First Eagle Alternative Capital BDC, Inc. - FORM 10-K

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EX-32.1 - EX-32.1 - First Eagle Alternative Capital BDC, Inc.	d129337dex321.htm
EX-32.2 - EX-32.2 - First Eagle Alternative Capital BDC, Inc.	d129337dex322.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2015

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

For the transition period from to

Commission file number 814-00789

THL CREDIT, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		27-0344947
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

100 Federal St., 31^st Floor, Boston, MA		02110
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: 800-450-4424

Securities registered pursuant to 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share		NASDAQ Global Select Market
6.75% Senior Notes due 2021		The New York Stock Exchange
6.75% Senior Notes due 2022		The New York Stock Exchange

Securities registered pursuant to 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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


Large accelerated filer	¨		Accelerated filer	x

Non-Accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x

The aggregate market value of common stock held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $388.1 million based on the closing price on that date of $11.55 on the NASDAQ Global Select Market. For the purposes of calculating this amount only, all directors and executive officers of the Registrant have been treated as affiliates.

As of March 10, 2016, there were 33,310,930 shares of the Registrant’s common stock outstanding.

Documents Incorporated by Reference

Portions of the Registrant’s definitive Proxy Statement relating to its 2016 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission, are incorporated by reference into Part III of this Annual Report on Form 10-K as indicated herein.

THL CREDIT, INC.

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015

Table of Contents


PART I

Item 1.	Business	3

Item 1A.	Risk Factors	33

Item 1B.	Unresolved Staff Comments	60

Item 2.	Properties	60

Item 3.	Legal proceedings	60

Item 4.	Mine Safety Disclosures	60

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	61

Item 6.	Selected Financial Data	65

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	67

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	111

Item 8.	Financial Statements and Supplementary Data	112

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	173

Item 9A.	Controls and Procedures	173

Item 9B.	Other Information	174

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	175

Item 11.	Executive Compensation	175

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	175

Item 13.	Certain Relationships and Related Transactions and Director Independence	175

Item 14.	Principal Accountant Fees and Services	175

PART IV

Item 15.	Exhibits and Financial Statement Schedules	176

Signatures		180

PART I

In this annual report on Form 10-K, except where the context suggests otherwise, the terms “we,” “us,” “our” and “THL Credit” refer to THL Credit, Inc.; “THL Credit Advisors,” the “Advisor” or the “Administrator” refers to THL Credit Advisors LLC; “Greenway” refers to THL Credit Greenway Fund LLC; “Greenway II” refers to THL Credit Greenway Fund II LLC and related investment vehicle; “THL Credit Opportunities” refers to THL Credit Opportunities, L.P.; “BDC Holdings” refers to THL Credit Partners BDC Holdings, L.P.; “Logan JV” refers to THL Credit Logan JV LLC. Some of the statements in this annual report constitute forward-looking statements, which relate to future events, future performance or financial condition. These forward-looking statements involve risk and uncertainties and actual results could differ materially from those projected in the forward-looking statements for any reason, including those factors discussed in “Risk Factors” and elsewhere in this report.

Item 1.

Business

We are an externally managed, non-diversified closed-end management investment company incorporated in Delaware on May 26, 2009, that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, we have elected to be treated for tax purposes as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. Our investment activities are managed by THL Credit Advisors and supervised by our board of directors, a majority of whom are independent of THL Credit Advisors and its affiliates. As a BDC, we are required to comply with certain regulatory requirements. See “-Business Development Company Regulation” for discussion of BDC regulation and other regulatory considerations. We are also registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act.

Our investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of lower middle market companies. We are a direct lender to lower middle market companies that invests primarily in directly originated first lien and second lien secured loans, including through unitranche investments. In certain instances, we make subordinated debt investments, which may include an associated equity component such as warrants, preferred stock or similar securities, and direct equity co-investments. We may also provide advisory services to managed funds.

We intend to co-invest, subject to the conditions included in the exemptive order we received from the SEC, with certain of our affiliates. See “-Material Conflicts of Interests” below. We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification

We define lower middle market companies to mean both public and privately-held companies with annual earnings before interest, taxes, depreciation and amortization, or EBITDA, generally between $5 million and $25 million. We expect to generate returns through a combination of contractual interest payments on debt investments, equity appreciation (through options, warrants, conversion rights or direct equity investments) and origination and similar fees. We can offer no assurances that we will achieve our investment objective.

Since April 2010, after we completed our initial public offering and commenced principal operations, we have been responsible for making, on behalf of ourselves, managed funds and separately managed account, over approximately an aggregate $1,709 million in commitments to 84 separate portfolio companies through a combination of both initial and follow-on investments. Since April 2010, we, along with our managed funds and separately managed account, have received $913.6 million from paydowns and sales of investments. The Company alone has received $747.9 million from paydowns and sales of investments.

As a BDC, we are generally required to invest at least 70% of our total assets primarily in securities of private and certain U.S. public companies (other than certain financial institutions), cash, cash equivalents and U.S. government securities and other high quality debt investments that mature in one year or less.

We are permitted to borrow money from time to time within the levels permitted by the 1940 Act (which generally allows us to incur leverage for up to one half of our assets). We have used, and expect to continue to use, our credit facilities and other borrowings, along with proceeds from the rotation of our portfolio and proceeds from public securities and private offerings to finance our investment objectives. See “-Business Development Company Regulations” for discussion of BDC regulation and other regulatory considerations.

Organizational Overview

The Company was organized as a Delaware corporation on May 26, 2009 and initially funded on July 23, 2009. We commenced principal operations on April 21, 2010. The Company has formed wholly owned subsidiaries which serve as tax blockers, including THL Credit Holdings, Inc., THL Credit AIM Media Holdings, Inc. and THL Credit YP Holdings, Inc., and hold equity or equity-like investments in portfolio companies organized as limited liability companies or other forms of pass-through entities. The Company also has formed wholly owned subsidiaries which serve as the administrative agents on certain investment transactions, including THL Corporate Finance, Inc. and THL Corporate Finance, LLC.

LOGO

⁽¹⁾	THL Credit Advisors LLC is owned and controlled by certain of the THL Credit Principals (defined below) and a partnership consisting of certain of the partners of THL Partners (defined below).

⁽²⁾	THL Credit SLS Senior Loan Strategies LLC, a majority-owned subsidiary of THL Credit Advisors, focuses principally on broadly syndicated senior loans.

⁽³⁾	Greenway I is an investment fund with $150 million of capital committed by affiliates of a single institutional investor, together with a nominal amount committed by the Company, all of which has been paid in and invested by Greenway I, which is managed by us.

⁽⁴⁾	Greenway II is an investment fund and, together with a related vehicle, has $187 million of capital committed by third party investors, all of which has been paid in and invested by Greenway II, together with a nominal amount committed by the Company, which is managed by us.

⁽⁵⁾

Logan JV is a joint venture entered into between the Company and Perspecta Trident LLC, or Perspecta, an affiliate of Perspecta Trust LLC, which invests primarily in senior secured first lien term loans. Logan JV has $250 million of capital commitments, of which the Company committed $200 million and Perspecta committed $50 million.

THL Credit Advisors LLC

Our investment activities are managed by our investment adviser, THL Credit Advisors. THL Credit Advisors is responsible for sourcing potential investments, conducting research on prospective investments, analyzing investment opportunities, structuring our investments, and monitoring our investments and portfolio companies on an ongoing basis. We pay THL Credit Advisors a management fee as a percentage of our gross assets and incentive fees as a percentage of our ordinary income and capital gains.

THL Credit Advisors was formed as a Delaware limited liability company on June 26, 2009 and is registered as an investment adviser under the Advisers Act. THL Credit Advisors is an alternative credit investment manager for both direct lending and broadly syndicated investments through public and private vehicles, collateralized loan obligations, separately managed accounts and co-mingled funds. THL Credit Advisors and its credit-focused affiliates managed assets of $6.6 billion as of December 31, 2015 across its two primary investment platforms: Direct Lending and Tradable Credit.

THL Credit Advisors benefits from a scaled and integrated business that draws on a diverse resource base and the credit and industry expertise of the entire platform. Fundamental credit analysis, rigorous and disciplined underwriting, well-structured investments and ongoing monitoring are the hallmarks of its credit culture.

THL Credit Advisors’ Direct Lending platform invests in directly originated first and second lien secured loans, including unitranche investments. In certain instances, THL Credit Advisors’ Direct Lending platform also makes subordinated debt investments, which may include an associated equity component such as warrants, preferred stock or other similar securities, and direct equity co-investments. Direct Lending investments are made through us, our managed funds, Greenway and Greenway II, and Logan JV.

THL Credit Advisors’ Tradable Credit platform manages investments in broadly syndicated loans, structured credit and high-yield securities through CLOs, separate accounts, sub-advisory and various fund formats, including THL Credit Senior Loan Fund (NYSE: TSLF) (“TSLF”), a non-diversified, closed-end management investment company. The Advisor maintains a variety of advisory or sub-advisory relationships across its investment platform. For example, the Advisor may serve as an investment adviser to one or more private funds or registered closed-end funds and presently serves as an investment adviser to CLOs, THL Credit Wind River 2013-2 CLO, Ltd., THL Credit Wind River 2014-1 CLO, Ltd., THL Credit Wind River 2014-2 CLO, Ltd., and a subadviser to a closed-end fund, THL Credit Senior Loan Fund (NYSE: TSLF).

THL Credit Advisors is headquartered in Boston, with additional investment teams in Chicago, Houston, Los Angeles and New York, allowing it to be close to its portfolio companies as well as its origination and syndication sources. Over the years, THL Credit Advisors has developed deep and diverse national relationships that it leverages to maximize investment opportunities across its platforms.

THL Credit Advisors is led by Sam W. Tillinghast, Christopher J. Flynn, W. Hunter Stropp and Terrence W. Olson, who constitute its principals (collectively, “THL Credit Principals”). THL Credit Advisor’s Direct Lending investment committee, which serves as our investment committee, is comprised of Messrs. Tillinghast, Flynn, Stropp and Olson (the “Investment Principals”).

THL Credit Advisors is owned and controlled by the THL Credit Principals and a partnership consisting of certain of the partners of THL Partners. The Investment Principals have worked together over the past eight years at THL Credit Advisors and its predecessor, and together with their prior investment experiences, have invested through multiple business and credit cycles across the entire capital structure. We believe the Investment Principals bring a unique investment perspective and skill set by virtue of their complementary, collective experience as both debt and equity investors. In addition, we believe they bring an active equity ownership mentality and intend to focus on adding value to portfolio companies through board representation, when possible, active monitoring and direct dialogue with management.

THL Credit Advisors also serves as our Administrator and leases office space to us and provides us with equipment and office services. The tasks of the Administrator include overseeing our financial records, preparing reports to our stockholders and reports filed with the SEC and generally monitoring the payment of our expenses and the performance of administrative and professional services rendered to us by others.

Thomas H. Lee Partners, L.P. (“THL Partners”)

THL Partners is one of the world’s oldest and most experienced private equity firms. Since its founding in 1974, the firm has raised over $20 billion of equity capital and invested in more than 130 portfolio companies with an aggregate value of over $150 billion. THL Partners invests in growth-oriented businesses, headquartered primarily in North America, across three sectors: Business & Financial Services, Consumer & Healthcare, and Media & Information Services. The firm partners with portfolio company management to identify and implement operational and strategic improvements to accelerate sustainable revenue and profit growth. THL Partners strives to build great companies of lasting value and generate superior investment returns. We believe we benefit from THL Credit Advisors’ relationship with THL Partners. THL Credit Advisors has access to the contacts and industry knowledge of THL Partners’ investment team to enhance its transaction sourcing capabilities and consults with the THL Partners team on specific industry issues, trends and other complementary matters.

Investment Approach

Our investment approach consists of the following four separate and distinct phases: (1) sourcing; (2) selecting; (3) structuring; and (4) supervising investments. Sourcing involves our efforts to generate as vast a universe of relevant and actionable investment opportunities as possible. Selecting represents our decision- making process regarding which of those investments to pursue. Structuring summarizes our creative approach to deploying capital on a case by case basis in a way that maximizes value. Supervising is a reference to our ongoing rigorous credit monitoring.

Sourcing

The elements of our sourcing efforts will include: (i) determining the market in which we intend to participate; (ii) identifying the opportunities within that market; (iii) having a clear strategy; (iv) knowing the competition; and (v) distinguishing our competitive advantages.

Determining the Market

We invest primarily in debt securities of sponsored and unsponsored issuers in the lower middle market based mainly in the United States. Our debt investments are composed of directly originated first lien secured loans and second lien secured loans. In certain instances, we also make subordinated or mezzanine debt investments, which may include an associated equity component such as warrants, preferred stock or other similar securities, and direct equity co- investments. Our first lien secured loans may be structured as traditional first lien loans or as unitranche loans. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans and our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche. We also may provide advisory services to managed funds.

It is our belief that having a combination of sponsored and unsponsored investments in debt securities will benefit us with the most attractive opportunities across investment cycles. To that end, our nationwide origination efforts target both private equity sponsors and referral sources of unsponsored companies.

Market opportunity

We believe the environment for investing in lower middle market companies is attractive for several reasons, including:

Improved company fundamentals creating favorable lending trends. Lower middle market companies are experiencing improved fundamentals driven by a stabilizing economy and an increase in confidence.

Meaningful availability of investable capital at private equity firms. Recent private equity data show over $1 trillion of unused commitments to private equity funds that private equity fund managers are actively looking to allocate to transactions involving new or existing portfolio companies.

