31, 2013:

 

 

 

As of

 

Fair Value Measurements Using

 

September 30, 2014

 

December 31, 2013

 

Level 1

 

$

763,465

 

$

736,948

 

Level 2

 

3,113,368

 

2,440,712

 

Total

 

$

3,876,833

 

$

3,177,660

 

 

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Table of Contents

 

9.             STOCKHOLDERS’ EQUITY

 

The following table summarizes the total shares issued and proceeds received in public offerings of the Company’s common stock net of underwriting discounts and offering costs for the nine months ended September 30, 2014 and 2013:

 

 

 

Shares issued

 

Offering price per
share

 

Proceeds net of
underwriting and
operating costs

 

2014

 

 

 

 

 

 

 

July 2014 public offering

 

15,525

 

$

16.63

(1)

257,626

 

Total for the nine months ended September 30, 2014

 

15,525

 

 

 

257,626

 

2013

 

 

 

 

 

 

 

April 2013 public offering

 

19,147

 

$

17.43

(2)

$

333,174

 

Total for the nine months ended September 30, 2013

 

19,147

 

 

 

$

333,174

 

 


(1)           The shares were sold to the underwriters for a price of $16.63 per share, which the underwriters were then permitted to sell at variable prices to the public.

(2)           The shares were sold to the underwriters for a price of $17.43 per share, which the underwriters were then permitted to sell at variable prices to the public.

 

The Company used the net proceeds from the above public equity offerings to repay outstanding indebtedness and for general corporate purposes, which included funding investments in accordance with its investment objective.

 

10.          EARNINGS PER SHARE

 

The following information sets forth the computations of basic and diluted net increase in stockholders’ equity resulting from operations per share for the three and nine months ended September 30, 2014 and 2013:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net increase in stockholders’ equity resulting from operations available to common stockholders:

 

$

177,739

 

$

140,797

 

$

437,562

 

$

354,637

 

Weighted average shares of common stock outstanding—basic and diluted:

 

310,564

 

268,312

 

302,315

 

261,120

 

Basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

0.57

 

$

0.52

 

$

1.45

 

$

1.36

 

 

For the purpose of calculating diluted net increase in stockholders’ equity resulting from operations per share, the average closing price of the Company’s common stock for the three and nine months ended September 30, 2014  and 2013 was each less than the conversion price for each of the Convertible Unsecured Notes outstanding as of September 30, 2014 and 2013, respectively. Therefore, for all periods presented in the financial statements, the underlying shares for the intrinsic value of the embedded options in the Convertible Unsecured Notes have no impact on the computation of diluted net increase in stockholders’ equity resulting from operations per share.

 

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11.          DIVIDENDS AND DISTRIBUTIONS

 

The following table summarizes the Company’s dividends declared and payable during the nine months ended September 30, 2014 and 2013:

 

Date Declared

 

Record Date

 

Payment Date

 

Per Share
Amount

 

Total
Amount

 

August 5, 2014

 

September 15, 2014

 

September 30, 2014

 

$

0.38

 

$

119,361

 

May 6, 2014

 

June 16, 2014

 

June 30, 2014

 

0.38

 

113,343

 

February 26, 2014

 

March 14, 2014

 

March 31, 2014

 

0.38

 

113,228

 

November 5, 2013

 

March 14, 2014

 

March 28, 2014

 

0.05

(1)

14,899

 

Total declared and payable for the nine months ended September 30, 2014

 

 

 

 

 

$

1.19

 

$

360,831

 

 

 

 

 

 

 

 

 

 

 

August 6, 2013

 

September 16, 2013

 

September 30, 2013

 

$

0.38

 

$

101,959

 

May 7, 2013

 

June 14, 2013

 

June 28, 2013

 

0.38

 

101,856

 

February 27, 2013

 

March 15, 2013

 

March 29, 2013

 

0.38

 

94,488

 

Total declared and payable for the nine months ended September 30, 2013

 

 

 

 

 

$

1.14

 

$

298,303

 

 


(1)           Represents an additional dividend.

 

The Company has a dividend reinvestment plan, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. When the Company issues new shares in connection with the dividend reinvestment plan, the issue price is equal to the closing price of its common stock on the dividend payment date. Dividend reinvestment plan activity for the nine months ended September 30, 2014 and 2013 was as follows:

 

 

 

For the nine months ended
September 30,

 

 

 

2014

 

2013

 

Shares issued

 

612

 

796

 

Average price per share

 

$

17.74

 

$

17.51

 

 

 

 

 

 

 

Shares purchased by plan agent for stockholders

 

336

 

 

Average price per share

 

$

16.19

 

$

 

 

12.          RELATED PARTY TRANSACTIONS

 

In accordance with the investment advisory and management agreement, the Company bears all costs and expenses of the operation of the Company and reimburses its investment adviser or its affiliates for certain of such costs and expenses incurred in the operation of the Company. For the three and nine months ended September 30, 2014, the Company’s investment adviser or its affiliates incurred such expenses totaling $1,446 and $4,504, respectively. For the three and nine months ended September 30, 2013, the Company’s investment adviser or its affiliates incurred such expenses totaling $1,969 and $4,146, respectively. As of September 30, 2014, $1,517 was unpaid and such payable is included in “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

 

The Company is party to office leases pursuant to which it is leasing office facilities from third parties. For certain of these office leases, the Company has also entered into separate subleases with Ares Management LLC, the sole member of Ares Capital Management, and IHAM, pursuant to which Ares Management LLC and IHAM sublease a portion of these leases.  For the three and nine months ended September 30, 2014, amounts payable to the Company under these subleases totaled $1,269 and $3,015, respectively. For the three and nine months ended September 30, 2013, amounts payable to the Company under these subleases totaled $628 and $1,450, respectively.

 

Ares Management LLC has also entered into separate subleases with the Company, pursuant to which the Company subleases certain office leases from Ares Management LLC.  For the three and nine months ended September 30, 2014, amounts payable to Ares Management LLC under these subleases totaled $186 and $371, respectively. For the three and nine months ended September 30, 2013, amounts payable to Ares Management LLC under these subleases totaled $104.

 

See Note 3 for descriptions of other related party transactions.

 

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13.                               FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights as of and for the nine months ended September 30, 2014 and 2013:

 

 

 

For the nine months ended September 30,

 

Per Share Data:

 

2014

 

2013

 

Net asset value, beginning of period(1)

 

$

16.46

 

$

16.04

 

Issuances of common stock

 

 

0.10

 

Net investment income for period(2)

 

1.02

 

1.22

 

Net realized and unrealized gains for period(2)

 

0.42

 

0.13

 

Net increase in stockholders’ equity

 

1.44

 

1.45

 

Total distributions to stockholders

 

(1.19

)

(1.14

)

Net asset value at end of period(1)

 

$

16.71

 

$

16.35

 

 

 

 

 

 

 

Per share market value at end of period

 

$

16.16

 

$

17.29

 

Total return based on market value(3)

 

(2.36

)%

5.31

%

Total return based on net asset value(4)

 

8.81

%

8.48

%

Shares outstanding at end of period

 

314,108

 

268,596

 

 

 

 

 

 

 

Ratio/Supplemental Data:

 

 

 

 

 

Net assets at end of period

 

$

5,249,648

 

$

4,392,356

 

Ratio of operating expenses to average net assets(5)(6)

 

10.44

%

10.03

%

Ratio of net investment income to average net assets(5)(7)

 

8.23

%

10.08

%

Portfolio turnover rate(5)

 

34

%

20

%

 


(1)         The net assets used equals the total stockholders’ equity on the consolidated balance sheet.

 

(2)         Weighted average basic per share data.

 

(3)         For the nine months ended September 30, 2014, the total return based on market value equaled the decrease of the ending market value at September 30, 2014 of $16.16 per share from the ending market value at December 31, 2013 of $17.77 per share plus the declared and payable dividends of $1.19 per share for the nine months ended September 30, 2014, divided by the market value at December 31, 2013.  For the nine months ended September 30, 2013, the total return based on market value equaled the decrease of the ending market value at September 30, 2013 of $17.29 per share from the ending market value at December 31, 2012 of $17.50 per share plus the declared dividends of $1.14 per share for the nine months ended September 30, 2013, divided by the market value at December 31, 2012. Total return based on market value is not annualized. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(4)         For the nine months ended September 30, 2014, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.19 per share for the nine months ended September 30, 2014, divided by the beginning net asset value at December 31, 2013. For the nine months ended September 30, 2013, the total return based on net asset value equaled the change in net asset value during the period plus the declared dividends of $1.14 per share for the nine months ended September 30, 2013, divided by the beginning net asset value at December 31, 2012. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan, the issuance of common stock in connection with any equity offerings and the equity components of any convertible notes issued during the period. Total return based on net asset value is not annualized. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(5)         The ratios reflect an annualized amount.

 

(6)         For the nine months ended September 30, 2014, the ratio of operating expenses to average net assets consisted of 2.48% of base management fees, 2.91% of income based fees and capital gains incentive fees, 4.25% of the cost of borrowing and 0.80% of other operating expenses. For the nine months ended September 30, 2013, the ratio of operating expenses to average net assets consisted of 2.39% of base management fees,  2.80% of income based fees and capital gains incentive fees, 3.92% of the cost of borrowing and 0.92% of other operating expenses. These ratios reflect annualized amounts.

 

(7)         The ratio of net investment income to average net assets excludes income taxes related to realized gains and losses.

 

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14.                               LITIGATION

 

The Company is party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that the Company assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, the Company does not expect that these legal proceedings will materially affect its business, financial condition or results of operations.

 

On May 20, 2013, the Company was named as one of several defendants in an action (the “Action”) filed in the United States District Court for the Eastern District of Pennsylvania (the “Pennsylvania Court”) by the bankruptcy trustee of DSI Renal Holdings LLC and two related companies. On March 17, 2014 the Action was transferred to the United States District Court for the District of Delaware (the “Delaware Court”) pursuant to a motion filed by the defendants and granted by the Pennsylvania Court. On May 6, 2014, the Delaware Court referred the Action to the United States Bankruptcy Court for the District of Delaware. The complaint in the Action alleges, among other things, that each of the named defendants participated in a purported “fraudulent transfer” involving the restructuring of a subsidiary of DSI Renal Holdings LLC. Among other things, the complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which the complaint states the Company’s individual share is approximately $117 million, and (2) punitive damages. The Company is currently unable to assess with any certainty whether it may have any exposure in the Action. The Company believes the plaintiff’s claims are without merit and intends to vigorously defend itself in the Action.

 

15.                               SUBSEQUENT EVENTS

 

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the nine months ended September 30, 2014, except as disclosed below.

 

The Company has applied to the Small Business Administration (“SBA”) for a license to allow a new wholly owned subsidiary to operate as a Small Business Investment Company (“SBIC”) under the Small Business Investment Act of 1958. In May 2014, the Company received a “green light” or “go forth letter” from the SBA inviting the Company to continue its application process to obtain a license to form and operate an SBIC subsidiary, and the Company submitted its license application in October 2014. If approved, the license would provide the Company with an incremental source of long-term debt capital. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license, and the Company has received no assurance or indication from the SBA that the Company will receive an SBIC license or of the timeframe in which the Company would receive a license should one ultimately be granted.