Consolidation among commercial banks has reduced their focus on lower middle market business. We believe that many senior lenders have de-emphasized their service and product offerings to lower middle market companies in favor of lending to large corporate clients, managing capital markets transactions and providing other non-credit services to their customers.

Increased lending regulation has limited the ability of traditional lenders to provide capital to lower middle market companies. Heightened scrutiny of large bank institutions by regulatory bodies has prompted lending guidelines that have sought to limit leverage, deter banks from lengthening payment timelines and restrict banks from holding certain CLO securities.

Lower middle market companies are increasingly seeking lenders with long-term capital to provide flexible solutions for their debt and equity financing needs. We believe that many lower middle market companies prefer to execute transactions with private capital providers such as us, rather than execute high-yield bond or equity transactions in the public markets, which may necessitate increased financial and regulatory compliance and reporting obligations.

The current regulatory and market environment may mean more favorable opportunities for investing in lower middle market companies. The combination of bank consolidation and increased regulation has resulted in fewer lender participants and a greater opportunity for us to originate proprietary investment opportunities in the lower middle market.

The large yet fragmented lower middle market may offer lenders more attractive economic terms compared to the more efficient, syndicated markets. Investing in debt securities in the lower middle market may offer more favorable returns relative to their investment risk, when compared to investments in public high yield or syndicated bank loan securities.

Investment strategy

We believe a strategy focused primarily on debt securities in lower middle market companies has a number of compelling attributes. First, the market for these instruments is relatively inefficient, allowing an experienced investor an opportunity to produce high risk-adjusted returns. Second, downside risk can be managed through an extensive credit-oriented underwriting process, creative structuring techniques and intensive portfolio monitoring. We believe private debt investments generally require the highest level of credit and legal due diligence among debt or credit asset classes. Lastly, compared with equity investments, returns on debt investments tend to be less volatile given the substantial current return component and seniority in the capital structure relative to equity.

Competition

Our primary competitors to providing financing to lower middle market companies will include other BDCs, public and private funds, commercial and investment banks, CLO funds, commercial finance companies and, to

the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial and marketing resources than we do. For example, some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us.

Competitive advantages

We believe that we possess the following competitive advantages over many other capital providers to lower middle market companies:

Experienced management team. As stated above, the Investment Principals are experienced and have worked together extensively and together with their past investment experiences have invested through multiple business and credit cycles across the entire capital structure with the objective of generating attractive, long-term, risk-adjusted returns. Each of the Investment Principals brings a unique investment perspective and skill-set by virtue of their complementary collective experiences as both debt and equity investors.

Proactive Sourcing Platform. We take a proactive, hands-on, and creative approach to investment sourcing. Our disciplined origination process includes proprietary tools and resources and employs a national platform with a regional focus. With offices in Boston, Chicago, Houston, Los Angeles and New York, the THL Credit Principals have a deep and diverse relationship network in the debt capital and private equity markets. These activities and relationships provide an important channel through which we generate investment opportunities consistent with our investment strategy.

Significant institutional expertise and brand recognition gained from investing approximately $1.8 billion in 87 companies since June 2009 across direct lending credit platform. We have developed the institutional knowledge and operational infrastructure required to successfully achieve our investment objectives. We benefit from proprietary deal flow from strong relationships with sponsors cultivated over seven years of doing business in the lower middle market. Our comprehensive underwriting methodology and monitoring processes have been implemented across all five regional offices. Additionally, the THL Credit Principals are supported by an experienced operational and administrative team.

Ability to execute unsponsored transactions. We believe we are one of the few credit market participants that selectively seeks unsponsored investments and possesses the experience and resources, as a result of the long-standing relationships of the Investment Principals and ongoing development of new relationships with referral sources and equity sponsors, to source unsponsored debt transactions. Furthermore, we have the capability to perform the rigorous in-house due diligence, structuring and monitoring activities necessary to execute such transactions.

Affiliation with THL Partners and THL Credit SLS. We are managed by THL Credit Advisors, the credit affiliate of THL Partners and parent of THL Credit Senior Loan Strategies LLC (“THL Credit SLS”). As such, we have access to the relationship network and industry knowledge of both THL Partners and THL Credit SLS to enhance transaction sourcing capabilities. This also provides us with the opportunity to consult with investment teams from each organization on specific industry issues, trends and other complementary matters.

Investments teams set up in Industry Verticals. We take a proactive, hands-on, and creative approach to investment sourcing, underwriting and portfolio management. Our disciplined origination process includes proprietary tools and resources and employs a national platform with a regional focus. With offices in Boston, Chicago, Houston, New York and Los Angeles, we have a deep and diverse relationship network. Each of our five offices maintain a fully functional deal team (i.e., origination, underwriting and portfolio management). Given our five-office footprint, we are closer to smaller, regional sponsors and have cultivated deep relationships with these private equity firms. In many cases, regional sponsors prefer to partner with local lenders. Once an

investment opportunity is sourced by one of our fives offices, the opportunity is transitioned to our lead underwriter who is responsible for the respective industry vertical while the individual who originated the opportunity remains closely involved in a relationship management capacity. We cover four primary industry verticals: Business & Financial Services (New York), Consumer & Healthcare (Boston, Chicago, Los Angeles), Industrials & Energy (Houston), and Information Services & Media (Los Angeles). Given our emphasis on four primary industry verticals, we have a strong preference for industry or sector-focused funds and/or sponsors who specialize in only several sectors as opposed to generalist private equity firms. Many lower middle market sponsors do not staff an internal capital markets resource (i.e., one who maintains a database and network of debt financing partners/arrangers); as such, a sponsor’s deal team leader without this resource is directly responsible for arranging debt financing as part of his/her deal process on a case-by-case basis. Lower middle market sponsors with this profile appreciate the value proposition of partnering with a trusted, local relationship and respected lender with deep domain expertise.

Selecting

Selecting investments to pursue requires us to have an employable investment philosophy, know our key metrics, have a process to consistently measure those metrics, and implement a repeatable underwriting process that enables our investment committee to make well-reasoned decisions.

Investment Philosophy

Our investment philosophy focuses on capital preservation, relative value, and establishing close relationships with portfolio companies. It is our expectation that this multifaceted focus should generate consistent, attractive, risk-adjusted returns coupled with low volatility.

Capital Preservation. We believe that the key to capital preservation is comprehensive and fundamental credit analysis. We take a long term view of our investments and portfolio with the perspective that most of our investments may need to endure through economic cycles. We refrain from market timing and generally do not enter into investments with the sole intention of realizing short term gains based on changes in market prices. However, we will not hesitate to sell an investment if we believe that it is deteriorating in value and that more recovery will be obtained by selling rather than holding the investment.

Relative Value. Relative value is an essential part of every investment decision. Relative value is determined in a variety of ways including comparisons to other opportunities available in the same asset class and with portfolio companies in the same or similar industries. Relative value is also analyzed across asset classes (senior vs. subordinate, secured vs. unsecured, debt vs. equity) to ensure that the return of a potential investment is appropriate relative to its position in the capital structure.

Key Investment Metrics

Our value-oriented investment philosophy is primarily focused on maximizing yield relative to risk. Upon identifying a potential opportunity, we perform an initial screen to determine whether pursuing intensive due diligence is merited. As part of this process, we have identified several criteria we believe are important in evaluating and investing in prospective portfolio companies. These criteria provide general guidelines for our investment decisions. However, each prospective portfolio company in which we choose to invest may not meet all of these criteria.

Value orientation/positive cash flow. Our investment philosophy places a premium on fundamental credit analysis and has a distinct value orientation. We will generally focus on companies in which we can invest at relatively low multiples of operating cash flow and that are profitable at the time of investment on an operating cash flow basis. Although we obtain liens on collateral when appropriate and available, we are primarily focused on the predictability of future cash flow. We generally do not intend to invest in start-up companies or companies with speculative business plans.

Seasoned management with significant equity ownership. Strong, committed management teams are important to the success of an investment and we focus on companies where strong management teams are either already in place or where new management teams have been identified. Additionally, we generally require the portfolio companies to have in place compensation provisions that appropriately incentivize management to succeed and to act in our interests as investors.

Strong competitive position. We seek to invest in companies that have developed competitive advantages and defensible market positions within their respective markets, provide a needed product or service and are well positioned to capitalize on growth opportunities.

Exit strategy. We seek companies that we believe will generate consistent cash flow to repay our loans and reinvest in their respective businesses. We expect such internally generated cash flow in portfolio companies to be a key means by which we exit from our investments over time. In addition, we invest in companies whose business models and expected future cash flows offer attractive exit possibilities for the equity component of our returns. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or another capital market transaction.

Due Diligence and Investment Process

We employ a rigorous and disciplined underwriting and due diligence process. Our process includes a comprehensive understanding of a portfolio company’s industry, market, operational, financial, organizational and legal position and prospects. In addition to our own analysis, we frequently use the service of third parties (either those of the sponsor, if applicable, or those which we retain) for quality of earnings reports, environmental diligence, legal reviews, industry and customer surveys, and background checks. We conduct thorough reference and background checks on senior management for all investments, including, but not limited to reference calls to several constituencies including senior management of past employers, business associates, customers, industry experts, such as equity research analysts and, when appropriate, competitors.

We seek portfolio companies that have proven management teams that have a vested interest in the company in the form of a meaningful level of equity ownership, that generate stable and predictable cash flow, and whose market position is defensible. We invest in companies with the expectation that we will own the investment through a complete business cycle, and possibly a recession, and we determine the appropriate amount of debt for the company accordingly. In addition, we view a sale of the company which might result in a refinancing of our investment as a possibility but not an expectation. Our intention is to craft strong and lender-friendly credit agreements with covenants, events of default, remedies and inter-creditor agreements being an integral part of our legal documents.

Our due diligence typically includes the following elements (although not all elements necessarily form part of every due diligence project):

Portfolio Company Characteristics: key levers of the business including a focus on drivers of cash flow and growth; revenue visibility; customer and supplier concentrations; historical revenue and margin trends; fixed versus variable costs; free cash flow analysis; portfolio company performance in view of industry performance; and sensitivity analysis around various future performance scenarios (with a focus on downside scenario analysis);

Industry Analysis: including the portfolio company’s position within the context of the general economic environment and relevant industry cycles; industry size and growth rates; competitive landscape; barriers to entry and potential new entrants; product position and defensibility of market share; technological, regulatory and similar threats; and pricing power and cost considerations;

Management: including the quality, breadth and depth of the portfolio company’s management; track record and prior experience; background checks; reputation; compensation and equity incentives; corporate overhead; motivation; interviews with management, employees, customers and vendors;

Financial Analysis: an understanding of relevant financial ratios and statistics, including various leverage, liquidity, free cash flow and fixed charge coverage ratios; impact on ratios in various future performance scenarios and comparison of applicable ratios to industry competitors; satisfaction with the auditor of the financial statements; quality of earnings analysis;

Capital Structure: diverse considerations regarding leverage (including understanding seniority and leverage multiples); ability to service debt; collateral and security protections; covenants and guarantees; equity investment amounts and participants (where applicable); review of other significant structural terms and pertinent legal documentation; and

Collateral and Enterprise Value: analysis of relevant collateral coverage, including assets on a liquidation basis and enterprise value on a going concern basis; matrix analysis of cash flow and valuation multiples under different scenarios along with recovery estimates; comparison to recent transaction multiples and valuations.

Underwriting Process

We employ an extensive due diligence approach tailored to each particular investment opportunity. To begin, we review the information memorandum that the company presenting the investment opportunity or its intermediary has prepared, and discuss the opportunity at a high level with the company’s management team, the sponsor or the intermediary, as applicable. Based on that initial high-level review, the investment team submits a customized due diligence questions request to the company or intermediary. Sometimes the company or intermediary responds directly with materials, and other times there is an online data room that the investment team is invited to review. If the investment opportunity involves a sponsor that has performed a diligence review of the company, the investment team reviews the sponsor’s due diligence reports and analyses. The investment team supplements the document review with phone calls and meetings with the intermediary, sponsor and company’s management team, as applicable. Members of the investment team may also speak with business contacts who are industry experts who provide color on industry and market trends, without discussing the specific investment opportunity. Such industry experts may include employees of THL Partners or their portfolio companies, and persons in THL Credit Advisors’ and THL Partners’ vast network of business contacts. Members of the investment team build a preliminary financial model and review financial statements as part of the analysis on whether the opportunity is attractive.

If the investment team believes the opportunity to be compelling or worth further discussion with the larger group, it will prepare a screening memo outlining the opportunity, including a company overview, situation overview, financial summary, investment thesis, risk factors and recommendations for next steps. The screening memo will be reviewed and discussed by all investment professionals (including the investment committee). Members of the investment committee in particular will ask detailed questions about the investment opportunity of the investment team. While no formal vote of the investment committee occurs at this stage, if any member of the investment committee expresses significant concerns about the investment opportunity then the investment team will be unlikely to proceed further.

During such discussions, the investment team will compile diligence questions raised by the larger group, and formulate a strategy for engaging outside consultants, legal and financial advisors and additional industry experts, as needed.

Following such a discussion, if the investment professionals (including the investment committee) believe the opportunity to be compelling, the investment team will then pursue the next stages of diligence and draft a term sheet or initial indication of interest when appropriate. Such documentation will then be presented to the sponsor or intermediary, as appropriate, and shared with the company.

If the investment team decides that the opportunity offers an attractive risk-adjusted return and we are competitively positioned to be awarded the deal, it will begin to work towards final approval by the investment committee by performing confirmatory due diligence. As part of this process, members of the investment team will conduct, among others, in-person meetings with management, in-depth review of historical financial data, thorough reviews of loan documents and material contracts as well as research relating to the company’s industry, customers, suppliers and competitors.

THL Credit Advisors’ in-house counsel will engage outside legal counsel for the opportunity, as well as industry-specific consultants, if appropriate, and accountants. If the investment opportunity involves a sponsor, the investment team may coordinate with the sponsor on engaging such consultants and accountants, and if the investment opportunity involves a co-investor, the investment team will coordinate with the co-investor on engaging all such advisors. Legal counsel will perform legal due diligence, the accountants will perform accounting due diligence, including a quality of earnings report if one does not yet exist, and the industry-specific consultants will diligence various areas such as regulatory restrictions, specific vendor or customer relationships and background checks on the management team.

The investment team will then present its complete findings in the form of a comprehensive memo to the investment committee and ask for official approval of the proposed investment.

Investment Committee

The purpose of the investment committee is to evaluate and approve, as deemed appropriate, all investments by us. The committee process is intended to bring the diverse experience and perspectives of the committee’s members to the analysis and consideration of every investment. The committee also serves to provide investment consistency and adherence to THL Credit Advisors’ investment philosophies and policies. The investment committee also determines appropriate investment sizing and suggests ongoing monitoring requirements.

In addition to reviewing investments, the investment committee meetings serve as a forum to discuss credit views and outlooks. Potential transactions and investment sourcing are also reviewed on a regular basis. Members of our investment team are encouraged to share information and views on credits with the investment committee early in their analysis. This process improves the quality of the analysis and assists the deal team members to work more efficiently.

Each transaction is presented to the investment committee in a formal written report. Each potential sale or exit of an existing investment is also presented to the investment committee. Our investment committee currently consists of Sam W. Tillinghast, Christopher J. Flynn, W. Hunter Stropp and Terrence W. Olson. To approve a new investment, or to exit or sell an existing investment, the consent of a majority of the four members of the committee is required.

Structuring

Our approach to structuring involves us choosing the most appropriate variety of debt and/or equity security for each particular investment; and negotiating the best and most favorable terms.

Investment Structure

In order to achieve our investment objective, we invest in first lien and second lien secured loans, including unitranche investments, as well as subordinated or mezzanine debt, which may include an associated equity component such as warrants, preferred stock or other similar securities. In certain instances, we will also make direct equity investments. Typically, our investments will be approximately $10 million to $35 million of capital per transaction and have maturities of five to seven years. In determining whether a prospective investment satisfies our investment criteria, we generally seek a high total return potential on a risk-adjusted basis, although there can be no assurance we will find investments satisfying that criterion or that any such investments will perform in accordance with expectations.

We generally do not intend to invest in startup companies, operationally distressed situations or companies with speculative business plans. In addition, we may invest up to 30% of our portfolio in opportunistic investments which will be intended to diversify or complement the remainder of our portfolio and to enhance our returns to stockholders. There investments may include high yield bonds, private equity investments, securities of public companies that are broadly traded and securities of non-U.S. companies. We expect that these public companies generally will have debt securities that are non-investment grade.

Once we have determined that a prospective portfolio company is suitable for investment, we will work with the management of that portfolio company and its other capital providers, including, as applicable, senior, junior, and equity capital providers, to structure an investment. We will negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio company’s capital structure. Investments will include stringent structural and credit protections. The legal review process and documentation will be of paramount importance. Internal counsel of THL Credit Advisors will be closely involved in every investment that we make. Investment professionals working with internal counsel drive the principal negotiation of legal terms in connection with the issuance of term sheets. They continue to be involved in negotiations, along with outside counsel who lead the transactions, throughout the legal documentation process. This involvement on each transaction will provide consistent structural and credit protections across investments.

Security types we invest in include:

First Lien Senior Secured Loans. We invest in first lien or senior secured loans, and expect such loans to have terms of three to seven years. To the extent we invest in senior secured loans, we obtain first lien security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. First lien secured loans may also include unitranche loan structures, which typically combine characteristics of traditional first lien senior secured and second lien and/or subordinated loans to the extent such investment is last-out. We may obtain security interests in the assets of the portfolio company that serve as collateral in support of the repayment of these loans. This collateral may take the form of first-priority liens on the assets of the portfolio company and may provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity, although there can be no assurance we will find investments providing for such amortization. Unitranche loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity.

Second Lien Loans. We structure our second lien investments as junior secured loans. We obtain security interests in the assets of the portfolio company that serve as collateral in support of the repayment of such loans. This collateral may take the form of second priority liens on the assets of the portfolio company that serve as collateral in support of the repayment of these loans. Second lien loans may provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity, although there can be no assurance we will find investments providing for such amortization.

Mezzanine Loans. We structure our subordinated, or mezzanine investments, primarily as unsecured, subordinated loans that provide for relatively high, fixed interest rates that will provide us with current interest income. Generally, mezzanine loans rank subordinate in priority of payment to senior debt, such as senior bank debt, and are often unsecured. However, mezzanine loans rank senior to common and preferred equity in a borrowers’ capital structure. Mezzanine loans typically have interest-only payments in the early years, with amortization of principal deferred to the later years and may include an associated equity component such as warrants, preferred stock or other similar securities. The warrants associated with mezzanine loans are typically detachable, which allows lenders to receive repayment of their principal on an agreed amortization schedule while retaining their equity interest in the borrower. Also, in some cases our mezzanine loans will be collateralized by a subordinated lien on some or all of the assets of the borrower. Typically, our mezzanine loans will have maturities of five to ten years. In determining whether a prospective mezzanine loan investment satisfies our investment criteria, we generally seek a high total return potential, although there can be no assurance we will find investments satisfying that criterion or that any such investments will perform in accordance with expectations.

Logan JV. We have invested in Logan JV, which as of December 31, 2015 consisted of a portfolio of loans to 85 different borrowers in industries similar to the companies in our portfolio. Logan JV invests primarily in debt securities that are secured by a first lien on some or all of the issuer’s assets, including traditional senior debt and any related revolving or similar credit facility. This is generally the same collateral as our senior secured loans.

Investment Terms

We tailor the terms of each investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the company to achieve its business plan and improve its profitability. We seek to limit the downside potential of our investments by:

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requiring a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk; and

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negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or rights to a seat on the board under some circumstances or participation rights. The intention will be to craft strong and investor-friendly agreements with covenants, events of default, remedies and intercreditor agreements, if applicable, being an integral part of such documents.

Our investments may include equity features, such as warrants or options to buy a minority interest in the portfolio company. Any warrants we receive with our debt securities generally require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure the warrants to provide provisions protecting our rights as a minority interest holder, as well as puts, or rights to sell such securities back to the company, upon the occurrence of specified events. In many cases, we also obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights.

Supervising

Successful supervision of our investments involves employing active monitoring methods; and developing strong underlying management teams at each portfolio company.

Monitoring

We employ the use of board observation and information rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to actively monitor performance. Additionally, We have developed a monitoring template that promotes compliance with these standards and that is used as a tool to assess investment performance relative to plan.

As part of the monitoring process, the Advisor assesses the risk profile of each of our investments and assigns each portfolio investment a score of a 1, 2, 3, 4 or 5.

The revised investment performance scores, or IPS, are as follows:

1 – The portfolio investment is performing above our underwriting expectations.

2 – The portfolio investment is performing as expected at the time of underwriting. All new investments are initially scored a 2.

3 – The portfolio investment is operating below our underwriting expectations, and requires closer monitoring. The company may be out of compliance with financial covenants, however, principal or interest payments are generally not past due.

4 – The portfolio investment is performing materially below our underwriting expectations and returns on our investment are likely to be impaired. Principal or interest payments may be past due, however, full recovery of principal and interest payments are expected.

5 – The portfolio investment is performing substantially below expectations and the risk of the investment has increased substantially. The company is in payment default and the principal and interest payments are not expected to be repaid in full.

For any investment receiving a score of a 3 or lower THL Credit Advisors will increase their level of focus and prepare regular updates for the investment committee summarizing current operating results, material impending events and recommended actions.

Our Advisor monitors and, when appropriate, changes the investment scores assigned to each investment in our portfolio. In connection with our investment valuation process, the Advisor and board of directors review these investment scores on a quarterly basis. Our average investment score was 2.13 and 2.07 at December 31, 2015 and December 31, 2014, respectively. The following is a distribution of the investment scores of our portfolio investments at December 31, 2015 and 2014 (in millions):


	December 31, 2015					December 31, 2014
Investment Score	Fair Value		% of Total Portfolio			Fair Value		% of Total Portfolio
1^(a)	$	137.6		18.2	%	$	72.1		9.2	%
2^(b)		417.4		55.4	%		569.5		72.7	%
3^(c)		185.3		24.6	%		136.0		17.3	%
4^(d)		13.6		1.8	%		6.6		0.8	%
5^(e)		0.3		0.0	%		—		—

Total	$	754.2		100.0	%	$	784.2		100.0	%

^(a)	As of December 31, 2015 and December 31, 2014, Investment Score “1” included $26.5 million and $0, respectively, of loans to companies in which we also hold equity securities.

^(b)	As of December 31, 2015 and December 31, 2014, Investment Score “2” included $122.0 million and $126.0 million, respectively, of loans to companies in which we also hold equity securities.

^(c)	As of December 31, 2015 and December 31, 2014, Investment Score “3” included $48.4 million and $24.7 million, respectively, of loans to companies in which we also hold equity securities.

^(d)	As of December 31, 2015 and December 31, 2014, Investment Score “4” included $0 and $4.6 million, respectively, of loans to companies in which we also hold equity securities.

^(e)	As of December 31, 2015 and December 31, 2014, Investment Score “5” included $0.3 million and $0, respectively, of loans to companies in which we also hold equity securities.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of December 31, 2015, we had two loans on non-accrual with an amortized cost basis of $25.0 million and a fair value of $13.9 million. As of December 31, 2014, we had no loans on non-accrual. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations.

Investment management agreement

THL Credit Advisors serves as our investment adviser. THL Credit Advisors is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our board of directors, THL Credit Advisors manages the day-to-day operations of, and provide investment advisory and management services to, THL Credit, Inc. The address of THL Credit Advisors is 100 Federal Street, 31^st Floor, Boston, Massachusetts 02110.

Under the terms of our investment management agreement, THL Credit Advisors:

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determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

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identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and

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closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.

THL Credit Advisors’ services under the investment management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.

Pursuant to our investment management agreement, we pay THL Credit Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

Management Fee. The base management fee is calculated at an annual rate of 1.5% of our gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined without deduction for any liabilities. The base management fee is calculated based on the value of the Company’s gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. For the years ended December 31, 2015, 2014 and 2013, THL Credit Advisors earned base management fees of $11.8 million, $11.1 million and $7.5 million, respectively, from us.

Incentive Fee. The incentive fee has two components, ordinary income and capital gains, calculated as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on our preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under our administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which our preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of our preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any,

that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of our preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of our preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which our preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of our preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest (sometimes referred to as payment-in-kind interest, or PIK, or original issue discount, or OID) will be paid to THL Credit Advisors, together with interest thereon from the date of deferral to the date of payment, only if and to the extent we actually receive such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

Preincentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss, subject to the total return requirement and deferral of non-cash amounts. For example, if we receive preincentive fee net investment income in excess of the quarterly minimum hurdle rate, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses. Our net investment income used to calculate this component of the incentive fee is also included in the amount of our gross assets used to calculate the 1.5% base management fee. These calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The following is a graphical representation of the calculation of the income-related portion of the incentive fee:

Quarterly Incentive Fee Based on Net Investment Income

Pre-incentive fee net investment income (expressed as a percentage of the value of net assets)

LOGO

Pre-incentive fee net investment income allocated to first component of incentive fee

December 31, 2015 and December 31, 2014, $1.3 million and $1.1 million, respectively of incentive fees incurred by us were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received in cash.

Additionally, if the investment management agreement is terminated as of a date that is not a calendar year end, the termination date will be treated as though it were a calendar year end for purposes of calculating and paying the capital gains incentive fee.

For the years ended December 31, 2015, 2014 and 2013, THL Credit Advisors earned incentive fees of $11.9 million, $11.2 million and $10.7 million, respectively, from us.

Pre-incentive fee capital gains allocated to second component of incentive fee

The second component of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). This component is equal to 20.0% of our cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid capital gains incentive fees is subtracted from such capital gains incentive fee calculated.

Examples of Quarterly Incentive Fee Calculation

Example 1: Income Portion of Incentive Fee before Total Return Requirement Calculation:

Assumptions

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Hurdle rate (1) = 2.00%

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Base management fee (2) = 0.375%

•

Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.40%

Alternative 1

Additional Assumptions

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Investment income (including interest, dividends, fees, etc.) = 1.25%

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Pre-incentive fee net investment income (investment income—(base management fee + other expenses)) = 0.475%

Pre-incentive net investment income does not exceed hurdle rate, therefore there is no incentive fee.

Alternative 2

Additional Assumptions

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Investment income (including interest, dividends, fees, etc.) = 2.90%

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Preincentive fee net investment income (investment income—(base management fee + other expenses)) = 2.125%

Preincentive fee net investment income exceeds hurdle rate, therefore there is an incentive fee.