 

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

 

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report. In addition, some of the statements in this report (including in the following discussion) constitute forward- looking statements, which relate to future events or the future performance or financial condition of Ares Capital Corporation (the “Company,” “ARCC,” “Ares Capital,” “we,” “us,” or “our”). The forward-looking statements contained in this report 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 or the operations of our competitors;

 

·                  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;

 

·                  uncertainty surrounding the financial stability of the U.S. and the EU;

 

·                  Middle East turmoil and the potential for rising energy prices 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 complete and 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; and

 

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

 

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 our annual report on Form 10-K for the fiscal year ended December 31, 2013.

 

We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

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OVERVIEW

 

We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected 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”).

 

We are externally managed by Ares Capital Management LLC (“Ares Capital Management” or our “investment adviser”), a subsidiary of Ares Management, L.P. (“Ares Management”), a publicly traded, leading global alternative asset manager, pursuant to our investment advisory and management agreement. Ares Operations LLC (“Ares Operations” or our “administrator”), a subsidiary of Ares Management, provides certain administrative and other services necessary for us to operate.

 

Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first lien senior secured loans (including unitranche loans), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component like warrants.

 

To a lesser extent, we also make preferred and/or common equity investments, which have generally been non-control equity investments, of less than $20 million (usually in conjunction with a concurrent debt investment). However, we may increase the size or change the nature of these investments.

 

Since our initial public offering on October 8, 2004 through September 30, 2014, our exited investments resulted in an aggregate cash flow realized internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $9.2 billion and total proceeds from such exited investments of approximately $11.2 billion). Internal rate of return is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related to investments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through the determination that no further consideration was collectible and, thus, a loss may have been realized. Approximately 69% of these exited investments resulted in an aggregate cash flow realized internal rate of return to us of 10% or greater.

 

Additionally, since our initial public offering on October 8, 2004 through September 30, 2014, our realized gains have exceeded our realized losses by approximately $296 million (excluding a one-time gain on the acquisition of Allied Capital Corporation (“Allied Capital”) and realized gains/losses from the extinguishment of debt and other assets). For this same time period, our average annualized net realized gain rate was approximately 1.1% (excluding a one-time gain on the acquisition of Allied Capital and realized gains/losses from the extinguishment of debt and other assets). Net realized gain/loss rates for a particular period are the amount of net realized gains/losses during such period divided by the average quarterly investments at amortized cost in such period.

 

Information included herein regarding internal rates of return, realized gains and losses and annualized net realized gain rates since our initial public offering are historical results relating to our past performance and are not necessarily indicative of future results, the achievement of which cannot be assured.

 

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities and indebtedness of private U.S. companies and certain public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. Specifically, as part of this 30% basket, we may invest in entities that are not considered “eligible portfolio companies” (as defined in the Investment Company Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the Investment Company Act, and publicly traded entities whose public equity market capitalization exceeds the levels provided for under the Investment Company Act.

 

We have elected to be treated as a regulated investment company, or a “RIC,” under the Internal Revenue Code of 1986, as amended (the “Code”), and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Code, for each year.

 

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Pursuant to this election, we generally will not have to pay U.S. federal corporate-level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.

 

PORTFOLIO AND INVESTMENT ACTIVITY

 

Our investment activity for the three months ended September 30, 2014 and 2013 is presented below (information presented herein is at amortized cost unless otherwise indicated).

 

 

 

For the three months ended
September 30,

 

(dollar amounts in millions)

 

2014

 

2013

 

New investment commitments (1):

 

 

 

 

 

New portfolio companies

 

$

488.5

 

$

842.3

 

Existing portfolio companies(2)

 

829.5

 

289.7

 

Total new investment commitments

 

1,318.0

 

1,132.0

 

Less:

 

 

 

 

 

Investment commitments exited

 

654.2

 

391.1

 

Net investment commitments

 

$

663.8

 

$

740.9

 

Principal amount of investments funded:

 

 

 

 

 

First lien senior secured loans

 

$

826.1

 

$

603.7

 

Second lien senior secured loans

 

294.0

 

134.9

 

Subordinated certificates of the Senior Secured Loan Fund LLC (the “SSLP”)(3)

 

86.4

 

182.4

 

Senior subordinated debt

 

126.4

 

 

Preferred equity securities

 

5.0

 

 

Other equity securities

 

12.2

 

10.7

 

Total

 

$

1,350.1

 

$

931.7

 

Principal amount of investments sold or repaid:

 

 

 

 

 

First lien senior secured loans

 

$

365.0

 

$

190.9

 

Second lien senior secured loans

 

102.6

 

42.9

 

Subordinated certificates of the SSLP(3)

 

70.4

 

25.3

 

Senior subordinated debt

 

40.9

 

106.1

 

Preferred equity securities

 

11.0

 

5.5

 

Other equity securities

 

39.3

 

2.1

 

Commercial real estate

 

4.0

 

 

Total

 

$

633.2

 

$

372.8

 

Number of new investment commitments (4)

 

30

 

25

 

Average new investment commitment amount

 

$

43.9

 

$

45.3

 

Weighted average term for new investment commitments (in months)

 

73

 

79

 

Percentage of new investment commitments at floating rates

 

87

%

95

%

Percentage of new investment commitments at fixed rates

 

12

%

4

%

Weighted average yield of debt and other income producing securities (5):

 

 

 

 

 

Funded during the period at amortized cost

 

8.8

%

9.5

%

Funded during the period at fair value (6)

 

8.7

%

9.5

%

Exited or repaid during the period at amortized cost

 

9.1

%

10.4

%

Exited or repaid during the period at fair value (6)

 

8.8

%

10.3

%

 


(1)                                 New investment commitments include new agreements to fund revolving credit facilities or delayed draw loans.

 

(2)                                 Includes investment commitments to the SSLP to make co-investments with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”) in first lien senior secured loans of middle market companies of $99.8 million and $221.5 million for the three months ended September 30, 2014 and 2013, respectively.

 

(3)                                 See “Senior Secured Loan Program” below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2014 for more information on the SSLP.

 

(4)                                 Number of new investment commitments represents each commitment to a particular portfolio company or a commitment to multiple companies as part of an individual transaction (e.g., the purchase of a portfolio of investments).

 

(5)                                 “Weighted average yield of debt and other income producing securities at amortized cost” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at amortized cost. “Weighted average yield of debt and other income producing securities at fair value” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at fair value.

 

(6)                                 Represents fair value for investments in the portfolio as of the most recent prior quarter end, if applicable.

 

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As of September 30, 2014 and December 31, 2013, our investments consisted of the following:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

(in millions)

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

First lien senior secured loans

 

$

4,030.2

 

$

4,012.5

 

$

3,405.6

 

$

3,377.6

 

Second lien senior secured loans

 

1,488.0

 

1,451.6

 

1,335.8

 

1,319.2

 

Subordinated certificates of the SSLP (1)

 

1,954.1

 

1,983.4

 

1,745.2

 

1,771.4

 

Senior subordinated debt

 

470.2

 

469.4

 

364.1

 

323.2

 

Preferred equity securities

 

224.5

 

214.1

 

226.0

 

229.0

 

Other equity securities

 

430.9

 

645.6

 

453.7

 

600.2

 

Commercial real estate

 

2.9

 

7.0

 

7.0

 

12.3

 

 

 

$

8,600.8

 

$

8,783.6

 

$

7,537.4

 

$

7,632.9

 

 


(1)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans to 49 and 47 different borrowers as of September 30, 2014 and December 31, 2013, respectively.

 

The weighted average yields at amortized cost and fair value of the following portions of our portfolio as of September 30, 2014 and December 31, 2013 were as follows:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

Debt and other income producing securities(1)

 

9.9

%

9.9

%

10.4

%

10.4

%

Total portfolio(2)

 

9.1

%

8.9

%

9.4

%

9.3

%

First lien senior secured loans(2)

 

8.2

%

8.2

%

7.8

%

7.8

%

Second lien senior secured loans(2)

 

8.3

%

8.5

%

9.4

%

9.5

%

Subordinated certificates of the SSLP (2)(3)

 

13.8

%

13.5

%

15.0

%

14.8

%

Senior subordinated debt(2)

 

10.7

%

10.7

%

10.3

%

11.6

%

Income producing equity securities (2)

 

9.7

%

9.6

%

10.1

%

9.1

%

 


(1)                                 “Weighted average yield of debt and other income producing securities at amortized cost” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at amortized cost. “Weighted average yield of debt and other income producing securities at fair value” is computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at fair value.

 

(2)                                 “Weighted average yields at amortized cost” are computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on the relevant accruing debt and other income producing securities, divided by (b) the total relevant investments at amortized cost. “Weighted average yields at fair value” are computed as the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on the relevant accruing debt and other income producing securities, divided by (b) the total relevant investments at fair value.

 

(3)                                 The proceeds from these certificates were applied to co-investments with GE to fund first lien senior secured loans.

 

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Ares Capital Management, our investment adviser, employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 4 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. Investments graded 3 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 3. Investments graded 2 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. An investment grade of 1 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 1, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 1, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 1 or 2, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. The grade of a portfolio investment may be reduced or increased over time.

 

Set forth below is the grade distribution of our portfolio companies as of September 30, 2014 and December 31, 2013:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

(dollar amounts in millions)

 

Fair Value

 

%

 

# of
Companies

 

%

 

Fair Value

 

%

 

# of
Companies

 

%

 

Grade 1

 

$

56.4

 

0.7

%

5

 

2.5

%

$

54.6

 

0.7

%

7

 

3.6

%

Grade 2

 

248.9

 

2.8

%

10

 

4.9

%

256.3

 

3.4

%

12

 

6.2

%

Grade 3

 

7,359.3

 

83.8

%

170

 

83.3

%

6,636.2

 

86.9

%

162

 

84.0

%

Grade 4

 

1,119.0

 

12.7

%

19

 

9.3

%

685.8

 

9.0

%

12

 

6.2

%

 

 

$

8,783.6

 

100.0

%

204

 

100.0

%

$

7,632.9

 

100.0

%

193

 

100.0

%

 

As of September 30, 2014 and December 31, 2013, the weighted average grade of the investments in our portfolio at fair value was 3.1 and 3.0, respectively.

 

As of September 30, 2014, loans on non-accrual status represented 2.2% and 1.6% of the total investments at amortized cost and at fair value, respectively. As of December 31, 2013, loans on non-accrual status represented 3.1% and 2.1% of the total investments at amortized cost and at fair value, respectively.

 

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Senior Secured Loan Program

 

We co-invest in first lien senior secured loans of middle market companies with GE through an unconsolidated Delaware limited liability company, the Senior Secured Loan Fund LLC (d/b/a “the Senior Secured Loan Program”) or the SSLP. The SSLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SSLP must be approved by an investment committee of the SSLP consisting of representatives of ours and GE (with approval from a representative of each required). We provide capital to the SSLP in the form of subordinated certificates (the “SSLP Certificates”).