Incentive fee = (100% × “Catch-Up”) + (the greater of 0% AND (20.0% × (preincentive fee net investment income—2.5%)))

= (100.0% x (preincentive fee net investment income—2.00%)) +0%

= (100.0% x (2.125%—2.00%))

= 100% x 0.125%

= 0.125%

Alternative 3

Additional Assumptions

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Investment income (including interest, dividends, fees, etc.) = 3.50%

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Preincentive fee net investment income (investment income—(base management fee + other expenses)) = 2.725%

Preincentive fee net investment income exceeds hurdle rate, therefore there is an incentive fee.

Incentive Fee = (100% × “Catch-Up”) + (the greater of 0% AND (20.0% × (preincentive fee net investment income—2.5%)))

= (100% × (2.5%—2.0%)) + (20.0% × (2.725%—2.5%))

= 0.5% + (20.0% × 0.225%)

= 0.5% + 0.045%

= 0.545%

⁽¹⁾	Represents 8.0% annualized hurdle rate.

⁽²⁾	Represents 1.5% annualized base management fee.

⁽³⁾	Excludes organizational and offering expenses.

Example 2: Income Portion of Incentive Fee with Total Return Requirement Calculation:

Assumptions

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Hurdle rate (1) = 2.00%

•

Base management fee (2) = 0.375%

•

Other expenses (legal, accounting, transfer agent, etc.) (3) = 0.40%

•

Cumulative incentive compensation accrued and/or paid for preceding 11 calendar quarters = $9,000,000

Alternative 1

Additional Assumptions

•

Investment income (including interest, dividends, fees, etc.) = 3.50%

•

Preincentive fee net investment income (investment income – (base management fee + other expenses)) = 2.725%

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20.0% of cumulative net increase in net assets resulting from operations over current and preceding 11 calendar quarters = $8,000,000

Although our preincentive fee net investment income exceeds the hurdle rate of 2.0% (as shown in Alternative 3 of Example 1 above), no incentive fee is payable because 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters did not exceed the cumulative income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters.

Alternative 2

Additional Assumptions

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Investment Income (including interest, dividends, fees, etc.) = 3.50%

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Preincentive fee net investment income (investment income – (base management fee + other expenses)) = 2.725%.

•

20% of cumulative net increase in net assets resulting from operations over current and preceding 11 calendar quarters = $10,000,000

Because our preincentive fee net investment income exceeds the hurdle rate of 2.0% and because 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters, an incentive fee would be payable, as shown in Alternative 3 of Example 1 above.

⁽¹⁾	Represents 8.0% annualized hurdle rate.

⁽²⁾	Represents 1.5% annualized base management fee.

⁽³⁾	Excludes organizational and offering expenses.

Example 3: Capital Gains Portion of Incentive Fee:

Alternative 1:

Assumptions

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Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)

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Year 2: Investment A sold for $50 million and fair market value, or FMV, of Investment B determined to be $32 million

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Year 3: FMV of Investment B determined to be $25 million

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Year 4: Investment B sold for $31 million

The capital gains portion of the incentive fee would be:

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Year 1: None

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Year 2: Capital gains incentive fee of $6.0 million ($30 million realized capital gains on sale of Investment A multiplied by 20.0%)

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Year 3: None; $5.0 million (20.0% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6.0 million (previous capital gains fee paid in Year 2)

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Year 4: Capital gains incentive fee of $200,000; $6.20 million ($31 million cumulative realized capital gains multiplied by 20.0%) less $6.0 million (capital gains fee paid in Year 2)

Alternative 2

Assumptions

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Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)

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Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million

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Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million

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Year 4: FMV of Investment B determined to be $35 million

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Year 5: Investment B sold for $20 million

The capital gains portion of the incentive fee would be:

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Year 1: None

•

Year 2: Capital gains incentive fee of $5.0 million; 20.0% multiplied by $25 million ($30 million realized capital gains on Investment A less $5 million unrealized capital depreciation on Investment B)

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Year 3: Capital gains incentive fee of $1.4 million; $6.4 million (20.0% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation on Investment B)) less $5.0 million capital gains fee paid in Year 2

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Year 4: None

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Year 5: None; $5.0 million of capital gains incentive fee (20.0% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains fee paid in Year 2 and Year 3

Payment of our expenses

All investment professionals and staff of THL Credit Advisors, when and to the extent engaged in providing investment advisory and management services to us; and the compensation and routine overhead expenses of such personnel allocable to such services (including health insurance, 401(k) plan benefits, payroll taxes and other compensation related matters), are provided and paid for by THL Credit Advisors. We bear all other costs and expenses of our operations and transactions, including those relating to:

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our organization;

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calculating our net asset value and net asset value per share (including the cost and expenses of any independent valuation firm);

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expenses, including travel-related expenses, incurred by THL Credit Advisors or payable to third parties in originating investments for the portfolio, performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

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interest payable on debt, if any, incurred to finance our investments;

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the costs of future offerings of common shares and other securities, if any;

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the base management fee and any incentive management fee;

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distributions on our shares;

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administrator expenses payable under our administration agreement;

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transfer agent and custody fees and expenses;

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the allocated costs incurred by THL Credit Advisors as our administrator in providing managerial assistance to those portfolio companies that request it;

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amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

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brokerage fees and commissions;

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registration fees;

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listing fees;

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taxes;

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independent director fees and expenses;

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costs of preparing and filing reports or other documents with the SEC;

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the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

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costs of holding stockholder meetings;

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our fidelity bond;

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directors and officers/errors and omissions liability insurance, and any other insurance premiums;

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litigation, indemnification and other non-recurring or extraordinary expenses;

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direct costs and expenses of administration and operation, including audit and legal costs;

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fees and expenses associated with marketing efforts, including to investors, sponsors and other origination sources;

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dues, fees and charges of any trade association of which we are a member; and

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all other expenses reasonably incurred by us or THL Credit Advisors in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs.

We reimburse THL Credit Advisors for costs and expenses incurred by THL Credit Advisors for office space rental, office equipment and utilities allocable to the performance by THL Credit Advisors of its duties under the investment management agreement, as well as any costs and expenses incurred by THL Credit Advisors relating to any non-investment advisory, administrative or operating services provided by THL Credit Advisors to us or in the form of managerial assistance to portfolio companies that request it.

THL Credit Advisors may pay amounts owed by us to third party providers of goods or services. We will subsequently reimburse THL Credit Advisors for such amounts paid on our behalf.

Limitation of liability and indemnification

The investment management agreement provides that THL Credit Advisors and its officers, directors, employees and affiliates are not liable to us or any of our stockholders for any act or omission by it or its employees in the supervision or management of our investment activities or for any loss sustained by us or our stockholders, except that the foregoing exculpation does not extend to any act or omission constituting willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations under the investment management agreement. The investment management agreement also provides for indemnification by us of THL Credit Advisors’ members, directors, officers, employees, agents and control persons for liabilities incurred by it in connection with their services to us, subject to the same limitations and to certain conditions.

Duration and termination

The investment management agreement was approved by our board of directors on March 8, 2016, as described further below under “Business—Board Approval of the Investment Advisory Agreement.” Unless terminated earlier as described below, it will remain in effect from year to year if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. The investment management agreement will automatically terminate in the event of its assignment. The investment management agreement may be terminated by either party without penalty upon not less than 60 days written notice to the

other. Any termination by us must be authorized either by our board of directors or by vote of our stockholders. See “Risk Factors—Risks relating to our business.” We are dependent upon senior management personnel of our investment adviser for our future success, and if our investment adviser is unable to retain qualified personnel or if our investment adviser loses any member of its senior management team, our ability to achieve our investment objective could be significantly harmed.

Board Approval of the Investment Advisory Agreement

At a meeting of our Board of Directors held on March 8, 2016, our board of directors unanimously voted to approve the investment advisory agreement. In reaching a decision to approve the investment advisory agreement, the board of directors reviewed a significant amount of information and considered, among other things:

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the nature, quality and extent of the advisory and other services to be provided to us by THL Credit Advisors;

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the fee structures of comparable externally managed business development companies that engage in similar investing activities;

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our projected operating expenses and expense ratio compared to business development companies with similar investment objectives;

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any existing and potential sources of indirect income to THL Credit Advisors from its relationship with us and the profitability of that relationship, including through the investment advisory agreement;

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information about the services to be performed and the personnel performing such services under the investment advisory agreement;

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the organizational capability and financial condition of THL Credit Advisors and its affiliates; and

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various other matters.

Based on the information reviewed and the discussions detailed above, the board of directors, including all of the directors who are not “interested persons” as defined in the 1940 Act, concluded that the investment advisory fee rates and terms are reasonable in relation to the services provided and approved the investment advisory agreement as being in the best interests of our stockholders.

Administration Agreement

We have entered into an administration agreement with THL Credit Advisors, which we refer to as the “administration agreement,” under which the Administrator provides administrative services to us. For providing these services, facilities and personnel, we reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including rent and our allocable portion of the cost of certain of our officers and their respective staffs.

The Administrator may pay amounts owed by us to third-party providers of goods or services. We will subsequently reimburse the Administrator for such amounts paid on our behalf.

Additionally, at our request, the Administrator provides on our behalf significant managerial assistance to our portfolio companies to which we are required to provide such assistance.

License agreement

We and THL Credit Advisors have entered into a license agreement with THL Partners under which THL Partners has granted to us and THL Credit Advisors a non-exclusive, personal, revocable worldwide non-

transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with our respective businesses. This license agreement is royalty-free, which means we are not charged a fee for our use of the trade name and service mark THL. The license agreement is terminable either in its entirety or with respect to us or THL Credit Advisors by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either us or THL Credit Advisors by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either us or THL Credit Advisors at our or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, we and THL Credit Advisors must cease to use the name and mark THL, including any use in our respective legal names, filings, listings and other uses that may require us to withdraw or replace our names and marks. Other than with respect to the limited rights contained in the license agreement, we and THL Credit Advisors have no right to use, or other rights in respect of, the THL name and mark. We are an entity operated independently from THL Partners, and third parties who deal with us have no recourse against THL Partners.

Staffing

We do not currently have any employees and do not expect to have any employees. Our Advisor and Administrator have hired and expect to continue to hire professionals with skills applicable to our business plan and investment objective, including experience in lower middle market investment, leveraged finance and capital markets. Each of our executive officers is an employee and executive officer of our Advisor. Our day-to-day investment operations are managed by our Advisor. The services necessary for the origination and administration of our investment portfolio are provided by investment professionals employed by our Advisor. Our Advisor’s investment professionals focus on origination and transaction development and the ongoing monitoring of our investments. We reimburse the Advisor, in its capacity as our Administrator, for costs and expenses incurred by our Administrator for office space rental, office equipment and utilities allocable to our Administrator under the administration agreement, as well as any costs and expenses incurred by our Advisor relating to any non-investment advisory, administrative or operating services provided by our Advisor to us. In addition, we reimburse our Administrator for our allocable portion of expenses it incurs in performing its obligations under the administration agreement, including rent and our allocable portion of the cost of certain of our officers and their respective staffs.

Material Conflicts of Interest

We entered into an investment management agreement on April 1, 2010 under which the Advisor, subject to the overall supervision of our board of directors manages the day-to-day operations of, and provides investment advisory services to us. The Advisor and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Advisor may serve as investment adviser to one or more private funds or registered closed-end funds, and presently serves as an investment adviser to CLOs, THL Credit Wind River 2013-2 CLO, Ltd., THL Credit Wind River 2014-1 CLO, Ltd., THL Credit Wind River 2014-2 CLO, Ltd., and a subadviser to a closed-end fund, THL Credit Senior Loan Fund (NYSE: TSLF). In addition, our officers may serve in similar capacities for one or more private funds or registered closed-end funds. The Advisor’s policies are also designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities if we are able to co-invest, either pursuant to SEC interpretive positions or an exemptive order, with other funds managed by the Adviser and its affiliates. In addition, we note that any affiliated fund currently formed or formed in the future and managed by the Advisor or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Advisor.

The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with affiliates absent an order from the SEC permitting the BDC to do so. Unless otherwise provided in the allocation policy, if

an investment opportunity is appropriate for both us and other investment funds and the investment opportunity requires more than the price to be negotiated, the investment opportunity will be made available to the other investment fund or us on an alternating basis based on the date of closing of each such investment opportunity and each fund’s available capital. As a result, the Advisor and/or its affiliates may face conflicts in allocating investment opportunities between us and such other entities. Although the Advisor and its affiliates will endeavor to allocate investment opportunities in a fair and equitable manner and consistent with applicable allocation procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by the Advisor or its affiliates.

The SEC staff has granted us relief sought in an exemptive application that expands our ability to co-invest in portfolio companies with other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) or our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

Business Development Company Regulations

We have elected to be regulated as a BDC under the 1940 Act. We have also elected to be treated for tax purposes as a RIC under Subchapter M of the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act.

In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities” as defined in the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company. We do not anticipate any substantial change in the nature of our business.

We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, issue and sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if (1) our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities. At our Annual Meeting of Stockholders on June 2, 2015, our stockholders approved a proposal authorizing us to sell up to 25% of our common stock at a price below our then-current net asset value per share, subject to approval by our board of directors for the offering. The authorization expires on the earlier of June 2, 2016 or the date of our 2016 Annual Meeting of Stockholders, which is expected to be held in June 2016. Our stockholders also approved a proposal to authorize us to offer and issue debt with warrants or debt convertible into shares of our common stock at an exercise or conversion price that, at the time such warrants or convertible debt are issued, will not be less than the market value per share but may be below our then-current net asset value per share.

As a BDC, we are required to meet a coverage ratio of the value of total assets to senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. We may also

be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by the SEC.

Recent legislation introduced in the U.S. House of Representatives intended to revise certain regulations applicable to BDCs. The legislation provided for (i) modifying the asset coverage ratio from 200% to 150%, (ii) permitting BDCs to file registration statements with the SEC that incorporate information from already-filed reports by reference, (iii) utilizing other streamlined registration processes afforded to operating companies, and (iv) allowing BDCs to own investment adviser subsidiaries. There are no assurances as to when the legislation will be enacted by Congress, if at all, or, if enacted, what final form the legislation would take.

We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act of 1933, or the Securities Act. We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might indirectly subject our stockholders to additional expenses as they will indirectly be responsible for the costs and expenses of such companies. None of our investment policies are fundamental and any may be changed without stockholder approval.

Qualifying assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following: -

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Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

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is organized under the laws of, and has its principal place of business in, the United States;

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is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and

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satisfies either of the following:

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has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; or

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is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company.

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Securities of any eligible portfolio company which we control.

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Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy

and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

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Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

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Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities.

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Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment.

Control, as defined by the 1940 Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company.

Significant managerial assistance to portfolio companies

A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “Business—Business Development Company Regulations—Qualifying assets” above. Business development companies generally must offer to make available to the issuer of the securities significant managerial assistance, except in circumstances where either (i) the business development company controls such issuer of securities or (ii) the business development company purchases such securities in conjunction with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary investments

Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. We may invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. Consequently, repurchase agreements are functionally similar to loans. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, the 1940 Act and certain diversification tests in order to qualify as a RIC for federal income tax purposes typically require us to limit the amount we invest with any one counterparty. Our investment Advisor monitors the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Warrants and Options

Under the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase shares of capital stock that it may have outstanding at any time. Under the 1940 Act, we may generally only offer warrants provided that (i) the warrants expire by their terms within ten years, (ii) the exercise or conversion price is not less than the current market value at the date of issuance, (iii) our stockholders authorize the proposal to issue such warrants, and our board of directors approves such issuance on the basis that

the issuance is in the best interests of THL Credit and its stockholders and (iv) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25% of our outstanding voting securities. In particular, the amount of capital stock that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase capital stock cannot exceed 25% of the BDC’s total outstanding shares of capital stock.

Senior securities

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any preferred stock or publicly traded debt securities are outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Risks—Risks related to our operations as a BDC.”

No-action relief from registration as a commodity pool operator

We are relying on a no-action letter (the “No-Action Letter”) issued by the staff of the Commodity Futures Trading Commission (the “CFTC”) as a basis to avoid registration with the CFTC as a commodity pool operator (“CPO”). The No-Action Letter allows an entity to engage in CFTC-regulated transactions (“commodity interest transactions”) that are “bona fide hedging” transactions (as that term is defined and interpreted by the CFTC and its staff), but prohibit an entity from entering into commodity interest transactions if they are non-bona fide hedging transactions, unless immediately after entering such non-bona fide hedging transaction (a) the sum of the amount of initial margin deposits on the entity’s existing futures or swaps positions and option or swaption premiums does not exceed 5% of the market value of the entity’s liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions, or (b) the aggregate net notional value of the entity’s commodity interest transactions would not exceed 100% of the market value of the entity’s liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions. We are required to operate pursuant to these trading restrictions if we intend to continue to rely on the No-Action Letter as a basis to avoid CPO registration.

Proxy voting policies and procedures

We have delegated our proxy voting responsibility to THL Credit Advisors. The Proxy Voting Policies and Procedures of THL Credit Advisors are set forth below. The guidelines are reviewed periodically by THL Credit Advisors and our independent directors, and, accordingly, are subject to change.

Introduction

THL Credit Advisors is registered as an investment adviser under the Advisers Act. As an investment adviser registered under the Advisers Act, THL Credit Advisors has fiduciary duties to us. As part of this duty, THL Credit Advisors recognizes that it must vote client securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders. THL Credit Advisors’ Proxy Voting Policies and Procedures have been formulated to ensure decision-making consistent with these fiduciary duties.

These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy policies

THL Credit Advisors evaluates routine proxy matters, such as proxy proposals, amendments or resolutions on a case-by-case basis. Routine matters are typically proposed by management and THL Credit Advisors will normally support such matters so long as they do not measurably change the structure, management control, or operation of the corporation and are consistent with industry standards as well as the corporate laws of the state of incorporation.

THL Credit Advisors also evaluates non-routine matters on a case-by-case basis. Non-routine proposals concerning social issues are typically proposed by stockholders who believe that the corporation’s internally adopted policies are ill-advised or misguided. If THL Credit Advisors has determined that management is generally socially responsible, THL Credit Advisors will generally vote against these types of non-routine proposals. Non-routine proposals, to the extent they occur, concerning financial or corporate issues are usually offered by management and seek to change a corporation’s legal, business or financial structure. THL Credit Advisors will generally vote in favor of such proposals provided the position of current stockholders is preserved or enhanced. Non-routine proposals concerning stockholder rights are made regularly by both management and stockholders. They can be generalized as involving issues that transfer or realign board or stockholder voting power. THL Credit Advisors typically would oppose any proposal aimed solely at thwarting potential takeovers by requiring, for example, super-majority approval. At the same time, THL Credit Advisors believes stability and continuity promote profitability. THL Credit Advisors’ guidelines in this area seek a middle road and individual proposals will be carefully assessed in the context of their particular circumstances.

If a vote may involve a material conflict of interest, prior to approving such vote, THL Credit Advisors must consult with its chief compliance officer to determine whether the potential conflict is material and if so, the appropriate method to resolve such conflict. If the conflict is determined not to be material, THL Credit Advisors’ employees shall vote the proxy in accordance with THL Credit Advisors’ proxy voting policy.

Proxy voting records

You may obtain information about how we voted proxies by making a written request for proxy voting information to:

General Counsel

THL Credit, Inc.

100 Federal Street, 31st Floor

Boston, MA 02110

Code of ethics

We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and we have also approved our investment adviser’s code of ethics under Rule 17j-1 under the 1940 Act and Rule 204A-1 of the Advisers Act. These codes establish procedures for personal investments and restrict certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts so long as such investments are made in accordance with the code’s requirements. You may read and copy our code of ethics and our code of ethics and business conduct at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, our code of ethics and our code of ethics and business conduct are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov and are available on our corporate governance webpage at http://investor.thlcredit.com/governance.

Privacy Principles

We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.

Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).

We restrict access to nonpublic personal information about our stockholders to our investment adviser’s employees with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.

Compliance with Corporate Governance Regulations

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. The Sarbanes-Oxley Act has required us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

In addition, The NASDAQ Global Select Market has adopted various corporate governance requirements as part of its listing standards. We believe we are in compliance with such corporate governance listing standards. We will continue to monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in compliance therewith.

Other

We have adopted an investment policy that mirrors the requirements applicable to us as a BDC under the 1940 Act.

We are subject to periodic examination by the SEC for compliance with the Exchange Act and the 1940 Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We and THL Credit Advisors have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We and THL Credit Advisors have designated a chief compliance officer to be responsible for administering the policies and procedures.

You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202)551-8090. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

Our internet address is www.thlcredit.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Certain U.S Federal Income Tax Considerations

We have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level federal income taxes on any income that we distribute to our stockholders from our tax earnings and profits. To maintain our qualification as a RIC, we must, among other things, meet certain source of income and asset diversification requirements (as described below). In addition, in order maintain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses (the “Annual Distribution Requirement”).

Taxation as a Regulated Investment Company

If we:

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maintain our qualification as a RIC; and

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satisfy the Annual Distribution Requirement,

then generally we will not be subject to U.S. federal income tax on the portion of our income we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.

In order to maintain our qualification as a RIC for federal income tax purposes, we must, among other things:

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continue to qualify as a BDC under the 1940 Act at all times during each taxable year;

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derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and

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diversify our holdings so that at the end of each quarter of the taxable year:

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at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and

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no more than 25% of the value of our assets is invested in the securities, other than U.S. Government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships” (the “Diversification Tests”).

We will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for each calendar year and (3) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax (the “Excise Tax Avoidance Requirement”). We may choose to retain a portion of our ordinary income and/or capital gain net income in any year and pay the 4% U.S. federal excise tax on the retained amounts. For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is

received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated with the Company for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries.

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

Certain of our investment practices may be subject to special and complex federal income tax provisions that may, among other things, (1) treat dividends that would otherwise qualify for the dividends received deduction or constitute qualified dividend income as ineligible for such treatment, (2) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (3) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income, (4) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (5) cause us to recognize income or gain without receipt of a corresponding distribution of cash, (6) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (7) adversely alter the characterization of certain complex financial transactions and (8) produce income that will not be qualifying income for purposes of the 90% Income Test. We will monitor our transactions and may make certain tax elections to mitigate the potential adverse effect of these provisions, but there can be no assurance that any adverse effects of these provisions will be mitigated.

If we purchase shares in a “passive foreign investment company” (a “PFIC”), we may be subject to federal income tax on its allocable share of a portion of any “excess distribution” received on, or any gain from the disposition of, such shares even if our allocable share of such income is distributed as a taxable dividend to its stockholders. Additional charges in the nature of interest generally will be imposed on us in respect of deferred taxes arising from any such excess distribution or gain. If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund” under the Code (a “QEF”), in lieu of the foregoing requirements, we will be required to include in income each year our proportionate share of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed by the QEF. Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income our allocable share of any increase in the value of such shares, and as ordinary loss our allocable share of any decrease in such value to the extent that any such decrease does not exceed prior increases included in its income. Under either election, we may be required to recognize in a year income in excess of distributions from PFICs and proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% excise tax.

Item 1A.

Risk Factors

Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this Annual Report on Form 10-K, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face, but they are the principal risks associated with an investment in the Company. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We may suffer credit losses.

Investment in lower middle market companies is highly speculative and involves a high degree of risk of credit loss, and therefore our securities may not be suitable for someone with a low tolerance for risk. These risks are likely to increase during an economic recession.

The lack of liquidity in our investments may adversely affect our business.

Our investments generally are made in private companies. Substantially all of these securities are subject to legal and other restrictions on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded our investments. Further, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or an affiliated manager have material non-public information regarding such portfolio company.

There will be uncertainty as to the value of our portfolio investments.

A large percentage of our portfolio investments are in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We value these securities on a quarterly basis in accordance with our valuation policy, which is at all times consistent with U.S. generally accepted accounting policies (“GAAP”). Our board of directors utilizes the services of third- party valuation firms to aid it in determining the fair value of these securities. The board of directors discusses valuations and determines the fair value in good faith based on the input of our investment adviser and the respective third-party valuation firms. The factors that may be considered in fair value pricing our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparisons to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.

Our financial condition and results of operations depend on our ability to manage future growth effectively.

Our ability to achieve our investment objective depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on THL Credit Advisors ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of the structuring of our investment process and the ability of our investment adviser to provide competent, attentive and efficient services to us. Our executive officers and the members of our investment adviser’s investment committee have substantial responsibilities in connection with their roles at THL Credit and with the other THL Credit funds, as well as responsibilities under the investment advisory and management agreement. They may also be called upon to provide significant managerial assistance to certain of our portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order to grow, THL Credit Advisors will need to hire, train, supervise, manage and retain new employees. However, we cannot assure you that we will be able to do so effectively. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

In addition, as we grow, we may open up new offices in new geographic regions that may increase our direct operating expenses without corresponding revenue growth.

We may experience fluctuations in our periodic operating results.

We could experience fluctuations in our periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire, the default rates on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend rates payable on preferred stock we issue, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

We are exposed to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability.

General interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities, and, accordingly, may have a material adverse effect on our investment objective and rate of return on investment capital. A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest. Because we will borrow money to make investments and may issue debt securities, preferred stock or other securities, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities, preferred stock or other securities and the rate at which we invest these funds. Typically, we anticipate that our interest earning investments will accrue and pay interest at both variable and fixed rates, and that our interest-bearing liabilities will accrue interest at variable rates. The benchmarks used to determine the floating rates earned on our interest earning investments are London Interbank Offered Rate, or LIBOR, with maturities that range between one and twelve months and alternate base rate, or ABR, (commonly based on the Prime Rate or the Federal Funds Rate), with no fixed maturity date. 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. We use a combination of equity and long-term and short-term borrowings to finance our investment activities.

A significant increase in market interest rates could harm our ability to attract new portfolio companies and originate new loans and investments. We expect that a portion of our investments in debt will be at floating rates with a floor. However, in the event that we make investments in debt at variable rates, a significant increase in market interest rates could also result in an increase in our non-performing assets and a decrease in the value of our portfolio because our floating-rate loan portfolio companies may be unable to meet higher payment obligations. In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. In addition, a decrease in interest rates may reduce net income, because new investments may be made at lower rates despite the increased demand for our capital that the decrease in interest rates may produce. We may, but will not be required to, hedge against the risk of adverse movement in interest rates in our short-term and long-term borrowings relative to our portfolio of assets. If we engage in hedging activities, it may

limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations.

Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

If we fail to continue to qualify as a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility and could significantly increase our costs of doing business. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us.

To the extent we use debt or preferred stock to finance our investments, changes in interest rates will affect our cost of capital and net investment income.