 

As of September 30, 2014 and December 31, 2013, we and GE had agreed to make $11.0 billion of capital available to the SSLP, of which approximately $9.5 billion and $8.7 billion in aggregate principal amount, respectively, was funded. As of September 30, 2014 and December 31, 2013, we had agreed to make available to the SSLP approximately $2.3 billion, of which approximately $2.0 billion and $1.7 billion in aggregate principal amount, respectively, was funded. Investment of any unfunded amount must be approved by the investment committee of the SSLP as described above.

 

As of September 30, 2014 and December 31, 2013, the SSLP had total assets of $9.5 billion and $8.7 billion, respectively. As of September 30, 2014 and December 31, 2013, GE’s investment in the SSLP consisted of senior notes of $7.2 billion and $6.7 billion, respectively, and SSLP Certificates of $279.2 million and $249.3 million, respectively. The SSLP Certificates are junior in right of payment to the senior notes held by GE. As of September 30, 2014 and December 31, 2013, we and GE owned 87.5% and 12.5%, respectively, of the outstanding SSLP Certificates.

 

As of September 30, 2014 and December 31, 2013, the SSLP portfolio was comprised of all first lien senior secured loans to U.S. middle-market companies. As of September 30, 2014 and December 31, 2013, one loan was on non-accrual status, representing 0.9% and 1.0%, respectively, of the total loans at principal amount in the SSLP. The portfolio companies in the SSLP are in industries similar to the companies in our portfolio. Additionally, as of September 30, 2014 and December 31, 2013, the SSLP had commitments to fund various delayed draw investments to certain of its portfolio companies of $501.7 and $510.4 million, respectively, which had been approved by the SSLP investment committee. As of September 30, 2014 and December 31, 2013, we had commitments to co-invest in the SSLP for our portion of the SSLP’s commitments to fund such delayed draw investments of up to $92.8 million and $85.1 million, respectively.

 

Below is a summary of the SSLP’s portfolio, followed by a listing of the individual first lien senior secured loans in the SSLP’s portfolio as of September 30, 2014 and December 31, 2013:

 

 

 

As of

 

(dollar amounts in millions)

 

September 30, 2014

 

December 31, 2013

 

Total first lien senior secured loans(1)

 

$

9,363.6

 

$

8,664.4

 

Weighted average yield on first lien senior secured loans(2)

 

6.8

%

7.1

%

Number of borrowers in the SSLP

 

49

 

47

 

Largest loan to a single borrower(1)

 

$

332.9

 

$

321.7

 

Total of five largest loans to borrowers(1)

 

$

1,543.2

 

$

1,510.7

 

 


(1)                                 At principal amount.

 

(2)                                 Computed as the (a) annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.

 

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Table of Contents

 

SSLP Loan Portfolio as of September 30, 2014

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Access CIG, LLC(2)

 

Records and information management services provider

 

10/2017

 

7.9

%

$

196.6

 

ADG, LLC

 

Dental services provider

 

9/2019

 

8.1

%

213.1

 

AMCP Clean Acquisition Company, LLC

 

Provider of outsourced commercial linen and laundry services

 

8/2019

 

8.0

%

92.6

 

AMZ Products Merger Corporation

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

235.8

 

Argon Medical Devices, Inc.

 

Manufacturer and marketer of single-use specialty medical devices

 

4/2018

 

6.5

%

234.4

 

Brewer Holdings Corp.

 

Provider of software and technology-enabled content and analytical solutions to insurance brokers

 

11/2019

 

7.0

%

174.2

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

84.3

 

CH Hold Corp.(2)

 

Collision repair company

 

11/2019

 

5.5

%

300.0

 

Chariot Acquisition, LLC

 

Distributor and designer of aftermarket golf cart parts and accessories

 

1/2019

 

7.8

%

153.2

 

CIBT Holdings, Inc.(4)

 

Expedited travel document processing services

 

12/2018

 

6.8

%

188.5

 

Connoisseur Media, LLC

 

Owner and operator of radio stations

 

6/2019

 

7.3

%

140.7

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

6/2016

 

7.0

%

127.1

 

Document Technologies, LLC (2)(4)

 

Provider of legal process outsourcing and managed services

 

8/2020

 

5.8

%

279.2

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

8.0

%

133.9

 

Driven Brands, Inc.(2)(4)

 

Automotive aftermarket car care franchisor

 

3/2017

 

6.0

%

201.2

 

ECI Purchaser Company, LLC

 

Manufacturer of specialized pressure regulators, valves and other control equipment for use with liquefied and compressed gases

 

12/2019

 

6.0

%

235.6

 

Excelligence Learning Corporation(4)

 

Developer, manufacturer and retailer of educational products

 

8/2018

 

7.8

%

171.2

 

Fleischmann’s Vinegar Company, Inc.

 

Manufacturer and marketer of industrial vinegar

 

5/2016

 

8.0

%

70.6

 

Fox Hill Holdings, LLC(2)

 

Third party claims administrator on behalf of insurance carriers

 

6/2018

 

6.8

%

287.3

 

Gentle Communications, LLC

 

Dental services provider

 

6/2020

 

6.5

%

85.0

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

3/2018

 

6.0

%

215.8

 

Implus Footcare, LLC(4)

 

Provider of footwear and other accessories

 

4/2019

 

6.8

%

246.4

 

Instituto de Banca y Comercio, Inc.(2)(4)(5)

 

Private school operator

 

12/2016

 

 

 

87.6

 

iParadigms, LLC

 

Provider of anti-plagiarism software to the education industry

 

12/2019

 

5.8

%

269.6

 

Laborie Medical Technologies Corp(4)

 

Provider of medical diagnostics products

 

10/2018

 

6.8

%

112.7

 

MCH Holdings, Inc.(4)

 

Healthcare professional provider

 

1/2020

 

6.3

%

179.5

 

MWI Holdings, Inc.(2)

 

Provider of engineered springs, fasteners, and other precision components

 

3/2019

 

7.4

%

260.7

 

Noranco Manufacturing (USA) Ltd.

 

Supplier of complex machined and sheet metal components for the aerospace industry

 

4/2019

 

6.8

%

156.7

 

 

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Table of Contents

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Nordco, Inc.

 

Designer and manufacturer of railroad maintenance-of-way machinery

 

8/2019

 

7.0

%

218.4

 

Oak Parent, Inc.(2)

 

Manufacturer of athletic apparel

 

4/2018

 

7.5

%

302.8

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

12/2016

 

9.0

%

55.8

 

PetroChoice Holdings, LLC

 

Provider of lubrication solutions

 

1/2017

 

10.0

%

155.2

 

PODS Funding Corp. II(2)

 

Storage and warehousing

 

12/2018

 

7.0

%

332.9

 

Pretium Packaging, L.L.C.(4)

 

Plastic container and closure manufacturer

 

6/2020

 

6.0

%

185.3

 

Protective Industries, Inc. dba Caplugs(2)(4)

 

Manufacturer of plastic protection products

 

10/2019

 

6.3

%

276.2

 

PSSI Holdings, LLC(2)

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

6/2018

 

6.0

%

247.3

 

Restaurant Technologies, Inc.

 

Provider of bulk cooking oil management services to the restaurant and fast food service industries

 

6/2018

 

7.0

%

199.0

 

Sanders Industries Holdings, Inc.(4)

 

Manufacturer of elastomeric parts, mid-sized composite structures, and composite tooling

 

5/2020

 

7.0

%

84.0

 

Selig Sealing Products, Inc.

 

Manufacturer of container sealing products for rigid packaging applications

 

10/2019

 

6.8

%

198.5

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

195.5

 

STATS Acquisition, LLC

 

Sports technology, data and content company

 

6/2020

 

7.0

%

103.8

 

Strategic Partners, Inc.(4)

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

8/2018

 

8.5

%

230.3

 

TA THI Buyer, Inc. and TA THI Parent, Inc. (2)(4)

 

Supplier of branded light duty truck accessories for pick-up truck applications

 

7/2020

 

6.5

%

313.5

 

TecoStar Acquisition Company

 

Manufacturer of precision complex components for the medical device market and the aerospace and defense market

 

12/2019

 

6.1

%

157.4

 

The Teaching Company, LLC(2)(4)

 

Education publications provider

 

3/2017

 

9.0

%

109.7

 

Towne Holdings, Inc.

 

Provider of contracted hospitality services and parking systems

 

12/2019

 

6.8

%

153.2

 

U.S. Anesthesia Partners, Inc.(2)(3)

 

Anesthesiology service provider

 

12/2019

 

6.0

%

264.7

 

Universal Services of America, LP

 

Provider of security officer and guard services

 

7/2019

 

6.0

%

294.0

 

Wrigley Purchaser, LLC and Wrigley Management, LLC(2)

 

Provider of outpatient rehabilitation services

 

5/2020

 

6.1

%

152.6

 

 

 

 

 

 

 

 

 

$

9,363.6

 

 


(1)                                 Represents the weighted average annual stated interest rate as of September 30, 2014. All interest rates are payable in cash. For loans on non-accrual status, the stated interest rate is not shown as there is no current yield on such loans.

 

(2)                                 We also hold a portion of this company’s first lien senior secured loan.

 

(3)                                 We also hold a portion of this company’s second lien senior secured loan.

 

(4)                                 We hold an equity investment in this company.

 

(5)                                 Loan was on non-accrual status, as determined by the investment committee of the SSLP, as of September 30, 2014.

 

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Table of Contents

 

SSLP Loan Portfolio as of December 31, 2013

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Fair
Value(2)

 

Access CIG, LLC(3)

 

Records and information management services provider

 

10/2017

 

7.0

%

$

186.9

 

$

186.9

 

ADG, LLC

 

Dental services provider

 

9/2019

 

8.1

%

217.5

 

217.5

 

AMZ Products Merger Corporation

 

Specialty chemicals manufacturer

 

12/2018

 

6.8

%

237.6

 

237.6

 

Argon Medical Devices, Inc.

 

Manufacturer and marketer of single-use specialty medical devices

 

4/2018

 

6.5

%

239.2

 

239.2

 

BECO Holding Company, Inc.(5)

 

Wholesale distributor of first response fire protection equipment and related parts

 

12/2017

 

8.3

%

143.4

 

143.4

 

Brewer Holdings Corp. and Zywave, Inc.

 

Provider of software and technology-enabled content and analytical solutions to insurance brokers

 

11/2019

 

7.0

%

175.5

 

175.5

 

Cambridge International, Inc.

 

Manufacturer of custom designed and engineered metal products

 

4/2018

 

8.0

%

86.0

 

86.0

 

CCS Group Holdings, LLC(5)

 

Correctional facility healthcare operator

 

4/2016

 

8.0

%

134.5

 

134.5

 

CH Hold Corp.