To the extent we borrow money, or issue preferred stock, to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds or pay dividends on preferred stock and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, except to the extent we issue fixed rate debt or preferred stock, which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and long- term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to our pre-incentive fee net investment income.

Because we have substantial indebtedness, there could be increased risk in investing in our company.

Lenders have fixed dollar claims on our assets that are superior to the claims of stockholders, and we have granted, and may in the future grant, lenders a security interest in our assets in connection with borrowings. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. In addition, borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. Leverage is generally considered a speculative investment technique. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more than it otherwise would have had we not leveraged.

Conversely, if the value of our assets decreases, leveraging would cause the net asset value attributable to our common stock to decline more than it otherwise would have had we not leveraged. Similarly, any increase in our revenue in excess of interest expense on our borrowed funds would cause our net income to increase more than it would without the leverage. Any decrease in our revenue would cause our net income to decline more than it would have had we not borrowed funds and could negatively affect our ability to make distributions on common stock. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. We and, indirectly, our stockholders will bear the cost associated with our leverage activity.

As of December 31, 2015, there was $303.5 million of commitments under our revolving credit agreement, or Revolving Facility, of which $152.2 million was funded, and $106.5 million of commitments, which was fully funded, under our term loan agreement, or Term Loan Facility.

The Revolving Facility has a maturity date of August 2020 (with a one year term out period beginning in August 2019). The one year term out period is the one year period between the revolver termination date, or the end of the availability period, and the maturity date. During this time, we are required to make mandatory prepayments on our loans from the proceeds we receive from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Term Loan Facility has a maturity date of April 2021. Each of the Revolving Facility and Term Loan Facility (together the “Facilities”), includes an accordion feature permitting us to expand the Facilities, if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $600.0 million. ING serves as administrative agent, lead arranger and bookrunner under each of the Facilities.

On November 18, 2014, we closed a public offering of $50.0 million in aggregate principal amount of 6.75% notes, or the 2021 Notes, which included the subsequent exercise of an overallotment. The 2021 Notes mature on November 15, 2021, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 15, 2017. The 2021 Notes bear interest at a rate of 6.75% per year.

On December 14, 2015, we closed a public offering of $35.0 million in aggregate principal amount of 6.75% notes, or the 2022 Notes, which included the subsequent exercise of an overallotment. The 2022 Notes mature on December 30, 2022, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after December 30, 2018. The 2022 Notes bear interest at a rate of 6.75% per year.

Collectively, the 2021 Notes and the 2022 Notes are referred to as the “Notes”.

As a BDC, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). In addition, we may not be permitted to declare any cash dividend or other distribution on our outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 200% after deducting the amount of such dividend, distribution, or purchase price. If this ratio declines below 200%, we may not be able to incur additional debt and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to make distributions. As of December 31, 2015, there was $258.7 million of borrowings outstanding under the Facilities and $85.0 million outstanding on the Notes at a weighted average interest rate of 3.96% per annum. As of December 31, 2015, our asset coverage ratio was over 200%.

The following table is designed to illustrate the effect on the return to a holder of our common stock on the leverage created by our use of borrowing at December 31, 2015 of $343.7 million at an average interest rate at the time of 3.96%, and assuming hypothetical annual returns on our portfolio of minus 10 to plus 10 percent. The table also assumes that we maintain a constant level of leverage and a constant weighted average interest rate. The amount of leverage we use will vary from time to time. As can be seen, leverage generally increases the return to stockholders when the portfolio return is positive and decreases return to stockholders when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table below.


Assumed return on portfolio (net of expenses)⁽¹⁾	(10.00%)	(5.00%)	0.00%	5.00	%	10.00	%
Corresponding return to common stockholders⁽²⁾	(21.78%)	(12.52%)	(3.25%)	6.02	%	15.28	%

⁽¹⁾	The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance.

⁽²⁾

In order to compute the “corresponding return to common stockholders”, the “assumed return on portfolio” is multiplied by the total value of our assets at the beginning of the period ($812.5 million as of December 31, 2014) to obtain an assumed return to us. From this amount, all interest expense expected to be accrued during the period ($13.6 million) is subtracted to determine the return available to stockholders. The return available to stockholders is then divided by the total value of our net assets as of the end of the period ($418.9 million) to determine the “corresponding return to common stockholders.”

This example is for illustrative purposes only, and actual interest rates on our Facility borrowing are likely to fluctuate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital resources—Credit Facility” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital resources—Notes” for additional information about the Facilities and Notes.

The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Notes are obligations exclusively of THL Credit, Inc. and not of any of our subsidiaries. None of our subsidiaries are a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the Notes.

The indenture under which our Notes were issued contains limited protection for holders of our Notes.

The indenture under which the Notes were issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes will not place any restrictions on our or our subsidiaries’ ability to:

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issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC (these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings);

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pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes;

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sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

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enter into transactions with affiliates;

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create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

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make investments; or

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create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

In addition, the indenture will not require us to offer to purchase the Notes in connection with a change of control or any other event.

Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.

Certain of our current debt instruments include more protections for their holders than the indenture and the Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial condition, liquidity and capital resources—Credit Facility.” The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.

Any default under the agreements governing our indebtedness, including a default under the Revolving Facility, the Term Loan Facility or other indebtedness to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Revolving Facility or the Term Loan Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under the Revolving Facility or the Term Loan Facility or other debt that we may incur in the future to avoid being in default. If we breach our covenants under the Revolving Facility or the Term Loan Facility or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default under the Revolving Facility or the Term Loan Facility or other debt, the lenders or holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including the lenders under the Revolving Facility and the Term Loan Facility, could proceed against the collateral securing the debt. Because the Revolving Facility and the Term Loan Facility have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes, the Revolving Facility or the Term Loan Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

We may default under the Facilities or any future borrowing facility we enter into or be unable to amend, repay or refinance any such facility on commercially reasonable terms, or at all, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

As of December 31, 2015, all of our assets were pledged as collateral under the Facilities. In the event we default under the Facilities or any other future borrowing facility, our business could be adversely affected as we

may be forced to sell all or a portion of our investments quickly and prematurely at what may be disadvantageous prices to us in order to meet our outstanding payment obligations and/or support working capital requirements under the Facilities or such future borrowing facility, any of which would have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, following any such default, the agent for the lenders under the Facilities or such future borrowing facility could assume control of the disposition of any or all of our assets, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Substantially all of our assets are subject to security interests under the Facilities and if we default on our obligations under the Facilities we may suffer adverse consequences, including foreclosure on our assets.

As of December 31, 2015, all of our assets were pledged as collateral under the Facilities. If we default on our obligations under the Facilities, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or their superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid to our stockholders.

In addition, if the lenders exercise their right to sell the assets pledged under the Facilities, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under the Facilities.

Because we use debt to finance our investments and have issued senior securities, and, in the future, may issue additional senior securities, including preferred stock and debt securities, if market interest rates were to increase, our cost of capital could increase, which could reduce our net investment income.

Because we borrow money to make investments and have issued senior securities and, in the future, may issue additional senior securities, including preferred stock and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates would not have a material adverse effect on our net investment income in the event we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates to the extent permitted by the 1940 Act. In addition, a rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates may result in an increase of the amount of our pre- incentive fee net investment income and, as a result, an increase in incentive fees payable to THL Credit Advisors. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.

We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings.

Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on any preferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must take preference over any

dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference.

Our use of borrowed funds to make investments exposes us to risks typically associated with leverage.

We borrow money and may issue additional debt securities or preferred stock to leverage our capital structure. As a result:

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our common shares would be exposed to incremental risk of loss; therefore, a decrease in the value of our investments would have a greater negative impact on the value of our common shares than if we did not use leverage;

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any depreciation in the value of our assets may magnify losses associated with an investment and could totally eliminate the value of an asset to us;

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if we do not appropriately match the assets and liabilities of our business and interest or dividend rates on such assets and liabilities, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;

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our ability to pay dividends on our common stock may be restricted if our asset coverage ratio, as provided in the 1940 Act, is not at least 200%, and any amounts used to service indebtedness or preferred stock would not be available for such dividends;

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any credit facility would be subject to periodic renewal by our lenders, whose continued participation cannot be guaranteed;

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such securities would be governed by an indenture or other instrument containing covenants restricting our operating flexibility or affecting our investment or operating policies, and may require us to pledge assets or provide other security for such indebtedness;

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we, and indirectly our common stockholders, bear the entire cost of issuing and paying interest or dividends on such securities;

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if we issue preferred stock, the special voting rights and preferences of preferred stockholders may result in such stockholders’ having interests that are not aligned with the interests of our common stockholders, and the rights of our preferred stockholders to dividends and liquidation preferences will be senior to the rights of our common stockholders;

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any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common shares; and

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any custodial relationships associated with our use of leverage would conform to the requirements of the 1940 Act, and no creditor would have veto power over our investment policies, strategies, objectives or decisions except in an event of default or if our asset coverage was less than 200%.

Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage ratio equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test and we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our senior securities at a time when such sales may be disadvantageous.

To the extent original issue discount and PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

Our investments may include original issue discount, or OID, instruments and contractual PIK, interest, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent

OID or PIK interest constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash. Such risks include:

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The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans.

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Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation.

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OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cash distributions.

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For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid-in capital, even though the cash to pay them comes from the offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

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PIK interest has the effect of generating investment income at a compounding rate, thereby further increasing the incentive fees payable to the Advisor. Similarly, all things being equal, the deferral associated with PIK interest also decreases the loan-to-value ratio at a compounding rate.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we may include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with making a loan, or possibly in other circumstances, or PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances as a result of PIK arrangements are included in income before we receive any corresponding cash payments. In addition, the PIK interest of many subordinated loans effectively operates as negative amortization of loan principal, thereby increasing credit risk exposure over the life of the loan because more will be owed at the end of the term of the loan than was owed when the loan was initially originated. We also may be required to include in income certain other amounts that we do not receive in cash.

Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the tax requirement to distribute at least 90% of our ordinary income and realized net short- term capital gains in excess of realized net long-term capital losses, if any, to maintain our status as a RIC. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements.

We may pay an incentive fee on income we do not receive in cash.

That part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been accrued but not yet received in cash. If a portfolio company defaults on a loan, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible. Consequently, while we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a formal clawback right against our investment adviser per se, the amount of accrued income written off in any period will reduce the income in the period in which such write-off was taken and thereby reduce such period’s incentive fee payment, but only to the extent that such an incentive fee is payable for that period because the write-off will not be carried forward to reduce any incentive fee payable in subsequent quarters.

The highly competitive market in which we operate may limit our investment opportunities.

A number of entities compete with us to make the types of investments that we make. We compete with other BDCs, public and private funds, commercial and investment banks, CLO funds, commercial finance companies, and, to the extent they provide an alternative form of financing, private equity and hedge funds. Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles such as hedge funds, entities have begun to invest in areas in which they had not traditionally invested. As a result of these new entrants, competition for investment opportunities intensified in recent years and may intensify further in the future. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC and that the Code imposes on us as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this existing and potentially increasing competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.

With respect to the investments we make, we do not seek to compete based primarily on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that are lower than the rates we offer. With respect to all investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss. We may also compete for investment opportunities with investment funds, accounts and investment vehicles managed by THL Credit Advisors. Although THL Credit Advisors will allocate opportunities in accordance with its policies and procedures, allocations to such investment funds, accounts and investment vehicles will reduce the amount and frequency of opportunities available to us and may not be in the best interests of us and our stockholders.

We are dependent upon senior management personnel of our investment adviser for our future success, and if our investment adviser is unable to retain qualified personnel or if our investment adviser loses any member of its senior management team, our ability to achieve our investment objective could be significantly harmed.

We depend on the members of senior management of THL Credit Advisors, particularly its Co-Chief Executive Officers, Sam W. Tillinghast and Christopher J. Flynn, its President, W. Hunter Stropp, its Chief Operating Officer and Chief Financial Officer, Terrence W. Olson, and its General Counsel, Sabrina Rusnak-Carlson, collectively, the THL Credit Principals. Messrs. Tillinghast, Flynn, Stropp and Olson constitute the investment committee of THL Credit Advisors’ direct lending platform, or the Investment Principals, which serves as our investment committee. The Investment Principals and other investment professionals make up our investment team and are responsible for the identification, final selection, structuring, closing and monitoring of our investments. These investment team members have critical industry experience and relationships that we will rely on to implement our business plan. Our future success depends on the continued service of the THL Credit Principals and the rest of our investment adviser’s senior management team. The departure of any of the members of THL Credit Advisors’ senior management or a significant number of the members of its investment team could have a material adverse effect on our ability to achieve our investment objective. As a result, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause our operating results to suffer. In addition, we can offer no assurance that THL Credit Advisors will remain our investment adviser or our administrator.

Our investment adviser has the right to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations.

THL Credit Advisors has the right, under our investment management agreement, to resign at any time upon not more than 60 days’ written notice, whether we have found a new replacement or not. If our investment adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition and results of operations.

Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all.

We have elected to be taxed for federal income tax purposes as a RIC under Subchapter M of the Code. If we meet certain requirements, including source of income, asset diversification and distribution requirements, and if we continue to qualify as a BDC, we will continue to qualify to be a RIC under the Code and will not have to pay corporate-level income taxes on income we distribute to our stockholders as dividends, allowing us to substantially reduce or eliminate our corporate-level income tax liability. As a BDC, we are generally required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200% at the time we issue any debt or preferred stock. This requirement limits the amount that we may borrow. Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt or preferred stock and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are generally not permitted to issue common stock priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our net asset value could decline.

Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.

Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results or value of our stock. Nevertheless, the effects could adversely affect our business and impact our ability to make distributions and cause you to lose all or part of your investment.

Our investment adviser and its affiliates, senior management and employees have certain conflicts of interest.

Our investment adviser, its senior management and employees serve or may serve as investment advisers, officers, directors or principals of entities that operate in the same or a related line of business. For example, THL Credit Advisors serves as investment adviser to one or more private funds and registered closed-end funds. In

addition, our officers may serve in similar capacities for one or more registered closed-end funds. Accordingly, these individuals may have obligations to investors in those entities or funds, the fulfillment of which might not be in our best interests or the best interests of our stockholders. In addition, certain of the personnel employed by our investment adviser or focused on our business may change in ways that are detrimental to our business. Any affiliated investment vehicle formed in the future and managed by THL Credit Advisors or its affiliates may invest in asset classes similar to those targeted by us. As a result, THL Credit Advisors may face conflicts in allocating investment opportunities between us and such other entities. Although THL Credit Advisors will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in such investments. In certain circumstances, negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. We, THL Credit Advisors and certain of its affiliates have submitted an exemptive application to the SEC to permit us to co-invest with other funds managed by THL Credit Advisors or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. The Staff has granted us relief pursuant to the Order. Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) or our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

There are potential conflicts of interest between us and the funds managed by us which could impact our investment returns.

THL Credit Greenway Fund LLC, or Greenway LLC, and THL Credit Greenway Fund II LLC, or Greenway II LLC, are portfolio companies and are managed by us. As contemplated in the Greenway II LLC limited liability agreement, we established a related investment vehicle and entered into an investment management agreement with an account set up by an unaffiliated third party investor to invest alongside Greenway II LLC pursuant to similar economic terms. The account is also managed by us. References to “Greenway II” herein include Greenway II LLC and the accounts of related investment vehicles.

Certain of our officers serve or may serve in an investment management capacity to Greenway and Greenway II. As a result, investment professionals may allocate such time and attention as is deemed appropriate and necessary to carry out operations of Greenway and Greenway II. In this respect, they may experience diversions of their attention from us and potential conflicts of interest between their work for us and their work for Greenway and Greenway II in the event that the interests of Greenway and Greenway II run counter to our interests.

Greenway and Greenway II invests in the same or similar asset classes that we target. These investments may be made at the direction of the same individuals acting in their capacity on behalf of us, Greenway and Greenway II. As a result, there may be conflicts in the allocation of investment opportunities between us, Greenway and Greenway II. We may or may not participate in investments made by funds managed by us or one of our affiliates.

We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.

Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party

service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:

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sudden electrical or telecommunications outages;

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natural disasters such as earthquakes, tornadoes and hurricanes;

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disease pandemics;

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events arising from local or larger scale political or social matters, including terrorist acts; and

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cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders.

The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.

We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

Our base management fee may induce our investment adviser to incur leverage.

Our base management fee is calculated on the basis of our total assets, including assets acquired with the proceeds of leverage. This may encourage the Advisor to use leverage to increase the aggregate amount of and the return on our investments, even when it may not be appropriate to do so, and to refrain from delivering when it would otherwise be appropriate to do so. Under certain circumstances, the use of increased leverage may increase the likelihood of default, which would impair the value of our common stock. Given the subjective nature of the investment decisions made by our investment adviser on our behalf, we will not be able to monitor this conflict of interest.

Our incentive fee may induce our investment adviser to make certain investments, including speculative investments.

The incentive fee payable by us to THL Credit Advisors may create an incentive for THL Credit Advisors to make investments on our behalf that are risky or more speculative than would be the case in the absence of such

compensation arrangement. The way in which the incentive fee payable to THL Credit Advisors is determined, which is calculated separately in two components as a percentage of the interest and other ordinary income in excess of a quarterly minimum hurdle rate and as a percentage of the realized gain on invested capital, may encourage our THL Credit Advisors to use leverage or take additional risk to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor the holders of our common stock, or of securities convertible into our common stock or warrants representing rights to purchase our common stock or securities convertible into our common stock. In addition, THL Credit Advisors receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of the incentive fee based on ordinary income, there is no minimum level of gain applicable to the portion of the incentive fee based on net capital gains. As a result, THL Credit Advisors may have an incentive to invest more in investments that are likely to result in capital gains as compared to income producing securities or to advance or delay realizing a gain in order to enhance its incentive fee. This practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to certain of our debt investments and may accordingly result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to our pre-incentive fee net investment income.

We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, we will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to THL Credit Advisors with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the management and incentive fee of THL Credit Advisors as well as indirectly bear the management and performance fees and other expenses of any investment companies in which we invest.

We may be obligated to pay our investment adviser incentive compensation payments even if we have incurred unrecovered cumulative losses from more than three years prior to such payments and may pay more than 20% of our net capital gains as incentive compensation payments because we cannot recover payments made in previous years.

Our investment adviser will be entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our investment income for that quarter (before deducting incentive compensation) above a threshold return for that quarter and subject to a total return requirement. The general effect of this total return requirement is to prevent payment of the foregoing incentive compensation except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. Consequently, we may pay an incentive fee if we incurred losses more than three years prior to the current calendar quarter even if such losses have not yet been recovered in full. Thus, we may be required to pay our investment adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. If we pay an incentive fee of 20.0% of our realized capital gains (net of all realized capital losses and unrealized capital depreciation on a cumulative basis) and thereafter experience additional realized capital losses or unrealized capital depreciation, we will not be able to recover any portion of the incentive fee previously paid.

RISKS RELATED TO OUR INVESTMENTS

We invest primarily in debt and equity securities of lower middle market companies and we may not realize gains from our equity investments.

lender to lower middle market companies that invests primarily in directly originated first lien and second lien secured loans, including through unitranche investments. In certain instances, we make subordinated debt investments, which may include an associated equity component such as warrants, preferred stock or similar securities, and direct equity co-investments. We may also provide advisory services to managed funds. In certain instances, we will also make direct equity investments and may also selectively invest in the residual interests, or equity, of CLOs. Investments in CLOs can be significantly impacted by change in the market value of the assets, the distributions on the assets, defaults and recoveries on the assets, capital gains and losses on the assets along with prices, interest rates and other risks associated with the assets

Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

Our investments in prospective private and lower middle market portfolio companies are risky, and we could lose all or part of our investment.

Investment in private and lower middle market companies involves a number of significant risks. Generally, little public information exists about these companies, and we are required to rely on the ability of THL Credit Advisors’ investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Lower middle market companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment. In addition, they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, lower middle market companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. Lower middle market companies also generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.

Our investments in lower credit quality obligations are risky and highly speculative, and we could lose all or part of our investment.

Most of our debt investments are likely to be in lower grade obligations. The lower grade investments in which we invest may be rated below investment grade by one or more nationally-recognized statistical rating agencies at the time of investment or may be unrated but determined by the Advisor to be of comparable quality. Debt securities rated below investment grade are commonly referred to as “junk bonds” and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. The debt in which we invest typically is not rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s). We may invest without limit in debt of any rating, as well as debt that has not been rated by any nationally recognized statistical rating organization.

Investment in lower grade investments involves a substantial risk of loss. Lower grade securities or comparable unrated securities are considered predominantly speculative with respect to the issuer’s ability to pay

interest and principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for lower grade debt tend to be very volatile and are less liquid than investment grade securities. For these reasons, your investment in our company is subject to the following specific risks: increased price sensitivity to a deteriorating economic environment; greater risk of loss due to default or declining credit quality; adverse company specific events are more likely to render the issuer unable to make interest and/or principal payments; and if a negative perception of the lower grade debt market develops, the price and liquidity of lower grade securities may be depressed. This negative perception could last for a significant period of time.

We may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

We do not generally intend to take controlling equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company, we are subject to the risk that such portfolio company may make business decisions with which we disagree, and the stockholders and management of such portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.

In addition, we may not be in a position to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.

Our portfolio companies may be highly leveraged.

Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies’ ability to finance their future operations and capital needs. As a result, these companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

The portfolio companies in which we have invested debt capital usually have, or may be permitted to incur with certain limitations, other debt that ranks equally with, or senior to, the debt securities in which we invest. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other

future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

The rights we may have with respect to the collateral securing the mezzanine, or subordinated, loans and second lien loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor and/or subordination agreements that we enter into with the holders of senior debt. Under such an intercreditor and/or subordination agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will usually be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; and releases of liens on the collateral. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.

We will at times take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries and, in some cases, the equity interests of our portfolio companies held by their stockholders. There is a risk that the collateral securing these types of loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of a portfolio company to raise additional capital. In some circumstances, our lien could be subordinated to claims of other creditors. Additionally, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for these types of loans. Moreover, in the case of some of our investments, we do not have a first lien position on the collateral. Consequently, the fact that a loan may be secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or that we will be able to collect on the loan should we be forced to enforce our remedies.

Economic downturns or recessions could impair the value of the collateral for our loans to our portfolio companies and consequently increase the possibility of an adverse effect on our financial condition and results of operations.

Many of our portfolio companies are susceptible to economic recessions and may be unable to repay our loans during such periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during such periods. Adverse economic conditions may also decrease the value of collateral securing some of our loans and the value of our equity investments.

Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of the portfolio company’s loans and foreclosure on its

secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if a portfolio company goes bankrupt, even though we may have structured our investment as mezzanine debt, or senior secured debt, depending on the facts and circumstances, including the extent to which we actually provided significant “managerial assistance,” if any, to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors. These events could harm our financial condition and operating results.

We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient.

In the event of a default by a portfolio company on a secured loan, we will only have recourse to the assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. In addition, we sometimes make loans that are unsecured, where other lenders may be directly secured by the assets of the same portfolio company. In the event of a default or an enforcement action against the assets of the portfolio company that constitute collateral for such other lenders, those collateralized lenders would have priority over us with respect to the proceeds of a sale of such underlying assets. In cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the portfolio company prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.

In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subject to equitable subordination. In addition, certain of our loans are subordinate to other debt of the portfolio company. If a portfolio company defaults on our loan or on debt senior to our loan, or in the event of a portfolio company bankruptcy, our loan will be satisfied only after the senior debt receives payment in full. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans to affiliates of the portfolio company, accept prepayments, exercise our remedies (through “standstill” periods) and control decisions made in bankruptcy proceedings relating to the portfolio company. Bankruptcy and portfolio company litigation can significantly increase collection losses and the time needed for us to acquire the underlying collateral in the event of a default, during which time the collateral may decline in value, causing us to suffer losses.

If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able to obtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a portfolio company’s ability to refinance our loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer a loss which may adversely impact our financial performance.

Our loans could be subject to equitable subordination by a court which would increase our risk of loss with respect to such loans.

Courts may apply the doctrine of equitable subordination to subordinate the claim or lien of a lender against a borrower to claims or liens of other creditors of the borrower, when the lender or its affiliates is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also applied the doctrine of equitable subordination when a lender or its affiliates is found to have exerted inappropriate control over a client, including control resulting from the ownership of equity interests in a client. We have made direct equity investments or received warrants in connection with loans representing approximately 6.9% of the aggregate amortized cost basis of our portfolio as of December 31, 2015. Payments on one or more of our loans, particularly a loan to a client in which we also hold an equity interest, may be subject to claims of equitable subordination. If we were deemed to have the ability to control or otherwise exercise influence over the business and affairs of one or more

of our portfolio companies resulting in economic hardship to other creditors of that company, this control or influence may constitute grounds for equitable subordination and a court may treat one or more of our loans as if it were unsecured or common equity in the portfolio company. In that case, if the portfolio company were to liquidate, we would be entitled to repayment of our loan on a pro-rata basis with other unsecured debt or, if the effect of subordination was to place us at the level of common equity, then on an equal basis with other holders of the portfolio company’s common equity only after all of its obligations relating to its debt and preferred securities had been satisfied.

Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; (3) attempt to preserve or enhance the value of our initial investment; or (4) to finance an acquisition or other material transaction. We have the discretion to make any follow-on investments, subject to the availability of capital resources. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. Our failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make such follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, because we are inhibited by compliance with BDC requirements or because we desire to maintain our tax status. In addition, our ability to make follow-on investments may also be limited by THL Credit Advisors’ allocation policy.

Our ability to invest in public companies may be limited in certain circumstances.

To maintain our status as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as a qualifying asset only if such issuer has a market capitalization that is less than $250 million at the time of such investment and meets the other specified requirements.

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies in order to provide diversification or to complement our U.S. investments although we are required generally to invest at least 70% of our assets in companies organized and having their principal place of business within the U.S. and its possessions. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks many be more pronounced for portfolio companies located or operating primarily in emerging markets, whose economies, markets and legal systems may be less developed.

Although it is anticipated that most of our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the

level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective. As a result, a change in currency exchange rates may adversely affect our profitability.

Hedging transactions may expose us to additional risks.

While we may enter into transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek or be able to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. On May 10, 2012, we entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC. Under the swap agreement, with a notional value of $50.0 million, we pay a fixed rate of 1.1425% and receive a floating rate based upon the current three-month LIBOR rate. We entered into the swap agreement to manage interest rate risk and not for speculative purposes.

We may incur greater risk with respect to investments we acquire through assignments or participations of interests.