 

Collision repair company

 

11/2019

 

5.5

%

270.0

 

270.0

 

Chariot Acquisition, LLC

 

Distributor and designer of aftermarket golf cart parts and accessories

 

1/2019

 

7.8

%

142.3

 

142.3

 

CIBT Holdings, Inc.(5)

 

Expedited travel document processing services

 

12/2018

 

6.8

%

178.9

 

178.9

 

CWD, LLC

 

Supplier of automotive aftermarket brake parts

 

6/2016

 

10.0

%

130.5

 

130.5

 

Drayer Physical Therapy Institute, LLC

 

Outpatient physical therapy provider

 

7/2018

 

7.5

%

136.7

 

136.7

 

Driven Holdings, LLC(5)

 

Automotive aftermarket car care franchisor

 

3/2017

 

7.0

%

159.1

 

159.1

 

ECI Purchaser Company, LLC

 

Manufacturer of equipment to safely control pressurized gases

 

12/2019

 

6.0

%

209.0

 

209.0

 

Excelligence Learning Corporation(5)

 

Developer, manufacturer and retailer of educational products

 

8/2018

 

7.8

%

174.0

 

174.0

 

Fleischmann’s Vinegar Company, Inc.

 

Manufacturer and marketer of industrial vinegar products

 

5/2016

 

8.0

%

74.7

 

74.7

 

Fox Hill Holdings, LLC(3)

 

Third party claims administrator on behalf of insurance carriers

 

6/2018

 

6.8

%

289.5

 

289.5

 

III US Holdings, LLC

 

Provider of library automation software and systems

 

3/2018

 

7.6

%

194.5

 

194.5

 

Implus Footcare, LLC(5)

 

Provider of footwear and other accessories

 

10/2016

 

9.0

%

210.3

 

210.3

 

Instituto de Banca y Comercio, Inc.(3)(5)(6)

 

Private school operator

 

6/2015

 

 

 

82.4

 

74.2

 

Intermedix Corporation(4)

 

Revenue cycle management provider to the emergency healthcare industry

 

12/2018

 

6.3

%

321.7

 

321.7

 

iParadigms, LLC

 

Provider of anti-plagiarism software to the education industry

 

4/2019

 

6.5

%

164.2

 

164.2

 

JHP Pharmaceuticals, LLC(5)

 

Manufacturer of specialty pharmaceutical products

 

12/2019

 

6.8

%

182.2

 

182.2

 

Laborie Medical Technologies Corp(5)

 

Developer and manufacturer of medical equipment

 

10/2018

 

6.8

%

113.5

 

113.5

 

LJSS Acquisition, Inc.

 

Fluid power distributor

 

10/2017

 

6.8

%

159.8

 

159.8

 

MWI Holdings, Inc.(3)

 

Provider of engineered springs, fasteners, and other precision components

 

3/2019

 

7.4

%

261.6

 

261.6

 

 

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Table of Contents

 

(dollar amounts in millions)
Portfolio Company

 

Business Description

 

Maturity
Date

 

Stated
Interest
Rate(1)

 

Principal
Amount

 

Fair
Value(2)

 

Noranco Manufacturing (USA) Ltd.

 

Supplier of complex machined and sheet metal components for the aerospace industry

 

4/2019

 

6.8

%

161.1

 

161.1

 

Nordco, Inc.

 

Designer and manufacturer of railroad maintenance-of-way machinery

 

8/2019

 

7.0

%

224.7

 

224.7

 

Oak Parent, Inc.(3)

 

Manufacturer of athletic apparel

 

4/2018

 

7.5

%

307.1

 

307.1

 

Penn Detroit Diesel Allison, LLC

 

Distributor of new equipment and aftermarket parts to the heavy-duty truck industry

 

12/2016

 

9.0

%

59.5

 

59.5

 

PetroChoice Holdings, LLC

 

Provider of lubrication solutions

 

1/2017

 

10.0

%

158.3

 

158.3

 

PODS Funding Corp. II(3)

 

Storage and warehousing

 

12/2018

 

7.0

%

314.1

 

314.1

 

Pregis Corporation, Pregis Intellipack Corp. and Pregis Innovative Packaging Inc.(3)

 

Provider of highly-customized, tailored protective packaging solutions

 

3/2017

 

7.8

%

152.0

 

152.0

 

Protective Industries, Inc. dba Caplugs(3)(5)

 

Manufacturer of plastic protection products

 

10/2019

 

6.8

%

278.3

 

278.3

 

PSSI Holdings, LLC(3)

 

Provider of mission-critical outsourced cleaning and sanitation services to the food processing industry

 

6/2018

 

6.0

%

224.4

 

224.4

 

Restaurant Technologies, Inc.

 

Provider of bulk cooking oil management services to the restaurant and fast food service industries

 

6/2018

 

7.0

%

202.7

 

202.7

 

Selig Sealing Products, Inc.

 

Manufacturer of container sealing products for rigid packaging applications

 

10/2019

 

6.8

%

209.0

 

209.0

 

Singer Sewing Company

 

Manufacturer of consumer sewing machines

 

6/2017

 

7.3

%

197.0

 

197.0

 

Strategic Partners, Inc.(5)

 

Supplier of medical uniforms, specialized medical footwear and accessories

 

8/2018

 

7.8

%

232.1

 

232.1

 

Talent Partners G.P. and Print Payroll Services, G.P.

 

Provider of technology-enabled payroll to the advertising industry

 

10/2017

 

8.0

%

62.0

 

62.0

 

TecoStar Acquisition Company

 

Manufacturer of precision components for orthopedic medical devices

 

12/2019

 

6.4

%

118.0

 

118.0

 

The Teaching Company, LLC(3)(5)

 

Education publications provider

 

3/2017

 

9.0

%

111.5

 

109.3

 

Towne Holdings, Inc.

 

Provider of contracted hospitality services and parking systems

 

12/2019

 

6.8

%

154.0

 

154.0

 

U.S. Anesthesia Partners, Inc.(3)

 

Anesthesiology service provider

 

12/2019

 

6.0

%

210.0

 

210.0

 

Universal Services of America, LP

 

Provider of security officer and guard services

 

7/2019

 

6.0

%

253.9

 

253.9

 

WB Merger Sub, Inc.

 

Importer, distributor and developer of premium wine and spirits

 

12/2016

 

9.0

%

159.2

 

159.2

 

 

 

 

 

 

 

 

 

$

8,664.4

 

$

8,654.0

 

 


(1)                                 Represents the weighted average annual stated interest rate as of December 31, 2013. All interest rates are payable in cash. For loans on non-accrual status, the stated interest rate is not shown as there is no current yield on such loans.

 

(2)                                 Represents the fair value in accordance with ASC 820-10. The determination of such fair value is not included in our board of directors valuation process described elsewhere herein.

 

(3)                                 We also hold a portion of this company’s first lien senior secured loan.

 

(4)                                 We also hold a portion of this company’s second lien senior secured loan.

 

(5)                                 We hold an equity investment in this company.

 

(6)                                 Loan was on non-accrual status, as determined by the investment committee of the SSLP, as of December 31, 2013.

 

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Table of Contents

 

The amortized cost and fair value of our SSLP Certificates was $2.0 billion and $2.0 billion, respectively, as of September 30, 2014, and $1.7 billion and $1.8 billion, respectively, as of December 31, 2013. The SSLP Certificates pay a weighted average contractual coupon of three month LIBOR plus approximately 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the underlying loan portfolio, which may result in a return to the holders of the SSLP Certificates that is greater than both the contractual coupon on the SSLP Certificates as well as the weighted average yield on the SSLP’s portfolio of 6.8% and 7.1% at September 30, 2014 and December 31, 2013, respectively. Our yield on our investment in the SSLP at amortized cost and fair value was 13.8% and 13.5%, respectively, as of September 30, 2014, and 15.0% and 14.8%, respectively, as of December 31, 2013. For the three and nine months ended September 30, 2014, we earned interest income of $69.8 million and $205.4 million, respectively, from our investment in the SSLP Certificates. For the three and nine months ended September 30, 2013, we earned interest income of $59.2 million and $161.2 million, respectively, from our investment in the SSLP Certificates.

 

We are also entitled to certain fees in connection with the SSLP. For the three and nine months ended September 30, 2014, in connection with the SSLP, we earned capital structuring service, sourcing and other fees totaling $17.1 million and $46.1 million, respectively. For the three and nine months ended September 30, 2013, in connection with the SSLP, we earned capital structuring service, sourcing and other fees totaling $19.9 million and $42.8 million, respectively.

 

Selected financial information for the SSLP as of and for the year ended December 31, 2013 is as follows:

 

(in millions)

 

As of and for the Year
Ended December 31, 2013

 

Selected Balance Sheet Information:

 

 

 

Investments in loans receivable, net of discount for loan origination fees

 

$

8,601.6

 

Cash and other assets

 

$

142.3

 

Total assets

 

$

8,743.9

 

 

 

 

 

Senior notes

 

$

6,699.5

 

Other liabilities

 

$

64.2

 

Total liabilities

 

$

6,763.7

 

Subordinated certificates and members’ capital

 

$

1,980.2

 

Total liabilities and members’ capital

 

$

8,743.9

 

 

 

 

 

Selected Statement of Operations Information:

 

 

 

Total revenues

 

$

554.2

 

Total expenses

 

$

296.7

 

Net income

 

$

257.5

 

 

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Table of Contents

 

RESULTS OF OPERATIONS

 

For the three and nine months ended September 30, 2014 and 2013

 

Operating results for the three and nine months ended September 30, 2014 and 2013 were as follows:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

Total investment income

 

$

253.4

 

$

246.8

 

$

718.0

 

$

648.0

 

Total expenses

 

140.6

 

116.6

 

392.6

 

317.4

 

Net investment income before income taxes

 

112.8

 

130.2

 

325.4

 

330.6

 

Income tax expense, including excise tax

 

7.5

 

4.0

 

15.8

 

11.7

 

Net investment income

 

105.3

 

126.2

 

309.6

 

318.9

 

Net realized gains on investments and foreign currency transactions

 

76.5

 

9.0

 

40.1

 

29.3

 

Net unrealized gains (losses) on investments and foreign currency transactions

 

(4.1

)

5.6

 

87.9

 

6.4

 

Realized losses on extinguishment of debt

 

 

 

(0.1

)

 

Net increase in stockholders’ equity resulting from operations

 

$

177.7

 

$

140.8

 

$

437.5

 

$

354.6

 

 

Net income can vary substantially from period to period due to various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

 

Investment Income

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

Interest income from investments

 

$

190.8

 

$

169.6

 

$

540.5

 

$

471.8

 

Capital structuring service fees

 

31.7

 

31.6

 

74.3

 

61.7

 

Dividend income

 

19.7

 

34.8

 

67.2

 

82.7

 

Management and other fees

 

6.4

 

5.4

 

18.4

 

14.9

 

Other income

 

4.8

 

5.4

 

17.6

 

16.9

 

Total investment income

 

$

253.4

 

$

246.8

 

$

718.0

 

$

648.0

 

 

The increase in interest income from investments for the three months ended September 30, 2014 from the comparable period in 2013 was primarily due to an increase in the size of our portfolio, which increased from an average of $7.0 billion at amortized cost for the three months ended September 30, 2013 to an average of $8.2 billion at amortized cost for the comparable period in 2014. The increase in capital structuring service fees for the three months ended September 30, 2014 from the comparable period in 2013 was primarily due to the increase in new investment commitments, which increased from $1.1 billion for the three months ended September 30, 2013 to $1.3 billion for the comparable period in 2014, partially offset by the decrease in the average capital structuring service fees received on new investments, from 2.8% for the three months ended September 30, 2013 to 2.4% in the comparable period in 2014. Dividend income for the three months ended September 30, 2014 and 2013 included dividends received from Ivy Hill Asset Management, L.P. (“IHAM”) totaling $10.0 million and $25.0 million, respectively. The dividends received from IHAM for the three months ended September 30, 2013 included an additional dividend of $15.0 million that was paid in addition to the quarterly dividends generally paid by IHAM. IHAM paid the additional dividend out of accumulated earnings that had previously been retained by IHAM. Also during the three months ended September 30, 2014, we received $6.0 million in other non-recurring dividends from non-income producing equity securities compared to $5.2 million for the comparable period in 2013.

 

The increase in interest income from investments for the nine months ended September 30, 2014 from the comparable period in 2013 was primarily due to the increase in the size of the portfolio, which increased from an average of $6.4 billion at amortized cost for the nine months ended September 30, 2013 to an average of $7.9 billion at amortized cost for the comparable period in 2014. The increase in capital structuring service fees for the nine months ended September 30, 2014 from the comparable period in 2013 was primarily due to the increase in new investment commitments, which increased from $2.7 billion for the nine months ended September 30, 2013 to $3.2 billion for the comparable period in 2014, while the average capital structuring service fees received on new investments remained steady at 2.3% for both the nine months ended September 30, 2014 and 2013. Dividend income for the nine months ended September 30, 2014 and 2013 included dividends received from IHAM totaling $40.0 million and $62.4 million, respectively. The dividends received from IHAM for the nine months ended September 30, 2014 and 2013 included additional dividends of $10.0 million and $32.4 million, respectively, that were paid in addition to the quarterly dividends generally paid by IHAM. IHAM paid the additional dividends out of accumulated earnings that had previously been retained by IHAM. Also during the nine months ended September 30, 2014, we received $15.5 million in other non-recurring dividends from non-income producing equity securities compared to $6.6 million for the comparable period in 2013.

 

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Operating Expenses

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

Interest and credit facility fees

 

$

54.1

 

$

44.4

 

$

159.7

 

$

124.0

 

Base management fees

 

32.7

 

27.5

 

93.5

 

75.6

 

Income based fees

 

31.3

 

32.3

 

85.2

 

81.5

 

Capital gains incentive fees

 

13.1

 

2.9

 

24.2

 

7.2

 

Administrative fees

 

3.1

 

3.3

 

9.7

 

8.6

 

Other general and administrative

 

6.3

 

6.2

 

20.3

 

20.5

 

Total expenses

 

$

140.6

 

$

116.6

 

$

392.6

 

$

317.4

 

 

Interest and credit facility fees for the three and nine months ended September 30, 2014 and 2013, were comprised of the following:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

Stated interest expense

 

$

44.0

 

$

36.0

 

$

127.7

 

$

97.7

 

Facility fees

 

2.1

 

1.4

 

8.7

 

5.8

 

Amortization of debt issuance cost

 

4.2

 

3.5

 

12.1

 

10.4

 

Accretion of discount on notes payable

 

3.8

 

3.5

 

11.2

 

10.1

 

Total interest and credit facility fees

 

$

54.1

 

$

44.4

 

$

159.7

 

$

124.0

 

 

Stated interest expense for the three months ended September 30, 2014 increased from the comparable period in 2013 primarily due to the increase in the average principal amount of debt outstanding, which increased to $3.4 billion as compared to $2.9 billion for the comparable period in 2013. Stated interest expense for the nine months ended September 30, 2014 increased from the comparable period in 2013 primarily due to the increase in the average principal amount of debt outstanding, which increased to $3.2 billion as compared to $2.5 billion for the comparable period in 2013. Facility fees for the nine months ended September 30, 2014 increased from the comparable period in 2013 primarily due to higher non-usage fees incurred on the secured revolving facilities.

 

The increase in base management fees and fees based on our net investment income (“income based fees”) for the three and nine months ended September 30, 2014 from the comparable period in 2013 were primarily due to the increase in the size of the portfolio and in the case of income based fees, the related increase in net investment income excluding income based fees and fees based on our net capital gains (“capital gains incentive fees”).

 

For the three and nine months ended September 30, 2014, the capital gains incentive fee expense accrual calculated in accordance with GAAP was $13.1 million and $24.2 million, respectively. For the three and nine months ended September 30, 2013, the capital gains incentive fee expense accrual calculated in accordance with GAAP was $2.9 million and $7.2 million, respectively. Capital gains incentive fee expense accrual for the three months ended September 30, 2014 increased from the comparable period in 2013 primarily due to higher net gains on investments and foreign currency transactions, which increased from $8.9 million during the three months ended September 30, 2013 to $76.5 million for the comparable period in 2014. Capital gains incentive fee expense accrual for the nine months ended September 30, 2014 increased from the comparable period in 2013 primarily due to higher net gains on investments and foreign currency transactions, which increased from $29.3 million during the three months ended September 30, 2013 to $40.1 million for the comparable period in 2014. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, where as the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of September 30, 2014, the total capital gains incentive fee accrual calculated in accordance with GAAP was $87.7 million (included in “capital gains incentive fees payable” in the consolidated balance sheet). However, as of September 30, 2014, there was no capital gains incentive fee actually payable under our investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2013 for more information on the base management fees, income based fees and capital gains incentive fees.

 

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Administrative fees represent fees paid to Ares Operations for our allocable portion of overhead and other expenses incurred by Ares Operations in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staffs. Other general and administrative expenses include professional fees, rent, insurance, depreciation, director’s fees and other costs.

 

Income Tax Expense, Including Excise Tax

 

We have elected to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Code, for each year. In order to maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders which will generally relieve us from U.S. federal corporate-level income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income as such taxable income is earned. For the three months ended September 30, 2014, we had no U.S. federal excise tax expense.  For the nine months ended September 30, 2014, we recorded a net expense of $4.0 million for U.S. federal excise tax, which includes a reduction in expense in the third quarter related to the recording of a requested refund resulting from the overpayment of 2013 excise tax of $1.7 million. For the three and nine months ended September 30, 2013, we recorded a net expense of $2.8 million and $8.8 million, respectively, for U.S. federal excise tax.

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes. For the three and nine months ended September 30, 2014, we recorded a tax expense of approximately $7.5 million and $11.8 million, respectively, for these subsidiaries. For the three and nine months ended September 30, 2013, we recorded a tax expense of approximately $1.2 million and $2.9 million, respectively, for these subsidiaries. The increases in income tax expense for our taxable consolidated subsidiaries for the three and nine months ended September 30, 2014 from the comparable periods in 2013 were primarily driven by the realized gains from the exits of certain investments held by such subsidiaries during the three months ended September 30, 2014.

 

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Net Realized Gains/Losses

 

During the three months ended September 30, 2014, we had $706.6 million of sales, repayments or exits of investments resulting in $73.8 million of net realized gains. Net realized gains of $73.8 million on investments were comprised of $80.9 million of gross realized gains and $7.1 million of gross realized losses.

 

The net realized gains on investments during the three months ended September 30, 2014 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized Gains
(Losses)

 

Insight Pharmaceuticals Corporation

 

$

33.1

 

The Dwyer Group

 

21.1

 

Service King Paint & Body, LLC

 

10.4

 

Platform Acquisition, Inc.

 

4.7

 

Apple & Eve, LLC

 

4.3

 

TOA Technologies, Inc.

 

1.9

 

BECO Holding Company, Inc.

 

1.9

 

X Plus Two Solutions, Inc.

 

1.5

 

Pillar Processing LLC

 

(6.6

)

Other, net

 

1.5

 

Total

 

$

73.8

 

 

During the three months ended September 30, 2014, we also recognized net realized gains on foreign currency transactions of $2.8 million.

 

During the three months ended September 30, 2013, we had $381.7 million of sales, repayments or exits of investments resulting in $8.9 million of net realized gains. These sales, repayments or exits included $104.8 million of investments sold to IHAM and certain vehicles managed by IHAM.  A net realized loss of $0.2 million was recorded on the transactions with IHAM.  Net realized gains of $8.9 million on investments were comprised of $50.8 million of gross realized gains and $41.9 million of gross realized losses.

 

The net realized gains on investments during the three months ended September 30, 2013 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized Gains
(Losses)

 

Component Hardware Group, Inc.

 

$

17.7

 

Financial Pacific Company

 

17.6

 

Tradesmen International, Inc.

 

10.0

 

Senior Secured Loan Fund LLC

 

1.8

 

Matrixx Initiatives, Inc.

 

1.6

 

eInstruction Corporation

 

(40.3

)

Other, net

 

0.5

 

Total

 

$

8.9

 

 

During the nine months ended September 30, 2014, the Company had $2,066.9 million of sales, repayments or exits of investments resulting in $38.3 million of net realized gains. These sales, repayments or exits included $64.5 million of investments sold to IHAM or certain vehicles managed by IHAM. No realized gains or losses were recognized on these transactions. Net realized gains of $38.3 million on investments were comprised of $97.6 million of gross realized gains and $59.3 million of gross realized losses.

 

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The net realized gains on investments during the nine months ended September 30, 2014 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized Gains
(Losses)

 

Insight Pharmaceuticals Corporation

 

33.1

 

The Dwyer Group

 

21.1

 

Service King Paint & Body, LLC

 

10.4

 

Platform Acquisition, Inc.

 

4.7

 

Apple & Eve, LLC

 

4.3

 

TOA Technologies, Inc.

 

2.0

 

JHP Group Holdings, Inc.

 

1.9

 

BECO Holding Company, Inc.

 

1.9

 

Dialysis Newco, Inc.

 

1.7

 

Orion Foods, LLC

 

1.6

 

La Paloma Generating Company, LLC

 

1.6

 

X Plus Two Solutions, Inc.

 

1.5

 

Magnacare Holdings, Inc.

 

1.3

 

Imperial Capital Group LLC

 

1.3

 

Stag-Parkway, Inc.

 

1.2

 

Eberle Design, Inc.

 

1.1

 

Geotrace Technologies, Inc.

 

(2.9

)

Pillar Processing LLC

 

(6.6

)

CitiPostal Inc.

 

(20.3

)

MVL Group, Inc.

 

(27.7

)

Other, net

 

5.1

 

Total

 

$

38.3

 

 

During the nine months ended September 30, 2014, we purchased $0.4 million aggregate principal amount of the 2047 Notes (as defined below) and as a result of these transactions, we recognized realized losses of $0.1 million. During the nine months ended September 30, 2014, we also recognized net realized gains on foreign currency transactions of $1.8 million.

 

During the nine months ended September 30, 2013, the Company had $1,017.8 million of sales, repayments or exits of investments resulting in $29.3 million of net realized gains. These sales, repayments or exits included $139.8 million of investments sold to IHAM or certain vehicles managed by IHAM. A net realized loss of $0.1 million was recorded on these transactions. Net realized gains of $29.3 million on investments were comprised of $72.1 million of gross realized gains and $42.8 million of gross realized losses.

 

The net realized gains on investments during the nine months ended September 30, 2013 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Realized
Gains (Losses)

 

Component Hardware Group, Inc.

 

$

17.7

 

Financial Pacific Company

 

17.6

 

Tradesmen International, Inc.

 

10.0

 

Performant Financial Corporation

 

8.6

 

Senior Secured Loan Fund LLC

 

5.4

 

Performance Food Group, Inc.

 

4.1

 

BenefitMall Holdings Inc.

 

2.0

 

Matrixx Initiatives, Inc.

 

1.7

 

Promo Works, LLC

 

(1.0

)

eInstruction Corporation

 

(40.3

)

Other, net

 

3.5

 

Total

 

$

29.3

 

 

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Net Unrealized Gains/Losses

 

We value our portfolio investments quarterly and the changes in value are recorded as unrealized gains or losses. For the three and nine months ended September 30, 2014 and 2013, net unrealized gains and losses for our portfolio were comprised of the following:

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

(in millions)

 

2014

 

2013

 

2014

 

2013

 

Unrealized appreciation

 

$

86.1

 

$

35.4

 

$

152.8

 

$

82.5

 

Unrealized depreciation

 

(34.6

)

(24.3

)

(93.3

)

(76.0

)

Net unrealized (appreciation) depreciation reversal related to net realized gains or losses(1)

 

(56.5

)

(5.5

)

27.8

 

 

Total net unrealized gains (losses)

 

$

(5.0

)

$

5.6

 

$

87.3

 

$

6.5

 

 


(1)         The net unrealized (appreciation) depreciation reversal related to net realized gains or losses represents the unrealized appreciation or depreciation recorded on the related asset at the end of the prior period.

 

The changes in net unrealized appreciation during the three months ended September 30, 2014 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Deprecation)

 

10th Street, LLC

 

$

38.7

 

Ciena Capital LLC

 

6.6

 

UL Holding Co., LLC and Universal Lubricants, LLC

 

5.5

 

VSS-Tranzact Holdings, LLC

 

4.1

 

CCS Intermediate Holdings, LLC

 

3.9

 

Performance Food Group, Inc.

 

2.3

 

Restaurant Holding Company, LLC

 

(2.3

)

2329497 Ontario Inc.

 

(2.4

)

Orion Foods, LLC

 

(2.9

)

ADF Capital, Inc.

 

(3.0

)

The Step2 Company, LLC

 

(3.3

)

Ivy Hill Asset Management, L.P.

 

(3.4

)

Other, net

 

7.7

 

Total

 

$

51.5

 

 

During the three months ended September 30, 2014, we also recognized net unrealized gains on foreign currency transactions of $0.9 million.

 

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The changes in net unrealized appreciation during the three months ended September 30, 2013 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Depreciation)

 

CitiPostal Inc.

 

$

4.0

 

Orion Foods, LLC

 

3.4

 

Community Education Centers, Inc.

 

3.3

 

Senior Secured Loan Fund LLC

 

2.7

 

HCPro, Inc.

 

(2.1

)

UL Holding Co., LLC

 

(3.1

)

Insight Pharmaceuticals Corporation

 

(3.1

)

ELC Acquisition Corp.

 

(3.5

)

Competitor Group, Inc.

 

(3.5

)

Other, net

 

13.0

 

Total

 

$

11.1

 

 

The changes in net unrealized appreciation during the nine months ended September 30, 2014 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Deprecation)

 

10th Street, LLC

 

$

47.2

 

VSS-Tranzact Holdings, LLC

 

10.0

 

Ciena Capital LLC

 

9.4

 

Imperial Capital Private Opportunities, LP

 

8.4

 

Universal Lubricants, LLC

 

7.1

 

Campus Management Corp.

 

6.0

 

Senior Secured Loan Fund LLC

 

5.2

 

CCS Intermediate Holdings, LLC

 

3.9

 

Cast & Crew Payroll, LLC

 

3.4

 

Waste Pro USA, Inc

 

2.8

 

The Thymes, LLC

 

2.7

 

American Broadband Communications, LLC

 

2.6

 

Performance Food Group, Inc.

 

2.4

 

Service King Paint & Body, LLC

 

2.3

 

Netsmart Technologies, Inc.

 

2.1

 

EUNetworks Group Limited

 

(2.2

)

Orion Foods, LLC

 

(2.7

)

2329497 Ontario Inc.

 

(2.9

)

R3 Education, Inc.

 

(4.2

)

OTG Management, LLC

 

(4.3

)

Community Education Centers, Inc.

 

(4.5

)

ADF Capital, Inc.

 

(10.2

)

The Step2 Company, LLC

 

(18.4

)

Ivy Hill Asset Management, L.P.

 

(21.5

)

Other, net

 

14.9

 

Total

 

$

59.5

 

 

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During the nine months ended September 30, 2014, we also recognized net unrealized gains on foreign currency transactions of $0.6 million.

 

The changes in net unrealized appreciation during the nine months ended September 30, 2013 consisted of the following:

 

(in millions)
Portfolio Company

 

Net Unrealized
Appreciation
(Depreciation)

 

Orion Foods, LLC

 

$

7.0

 

10th Street, LLC

 

6.8

 

Senior Secured Loan Fund LLC

 

6.1

 

Imperial Capital Private Opportunities, LP

 

4.7

 

Community Education Centers, Inc.

 

4.0

 

American Broadband Communications, LLC

 

3.7

 

AWTP, LLC

 

3.3

 

The Dwyer Group

 

3.1

 

Apple & Eve, LLC

 

2.8

 

Waste Pro USA, Inc

 

2.8

 

CT Technologies Intermediate Holdings, Inc.

 

2.7

 

Matrixx Initiatives, Inc.

 

2.3

 

Hojeij Branded Foods, Inc.

 

2.1

 

Woodstream Corporation

 

(2.1

)

Insight Pharmaceuticals Corporation

 

(2.4

)

The Step2 Company, LLC

 

(2.6

)

HCPro, Inc.

 

(3.3

)

ADF Capital, Inc.

 

(3.4

)

Campus Management Corp.

 

(4.6

)

Ciena Capital LLC

 

(5.7

)

Competitor Group, Inc.

 

(7.7

)

UL Holding Co., LLC

 

(15.3

)

Ivy Hill Asset Management, L.P.

 

(18.8

)

Other, net

 

21.1

 

Total

 

$

6.5

 

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Our liquidity and capital resources are generated primarily from the net proceeds of public offerings of equity and debt securities, advances from the Revolving Credit Facility, the Revolving Funding Facility and the SMBC Funding Facility (each as defined below and together, the “Facilities”), net proceeds from the issuance of other securities, including convertible unsecured notes, as well as cash flows from operations.

 

As of September 30, 2014, we had $107.9 million in cash and cash equivalents and $3.8 billion in total aggregate principal amount of debt outstanding ($3.7 billion at carrying value). Subject to leverage and borrowing base restrictions, we had approximately $1.4 billion available for additional borrowings under the Facilities as of September 30, 2014.

 

We may from time to time seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated pursuant to the Investment Company Act, is at least 200% after such borrowing. As of September 30, 2014, our asset coverage was 243%.

 

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Equity Issuances

 

As of September 30, 2014 and December 31, 2013, our total equity market capitalization was $5.1 billion and $5.3 billion, respectively. The following table summarizes the total shares issued and proceeds received in public offerings of our common stock net of underwriting discounts and offering costs for the nine months ended September 30, 2014 and 2013:

 

(in millions, except per share data)

 

Shares issued

 

Offering price per
share

 

Proceeds net of
underwriting and
operating costs

 

2014

 

 

 

 

 

 

 

July 2014 public offering

 

15.5

 

$

16.63

(1)

$

257.6

 

Total for the nine months ended September 30, 2014

 

15.5

 

 

 

$

257.6

 

2013

 

 

 

 

 

 

 

April 2013 public offering

 

19.1

 

$

17.43

(2)

$

333.2

 

Total for the nine months ended September 30, 2013

 

19.1

 

 

 

$

333.2

 

 


(1)         The shares were sold to the underwriters for a price of $16.63 per share, which the underwriters were then permitted to sell at variable prices to the public.

 

(2)         The shares were sold to the underwriters for a price of $17.43 per share, which the underwriters were then permitted to sell at variable prices to the public.

 

Debt Capital Activities

 

Our debt obligations consisted of the following as of September 30, 2014 and December 31, 2013:

 

 

 

As of

 

 

 

September 30, 2014

 

December 31, 2013

 

(in millions)

 

Total
Aggregate
Principal
Amount
Committed/
Outstanding
(1)

 

Principal
Amount
Outstanding

 

Carrying
Value

 

Total
Aggregate
Principal
Amount
Committed/
Outstanding
(1)

 

Principal
Amount
Outstanding

 

Carrying
Value

 

Revolving Credit Facility

 

$

1,250.0

(2)

$

335.0

 

$

335.0

 

$

1,060.0

 

$

 

$

 

Revolving Funding Facility

 

540.0

(3)

324.0

 

324.0

 

620.0

 

185.0

 

185.0

 

SMBC Funding Facility

 

400.0

 

54.0

 

54.0

 

400.0

 

 

 

February 2016 Convertible Notes

 

575.0

 

575.0

 

562.8

(4)

575.0

 

575.0

 

556.5

(4)

June 2016 Convertible Notes

 

230.0

 

230.0

 

224.2

(4)

230.0

 

230.0

 

221.8

(4)

2017 Convertible Notes

 

162.5

 

162.5

 

159.9

(4)

162.5

 

162.5

 

159.2

(4)

2018 Convertible Notes

 

270.0

 

270.0

 

265.1

(4)

270.0

 

270.0

 

264.1

(4)

2019 Convertible Notes

 

300.0

 

300.0

 

295.9

(4)

300.0

 

300.0

 

295.3

(4)

2018 Notes

 

750.0

 

750.0

 

750.7

(5)

600.0

 

600.0

 

596.7

(5)

February 2022 Notes

 

143.8

 

143.8

 

143.8

 

143.8

 

143.8

 

143.8

 

October 2022 Notes

 

182.5

 

182.5

 

182.5

 

182.5

 

182.5

 

182.5

 

2040 Notes

 

200.0

 

200.0

 

200.0

 

200.0

 

200.0

 

200.0

 

2047 Notes

 

229.5

 

229.5

 

181.3

(6)

230.0

 

230.0

 

181.4

(6)

 

 

$

5,233.3

 

$

3,756.3

 

$

3,679.2

 

$

4,973.8

 

$

3,078.8

 

$

2,986.3

 

 


(1)                                 Subject to borrowing base and leverage restrictions. Represents the total aggregate amount committed or outstanding, as applicable, under such instrument.

 

(2)                                 Provides for a feature that allows us, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $1,755.0 million.

 

(3)                                 Provides for a feature that allows us and our consolidated subsidiary, Ares Capital CP Funding LLC (“Ares Capital CP”), under certain circumstances, to increase the size of the Revolving Funding Facility to a maximum of $865.0 million.

 

(4)                                 Represents the aggregate principal amount outstanding of the Convertible Unsecured Notes less the unaccreted discount initially recorded upon issuance of the Convertible Unsecured Notes. The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes was $12.2 million, $5.8 million, $2.6 million, $4.9 million and $4.1 million, respectively, as of September 30, 2014.  The total unaccreted discount for the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes was $18.5 million, $8.2 million, $3.3 million, $5.9 million and $4.7 million, respectively, as of December 31, 2013.

 

(5)                                 Represents the aggregate principal amount outstanding less the unaccreted discount initially recorded upon issuance of the 2018 Notes. The total unamortized premium for the 2018 Notes was $0.7 million as of September 30, 2014. The total unaccreted discount for the 2018 Notes was $3.3 million as of December 31, 2013.

 

(6)                                 Represents the aggregate principal amount outstanding less the unaccreted purchased discount. The total unaccreted purchased discount for the 2047 Notes was $48.2 million and $48.6 million as of September 30, 2014 and December 31, 2013, respectively.

 

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The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount, of all our debt outstanding as of September 30, 2014 were 4.9% and 6.8 years, respectively, and as of December 31, 2013 were 5.3% and 7.9 years, respectively.

 

The ratio of total principal amount of debt outstanding to stockholders’ equity as of September 30, 2014 was 0.72:1.00 compared to 0.63:1.00 as of December 31, 2013. The ratio of total carrying value of debt outstanding to stockholders’ equity as of September 30, 2014 was 0.70:1.00 compared to 0.61:1.00 as of December 31, 2013.

 

Revolving Credit Facility

 

We are party to a senior secured revolving credit facility (as amended and restated, the “Revolving Credit Facility”), which allows us to borrow up to $1,250 million at any one time outstanding. The end of the revolving period and the stated maturity date for the Revolving Credit Facility are May 4, 2018 and May 4, 2019, respectively. The Revolving Credit Facility also provides for a feature that allowed us, under certain circumstances, to increase the size of the facility to a maximum of $1,755 million. The interest rate charged on the Revolving Credit Facility is based on LIBOR plus an applicable spread of 2.00% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.00%. Additionally, we are required to pay a commitment fee of 0.375% per annum on any unused portion of the Revolving Credit Facility. As of September 30, 2014, there was $335.0 million outstanding under the Revolving Credit Facility and we were in compliance in all material respects with the terms of the Revolving Credit Facility.

 

Revolving Funding Facility

 

Our consolidated subsidiary, Ares Capital CP, is party to a revolving funding facility (as amended, the “Revolving Funding Facility”), which allows Ares Capital CP to borrow up to $540 million at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility is May 14, 2017 and May 14, 2019, respectively. The Revolving Funding Facility also provides for a feature that allowed, under certain circumstances, for an increase in the size of the facility to a maximum of $865 million. The interest rate charged on the Revolving Funding Facility is one month LIBOR plus an applicable spread ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate” (as defined in the agreements governing the Revolving Funding Facility) in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the facility. Additionally, Ares Capital CP is required to pay a commitment fee of between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility. As of September 30, 2014, there was $324.0 million outstanding under the Revolving Funding Facility and we and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.

 

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SMBC Funding Facility

 

Our consolidated subsidiary, Ares Capital JB Funding LLC (“ACJB”), is party to a revolving funding facility (as amended, the “SMBC Funding Facility”), which allows ACJB to borrow up to $400 million at any one time outstanding. The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are September 14, 2016 and September 14, 2021, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement. The interest rate charged on the SMBC Funding Facility is based on one month LIBOR plus an applicable spread of 2.00% or a “base rate” (as defined in the agreements governing the SMBC Funding Facility) plus an applicable spread of 1.00%. Additionally, ACJB is required to pay a commitment fee of between 0.35% and 0.875% per annum depending on the size of the unused portion of the SMBC Funding Facility. As of September 30, 2014, there was $54.0 million outstanding under the SMBC Funding Facility and we and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.

 

Convertible Unsecured Notes

 

In January 2011, we issued $575 million aggregate principal amount of unsecured convertible notes that mature on February 1, 2016 (the “February 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2011, we issued $230 million aggregate principal amount of unsecured convertible notes that mature on June 1, 2016 (the “June 2016 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In March 2012, we issued $162.5 million aggregate principal amount of unsecured convertible notes that mature on March 15, 2017 (the “2017 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In the fourth quarter of 2012, we issued $270.0 million aggregate principal amount of unsecured convertible notes that mature on January 15, 2018 (the “2018 Convertible Notes”), unless previously converted or repurchased in accordance with their terms. In July 2013, we issued $300.0 million aggregate principal amount of unsecured convertible notes that mature on January 15, 2019 (the “2019 Convertible Notes” and together with the February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes and the 2018 Convertible Notes, the “Convertible Unsecured Notes”), unless previously converted or repurchased in accordance with their terms. We do not have the right to redeem the Convertible Unsecured Notes prior to maturity. The February 2016 Convertible Notes, the June 2016 Convertible Notes, the 2017 Convertible Notes, the 2018 Convertible Notes and the 2019 Convertible Notes bear interest at a rate of 5.750%, 5.125% , 4.875% , 4.750% and 4.375%, respectively, per year, payable semi-annually.

 

In certain circumstances, the Convertible Unsecured Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at their respective conversion rates (listed below as of September 30, 2014) subject to customary anti-dilution adjustments and the requirements of their respective indenture (the “Convertible Unsecured Notes Indentures”). Prior to the close of business on the business day immediately preceding their respective conversion date (listed below), holders may convert their Convertible Unsecured Notes only under certain circumstances set forth in the respective Convertible Unsecured Notes Indenture. On or after their respective conversion dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert their Convertible Unsecured Notes at any time. In addition, if we engage in certain corporate events as described in their respective Convertible Unsecured Notes Indenture, holders of the Convertible Unsecured Notes may require us to repurchase for cash all or part of the Convertible Unsecured Notes at a repurchase price equal to 100% of the principal amount of the Convertible Unsecured Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

 

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Certain key terms related to the convertible features for each of the Convertible Unsecured Notes as of September 30, 2014) are listed below.

 

 

 

February 2016
Convertible Notes

 

June 2016
Convertible Notes

 

2017 Convertible
Notes

 

2018 Convertible
Notes

 

2019 Convertible
Notes

 

Conversion premium

 

17.5

%

17.5

%

17.5

%

17.5

%

15.0

%

Closing stock price at issuance

 

$

16.28

 

$

16.20

 

$

16.46

 

$

16.91

 

$

17.53

 

Closing stock price date

 

January 19, 2011

 

March 22, 2011

 

March 8, 2012

 

October 3, 2012

 

July 15, 2013

 

Conversion price (1)

 

$

18.56

 

$

18.47

 

$

19.02

 

$

19.70

 

$

20.05

 

Conversion rate (shares per one thousand dollar principal amount)(1)

 

53.8839

 

54.1501

 

52.5696

 

50.7591

 

49.8854

 

Conversion dates

 

August 15, 2015

 

December 15, 2015

 

September 15, 2016

 

July 15, 2017

 

July 15, 2018

 

 


(1)                                 Represents conversion price and conversion rate, as applicable, as of September 30, 2014, taking into account certain de minimis adjustments that will be made on the conversion date.

 

Unsecured Notes

 

2018 Notes

 

In November 2013, we issued $600.0 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 4.875% per year and mature on November 30, 2018 (the “2018 Notes”). The 2018 Notes require payment of interest semi-annually, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time at our option at a redemption price equal to par plus a “make whole” premium, as determined pursuant to the indenture governing the 2018 Notes, and any accrued and unpaid interest.

 

In January 2014, we issued an additional $150.0 million aggregate principal amount of the 2018 Notes at a premium of 102.7% of their principal amount.

 

February 2022 Notes

 

In February 2012, we issued $143.8 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 7.00% per year and mature on February 15, 2022 (the “February 2022 Notes”). The February 2022 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after February 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

October 2022 Notes

 

In September 2012 and October 2012, we issued $182.5 million in aggregate principal amount of unsecured notes, which bear interest at a rate of 5.875% per year and mature on October 1, 2022 (the “October 2022 Notes”). The October 2022 Notes require payment of interest quarterly and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after October 1, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2040 Notes

 

In October 2010, we issued $200.0 million in aggregate principal amount of unsecured notes which bear interest at a rate of 7.75% and mature on October 15, 2040 (the “2040 Notes”). The 2040 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option on or after October 15, 2015, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

2047 Notes

 

As part of the Allied Acquisition, we assumed $230.0 million aggregate principal amount of unsecured notes which bear interest at a rate of 6.875% and mature on April 15, 2047 (the “2047 Notes” and together with the 2018 Notes, the February 2022 Notes, the October 2022 Notes and the 2040 Notes, the “Unsecured Notes”). The 2047 Notes require payment of interest quarterly, and all principal is due upon maturity. These notes are redeemable in whole or in part at any time or from time to time at our option, at a par redemption price of $25.00 per security plus accrued and unpaid interest.

 

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As of September 30, 2014, we were in compliance in all material respects with the terms of the Convertible Unsecured Notes Indentures and the indentures governing the Unsecured Notes.

 

The Convertible Unsecured Notes and the Unsecured Notes are our unsecured obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Unsecured Notes and the Unsecured Notes; equal in right of payment to our existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

 

See Note 5 to our consolidated financial statements for the three and nine months ended September 30, 2014 for more detail on our debt obligations.

 

OFF BALANCE SHEET ARRANGEMENTS

 

We have various commitments to fund investments in our portfolio, as described below.

 

As of September 30, 2014 and December 31, 2013, we had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) our discretion:

 

 

 

As of

 

(in millions)

 

September 30, 2014

 

December 31, 2013

 

Total revolving and delayed draw commitments

 

$

769.2

 

$

834.5

 

Less: funded commitments

 

(139.4

)

(87.1

)

Total unfunded commitments

 

629.8

 

747.4

 

Less: commitments substantially at discretion of ours

 

(6.0

)

(16.0

)

Less: unavailable commitments due to borrowing base or other covenant restrictions

 

 

(1.7

)

Total net adjusted unfunded revolving and delayed draw commitments

 

$

623.8

 

$

729.7

 

 

Included within the total revolving and delayed draw commitments as of September 30, 2014 were commitments to issue up to $79.8 million in letters of credit through a financial intermediary on behalf of certain portfolio companies. As of September 30, 2014, we had $20.4 million in letters of credit issued and outstanding under these commitments on behalf of the portfolio companies. In addition to these letters of credit included as a part of the total revolving and delayed draw commitments to portfolio companies, as of September 30, 2014 we also had $5.3 million of letters of credit issued and outstanding on behalf of other portfolio companies. For all these letters of credit issued and outstanding, we would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of these letters of credit issued and outstanding are recorded as a liability on our balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company. Of these letters of credit, $0.1 million expire in 2014, $25.0 million expire in 2015 and $0.6 million expire in 2016.

 

We also have commitments to co-invest in the SSLP for our portion of the SSLP’s commitments to fund delayed draw investments to certain portfolio companies of the SSLP. See “Senior Secured Loan Program” above and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2014 for more information.

 

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As of September 30, 2014 and December 31, 2013, we were party to subscription agreements to fund equity investments in private equity investment partnerships as follows:

 

 

 

As of

 

(in millions)

 

September 30, 2014

 

December 31, 2013

 

Total private equity commitments

 

$

109.5

 

$

59.5

 

Less: funded private equity commitments

 

(15.2

)

(11.9

)

Total unfunded private equity commitments

 

94.3

 

47.6

 

Less: private equity commitments substantially at discretion of ours

 

(91.2

)

(43.2

)

Total net adjusted unfunded private equity commitments

 

$

3.1

 

$

4.4

 

 

In the ordinary course of business, we may sell certain of our investments to third party purchasers. In particular, in connection with the sale of certain controlled portfolio company equity investments (as well as certain other sales), we have, and may continue to do so in the future, agreed to indemnify such purchasers for future liabilities arising from the investments and the related sale transaction. Such indemnification provisions have given rise to liabilities in the past and may do so in the future.

 

RECENT DEVELOPMENTS

 

We have applied to the Small Business Administration (“SBA”) for a license to allow a new wholly owned subsidiary to operate as a Small Business Investment Company (“SBIC”) under the Small Business Investment Act of 1958. In May 2014, we received a “green light” or “go forth letter” from the SBA inviting us to continue our application process to obtain a license to form and operate an SBIC subsidiary, and we submitted our license application in October 2014. If approved, the license would provide us with an incremental source of long-term debt capital. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license, and we have received no assurance or indication from the SBA that we will receive an SBIC license or of the timeframe in which we would receive a license should one ultimately be granted.

 

From October 1, 2014 through October 29, 2014, we made new investment commitments of $317 million, of which $227 million were funded. Of these new commitments, 70% were in first lien senior secured loans, 21% were in second lien senior secured loans, 8% were in other equity securities and 1% were investments in subordinated certificates of the SSLP to make co-investments with GE in first lien senior secured loans through the SSLP. Of the $317 million of new investment commitments, 92% were floating rate and 8% were non-interest bearing. The weighted average yield of debt and other income producing securities funded during the period at amortized cost was 8.1%. We may seek to syndicate a portion of these new investment commitments, although there can be no assurance that we will be able to do so.

 

From October 1, 2014 through October 29, 2014, we exited $456 million of investment commitments. Of these investment commitments, 89% were first lien senior secured loans, 5% were investments in subordinated certificates of the SSLP, 5% were other equity securities and 1% were senior subordinated debt. Of the $456 million of exited investment commitments, 95% were floating rate and 5% were non-interest bearing. The weighted average yield of debt and other income producing securities exited or repaid during the period at amortized cost was 7.0%. On the $456 million of investment commitments exited from October 1, 2014 through October 29, 2014, we recognized total net realized gains of approximately $22 million.

 

In addition, as of October 29, 2014, we had an investment backlog and pipeline of approximately $610 million and $320 million, respectively. Investment backlog includes transactions approved by our investment adviser’s investment committee and/or for which a formal mandate, letter of intent or a signed commitment have been issued, and therefore we believe are likely to close. Investment pipeline includes transactions where due diligence and analysis are in process, but no formal mandate, letter of intent or signed commitment have been issued. The consummation of any of the investments in this backlog and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, we may syndicate a portion of these investments and certain of these investments may result in the repayment of existing investments. We cannot assure you that we will make any of these investments or that we will syndicate any portion of these investments.

 

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CRITICAL ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of ours and our consolidated subsidiaries. We are an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946.  The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period presented, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2014.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions and short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

We place our cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

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 gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of our investments) are valued at fair value as determined in good faith by our board of directors, based on, among other things, the input of our investment adviser, audit committee and independent third-party valuation firms that have been engaged at the direction of our board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12-month period (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, and a minimum of 55% of our portfolio at fair value is subject to review by an independent valuation firm each quarter. In addition, our independent registered public accounting firm obtains an understanding of, and performs select procedures relating to, our investment valuation process within the context of performing the integrated audit.

 

As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate our valuation.

 

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

 

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In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

 

Our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management team.

 

·                  Preliminary valuations are reviewed and discussed with our investment adviser’s management and investment professionals, and then valuation recommendations are presented to our board of directors.

 

·                  The audit committee of our board of directors reviews these valuations, as well as the input of third parties, including independent third-party valuation firms, who review a minimum of 50% of our portfolio at fair value.

 

·                  Our board of directors discusses valuations and ultimately determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on, among other things, the input of our investment adviser, audit committee and, where applicable, independent third-party valuation firms.

 

Interest and Dividend Income Recognition

 

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 yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums, if any.

 

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 is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Payment-in-Kind Interest

 

We have loans in our portfolio that contain payment-in-kind (“PIK”) provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain our status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends even though we have not yet collected the cash.

 

Capital Structuring Service Fees and Other Income

 

Our investment adviser seeks to provide assistance to our portfolio companies in connection with our investments and in return we may receive fees for capital structuring services. These fees are generally only available to us as a result of our underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that our investment adviser provides vary by investment, but generally include reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment. Any services of the above nature subsequent to the closing would generally generate a separate fee payable to us. In certain instances where we are invited to participate as a co-lender in a transaction and do not provide significant services in connection with the investment, a portion of loan fees paid to us in such situations will be deferred and amortized over the estimated life of the loan. We may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

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Other income includes fees for asset management, management and consulting services, loan guarantees, commitments, amendments and other services rendered by us to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

Our books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)                                 Fair value of investment securities, other assets and liabilities—at the exchange rates prevailing at the end of the period.

 

(2)                                 Purchases and sales of investment securities, income and expenses—at the exchange rates prevailing on the respective dates of such transactions, income or expenses.

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Accounting for Derivative Instruments

 

We do not utilize hedge accounting and instead mark our derivatives to market in the consolidated statement of operations.

 

Equity Offering Expenses

 

Our offering costs, excluding underwriters’ fees, are charged against the proceeds from equity offerings when received.

 

Debt Issuance Costs

 

Debt issuance costs are amortized over the life of the related debt instrument using the straight line method or the effective yield method, depending on the type of debt instrument.

 

Income Taxes

 

We have elected to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income, as defined by the Code, for each year. We, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal corporate-level income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions, we accrue excise tax, if any, on estimated excess taxable income as such taxable income is earned.

 

Certain of our consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes.

 

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Dividends to Common Stockholders

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by our board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed, although we may decide to retain such capital gains for investment.

 

We have adopted a dividend reinvestment plan that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividend. We intend to use primarily newly issued shares to implement the dividend reinvestment plan (so long as we are trading at a premium to net asset value). If our shares are trading at a significant enough discount to net asset value and we are otherwise permitted under applicable law to purchase such shares, we intend to purchase shares in the open market in connection with our obligations under our dividend reinvestment plan. However, we reserve the right to issue new shares of our common stock in connection with our obligations under the dividend reinvestment plan even if our shares are trading below net asset value.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.” Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

Interest Rate Risk

 

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

As of September 30, 2014, 82% of the investments at fair value in our portfolio bore interest at variable rates, 8%  bore interest at fixed rates, 8% were non-interest earning and 2% were on non-accrual status. Additionally, for the variable rate investments, 72% of these investments contained interest rate floors (representing 59% of total investments at fair value). The Facilities all bear interest at variable rates with no interest rate floors, while the Unsecured Notes and the Convertible Unsecured Notes bear interest at fixed rates.

 

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

 

While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments. In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk.

 

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Based on our September 30, 2014, balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)
Basis Point Change

 

Interest
Income

 

Interest
Expense

 

Net
Income (1)

 

Up 300 basis points

 

$

139.6

 

$

21.4

 

$

118.2

 

Up 200 basis points

 

$

67.4

 

$

14.2

 

$

53.2

 

Up 100 basis points

 

$

(3.6

)

$

7.1

 

$

(10.7

)

Down 100 basis points

 

$

6.7

 

$

(1.2

)

$

7.9

 

Down 200 basis points

 

$

6.7

 

$

(1.2

)

$

7.9

 

Down 300 basis points

 

$

6.7

 

$

(1.2

)

$

7.9

 

 


(1)                                 Excludes the impact of income based fees. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2014 for more information on the income based fees.

 

Based on our December 31, 2013 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

(in millions)
Basis Point Change

 

Interest
Income

 

Interest
Expense

 

Net
Income (1)

 

Up 300 basis points

 

$

98.2

 

$

5.6

 

$

92.6

 

Up 200 basis points

 

$

38.7

 

$

3.7

 

$

35.0

 

Up 100 basis points

 

$

(19.0

)

$

1.9

 

$

(20.9

)

Down 100 basis points

 

$

6.3

 

$

(0.3

)

$

6.6

 

Down 200 basis points

 

$

6.3

 

$

(0.3

)

$

6.6

 

Down 300 basis points

 

$

6.3

 

$

(0.3

)

$

6.6

 

 


(1)                                 Excludes the impact of income based fees.  See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2014 for more information on the income based fees.

 

Item 4. Controls and Procedures.

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer 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 it files or submits under the Securities Exchange Act of 1934.

 

There have been no changes in the Company’s internal control over financial reporting during the three and nine months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are party to certain lawsuits in the normal course of business. In addition, Allied Capital was involved in various legal proceedings that we assumed in connection with the Allied Acquisition. Furthermore, third parties may try to seek to impose liability on us in connection with our activities or the activities of our portfolio companies. While the outcome of any such legal proceedings cannot at this time be predicted with certainty, we do not expect that these legal proceedings will materially affect our business, financial condition or results of operations.

 

On May 20, 2013, we were named as one of several defendants in an action (the “Action”) filed in the United States District Court for the Eastern District of Pennsylvania (the “Pennsylvania Court”) by the bankruptcy trustee of DSI Renal Holdings LLC and two related companies. On March 17, 2014 the Action was transferred to the United States District Court for the District of Delaware (the “Delaware Court”) pursuant to a motion filed by the defendants and granted by the Pennsylvania Court. On May 6, 2014, the Delaware Court referred the Action to the United States Bankruptcy Court for the District of Delaware. The complaint in the Action alleges, among other things, that each of the named defendants participated in a purported “fraudulent transfer” involving the restructuring of a subsidiary of DSI Renal Holdings LLC. Among other things, the complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which the complaint states our individual share is approximately $117 million, and (2) punitive damages. We are currently unable to assess with any certainty whether we may have any exposure in the Action. We believe the plaintiff’s claims are without merit and intend to vigorously defend ourselves in the Action.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

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

 

We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933.

 

We did not repurchase any shares of our common stock during the period covered in this report.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information.

 

None.

 

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Item 6.  Exhibits.

 

EXHIBIT INDEX

 

Number

 

Description

3.1

 

Articles of Amendment and Restatement, as amended(1)

3.2

 

Second Amended and Restated Bylaws, as amended(2)

31.1

 

Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2

 

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1

 

Certification by Chief Executive Officer and Chief 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

 

(1)                                Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended September 30, 2012, filed on November 5, 2012.

 

(2)                                 Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q (File No. 814-00663) for the quarter ended June 30, 2010, filed on August 5, 2010.

 

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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.

 

 

 

 

ARES CAPITAL CORPORATION

 

 

 

 

 

 

 

 

Date: November 4, 2014

 

By

/s/ R. Kipp deVeer

 

 

 

R. Kipp deVeer

 

 

 

Chief Executive Officer

 

 

 

 

Date: November 4, 2014

 

By

/s/ Penni F. Roll

 

 

 

Penni F. Roll

 

 

 

Chief Financial Officer

 

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