Although we originate a substantial portion of our loans, we may acquire loans through assignments or participations of interests in such loans. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to such debt obligation. However, the purchaser’s rights can be more restricted than those of the assigning institution, and we may not be able to unilaterally enforce all rights and remedies under an assigned debt obligation and with regard to any associated collateral. A participation typically results in a contractual relationship only with the institution participating out the interest and not directly with the borrower. Sellers of participations typically include banks, broker-dealers, other financial institutions and lending institutions. In purchasing participations, we generally will have no right to enforce compliance by the borrower with the terms of the loan agreement against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which we have purchased the participation. As a result, we will be exposed to the credit risk of both the borrower and the institution selling the participation. In addition, to the extent that the lead institution fails and any borrower collateral is used to reduce the balance of a participated loan, we will be regarded as a creditor of the lead institution and will not benefit from the exercise of any set-off rights by the lead institution or its receiver. Further, in purchasing participations in lending syndicates, we will not be able to conduct the same level of due diligence on a borrower or the quality of the loan with respect to which we are buying a participation as we would conduct if we were investing directly in the loan. This difference may result in us being exposed to greater credit or fraud risk with respect to such loans than we expected when initially purchasing the participation.

Cyclicality within the energy sector may adversely affect some of our portfolio companies.

Industries within the energy sector are cyclical with fluctuations in commodity prices and demand for, and production of commodities driven by a variety of factors. The highly cyclical nature of the industries within the energy sector may lead to volatile changes in commodity prices, which may adversely affect the earnings of energy companies in which we may invest and the performance and valuation of our portfolio.

Changes in healthcare laws and other regulations applicable to some of our portfolio companies’ businesses may constrain their ability to offer their products and services.

Changes in healthcare or other laws and regulations applicable to the businesses of some of our portfolio companies may occur that could increase their compliance and other costs of doing business, require significant systems enhancements, or render their products or services less profitable or obsolete, any of which could have a material adverse effect on their results of operations. There has also been an increased political and regulatory focus on healthcare laws in recent years, and new legislation could have a material effect on the business and operations of some of our portfolio companies.

RISKS IN THE CURRENT ENVIRONMENT

Capital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditions could materially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on our business, financial condition and results of operations.

The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about the ability of certain nations to continue to service their sovereign debt obligations. Risks resulting from such debt crisis and any future debt crisis in Europe or any similar crisis elsewhere could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally. In July and August 2015, Greece reached agreements with its creditors for bailouts that provide aid in exchange for certain austerity measures. These and similar austerity measures may adversely affect world economic conditions and have an adverse impact on our business and that of our portfolio companies. In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued sell-off of shares trading in Chinese markets. In August 2015, Chinese authorities sharply devalued China’s currency. These market and economic disruptions adversely affected, and these and other similar market and economic disruptions may in the future affect, the U.S. capital markets, which could adversely affect our business and that of our portfolio companies. These market disruptions materially and adversely affected, and may in the future affect, the broader financial and credit markets and has reduced the availability of debt and equity capital for the market as a whole and to financial firms, in particular. At various times, these disruptions resulted in, and may in the future result, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk. These conditions may reoccur for a prolonged period of time again or materially worsen in the future, including as a result of further downgrades to the U.S. government’s sovereign credit rating or the perceived credit worthiness of the United States or other large global economies. Unfavorable economic conditions, including future recessions, also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of loans we originate and/or fund, adversely affect the value of our portfolio investments or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

RISKS RELATED TO OUR OPERATIONS AS A BDC

Our ability to enter into transactions with our affiliates will be restricted.

Because we have elected to be treated as a BDC under the 1940 Act, we are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, 5% or more of

our outstanding voting securities will be our affiliate for purposes of the 1940 Act and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, of the SEC. The Staff has granted us relief pursuant to the Order. Pursuant to the Order, we are permitted to co-invest with Affiliated Funds if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategies. We intend to co-invest, subject to the conditions included in the Order. We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that person’s affiliates, entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.

Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations.

Our business may in the future require a substantial amount of capital. We may acquire additional capital from the issuance of senior securities (including debt and preferred stock) or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital in the future on favorable terms or at all. Additionally, we may only issue senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such issuance or incurrence. If our assets decline in value and we fail to satisfy this test, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales or repayment may be disadvantageous, which could have a material adverse impact on our liquidity, financial condition and results of operations.

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Senior Securities (including debt and preferred stock). As a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred securities, such securities would rank “senior” to common stock in our capital structure, resulting in preferred stockholders having separate voting rights, dividend and liquidation rights, and possibly other rights, preferences or privileges more favorable than those granted to holders of our common stock. Furthermore, the issuance of preferred securities could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for our common stockholders or otherwise be in your best interest.

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Additional Common Stock. Our board of directors may decide to issue common stock to finance our operations rather than issuing debt or other senior securities. As a BDC, we are generally not able to issue our common stock at a price below net asset value without first obtaining required approvals from our stockholders and our independent directors. At our Annual Meeting of Stockholders on June 2, 2015, our stockholders approved a proposal authorizing us to sell up to 25% of our common stock at a price below the Company’s net asset value per share, subject to approval by our board of directors of the offering. Except in connection with the exercise of warrants or the conversion of convertible securities, in any such case the price at which our securities are to be issued and sold may not be less than a price, that in the determination of our board of directors, closely approximates the market value of such securities at the relevant time. We may also make subscription rights offerings or warrants representing rights to purchase shares of our securities to our stockholders at prices per share less than

the net asset value per share, subject to the requirements of the 1940 Act. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and such stockholders may experience dilution.

Additionally, if we do raise additional capital in one or more subsequent financings, until we are able to invest the net proceeds of such any financing in suitable investments, we will invest in temporary investments, such as cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less, which we expect will earn yields lower than the interest, dividend or other income that we anticipate receiving in respect of investments in debt and equity securities of our target portfolio companies. As a result, our ability to pay dividends in the years of operation during which we have such net proceeds available to invest will be based on our ability to invest our capital in suitable portfolio companies in a timely manner. Further, the management fee payable to our investment adviser, THL Credit Advisors, will not be reduced while our assets are invested in such temporary investments.

Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition.

Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and may be subject to civil fines and criminal penalties.

Legislation may allow us to incur additional leverage.

As a business development company, under the 1940 Act, generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). We also have agreed not to violate this section of the 1940 Act, whether or not we continue to be subject to such provision, but giving effect, in either case, to any exemptive relief granted to us by the SEC. Recent legislation introduced in the U.S. House of Representatives intended to modify this section of the 1940 Act and increase the amount of debt that business development companies may incur. If the legislation is reintroduced and passed, we would be able to incur additional indebtedness in the future.

If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy, which would have a material adverse effect on our business, financial condition and results of operations.

As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “-Business Development Company Regulation.” We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act provisions applicable to BDCs and possibly lose our status as a BDC, which would have a material adverse effect

on our business, financial condition and results of operations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inopportune times in order to come into compliance with the 1940 Act. If we need to dispose of such investments quickly, it may be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss.

There is a risk that we may not make distributions or that our distributions may not grow over time.

We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or periodically increase our dividend rate.

As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of our board of directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. Any unrealized depreciation in our investment portfolio could be an indication of a portfolio company’s potential inability to meet its repayment obligations to us. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.

If we are unable to qualify for tax treatment as a RIC, we will be subject to corporate-level income tax, which would have a material adverse effect on our results of operations and financial condition.

We intend to continue to qualify as a RIC under the Code. As a RIC we do not have to pay federal income taxes on our income (including realized gains) that is distributed to our stockholders, provided that we satisfy certain distribution and other requirements. Accordingly, we are not permitted under accounting rules to establish reserves for taxes on our unrealized capital gains. If we fail to qualify for RIC status in any year, to the extent that we had unrealized gains, we would have to establish reserves for taxes, which would reduce our net asset value and the amount potentially available for distribution. In addition, if we, as a RIC, were to decide to make a deemed distribution of net realized capital gains and retain the net realized capital gains, we would have to establish appropriate reserves for taxes that we would have to pay on behalf of stockholders. It is possible that establishing reserves for taxes could have a material adverse effect on the value of our common stock.

To maintain our qualification as a RIC under the Code, which is required in order for us to distribute our income without being taxed at the corporate level, we must maintain our status as a BDC and meet certain source-of-income, asset diversification and annual distribution requirements and including:

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The annual distribution requirement for a RIC is satisfied if we distribute to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long- term capital losses, if any, on an annual basis. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and we may be subject to certain financial covenants under our debt arrangements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and, thus, become subject to corporate- level income tax.

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The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.

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The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy these requirements, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one

issuer, of two or more issuers that are controlled, as determined under applicable Internal Revenue Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and, therefore, will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

Satisfying these requirements may require us to take actions we would not otherwise take, such as selling investments at unattractive prices to satisfy diversification, distribution or source of income requirements. In addition, while we are authorized to borrow funds in order to make distributions, under the 1940 Act we are not permitted to make distributions to stockholders while we have debt obligations or other senior securities outstanding unless certain “asset coverage” tests are met. If we fail to qualify as a RIC for any reason and become or remain subject to corporate-level income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on our results of operations and financial conditions, and thus, our stockholders.

RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES

Our common stock price may be volatile and may fluctuate substantially.

As with any stock, the price of our common stock will fluctuate with market conditions and other factors. Our common stock is intended for long-term investors and should not be treated as a trading vehicle. Shares of closed-end management investment companies, which are structured similarly to us, frequently trade at a discount from their net asset value. Our shares may trade at a price that is less than the offering price. This risk may be greater for investors who sell their shares in a relatively short period of time after completion of the offering.

The market price and liquidity of the market for our common shares may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

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significant volatility in the market price and trading volume of securities of BDCs or other companies in the sector in which we operate, which are not necessarily related to the operating performance of these companies;

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changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;

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loss of RIC status;

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changes in earnings or variations in operating results;

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changes in the value of our portfolio of investments;

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any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

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departure of key personnel from our investment adviser;

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operating performance of companies comparable to us;

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general economic trends and other external factors; and

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loss of a major funding source.

Certain provisions of the General Corporation Law of the State of Delaware and our certificate of incorporation could deter takeover attempts and have an adverse effect on the price of our common stock.

The General Corporation Law of the State of Delaware and our certificate of incorporation contain provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. Among other provisions, our directors may be removed for cause by the affirmative vote of 75% of the holders of our outstanding capital stock and removed with or without cause by the approval of 66.7% of the remaining directors. Our board of directors also is authorized to issue preferred stock in one or more series. In addition, our certificate of incorporation requires the favorable vote of a majority of our board of directors followed by the favorable vote of the holders of at least 75% of our outstanding shares of common stock, to approve, adopt or authorize certain transactions, including mergers and the sale, lease or exchange of all or any substantial part of our assets with 10% or greater holders of our outstanding common stock and their affiliates or associates, unless the transaction has been approved by at least 80% of our board of directors, in which case approval by “a majority of the outstanding voting securities” (as defined in the 1940 Act) will be required. These measures may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders and could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices.

Our common stock may trade below its net asset value per share, which limits our ability to raise additional equity capital.

If our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common stock at its market price without first obtaining the approval for such issuance from our stockholders and our independent directors. Shares of BDCs, including shares of our common stock, have traded at discounts to their net asset values. As of December 31, 2015, our net asset value per share was $12.58. The last reported sale price of a share of our common stock on the NASDAQ Global Select Market on March 9, 2016 was $10.07. At our Annual Meeting of Stockholders on June 2, 2015, our stockholders approved a proposal authorizing us to sell up to 25% of our common stock at a price below our then-current net asset value per share, subject to approval by our board of directors for the offering. The authorization expires on the earlier of June 2, 2016 and the date of our 2016 Annual Meeting of Stockholders. Our stockholders also approved a proposal to authorize us to offer and issue debt with warrants or debt convertible into shares of our common stock at an exercise or conversion price that, at the time such warrants or convertible debt are issued, will not be less than the market value per share but may be below our then-current net asset value per share. If our common stock trades below net asset value, the higher the cost of equity capital may result in it being unattractive to raise new equity, which may limit our ability to grow. The risk of trading below net asset value is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether shares of our common stock will trade above, at or below our net asset value.

Our Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.

The Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of December 31, 2015, we had $152.2 million outstanding under the Revolving Facility and $106.5 million outstanding under the Term Loan Facility. The indebtedness under the Revolving Facility and the Term Loan Facility is effectively senior to the Notes to the extent of the value of the assets securing such indebtedness.

The net asset value per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or securities to subscribe for or convertible into shares of our common stock.

At our Annual Meeting of Stockholders on June 2, 2015, our stockholders approved a proposal authorizing us to sell up to 25% of our common stock at a price below the Company’s net asset value per share, subject to approval by our board of directors of the offering. Although any such sale must be approved by our board of directors, there is no limit on the amount of dilution that may occur as a result of such sale. If we were to issue shares at a price below net asset value, such sales would result in an immediate dilution to existing common stockholders, which would include a reduction in the net asset value per share as a result of the issuance. This dilution would also include a proportionately greater decrease in a stockholder’s interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance.

In addition, at our 2015 Annual Meeting of Stockholders, our stockholders authorized us to offer and issue debt with warrants or debt convertible into shares of our common stock at an exercise or conversion price that, at the time such warrants or convertible debt are issued, will not be less than the market value per share but may be below our then current net asset value.

Any decision to sell shares of our common stock below its then current net asset value per share or securities to subscribe for or convert into shares of our common stock would be subject to the determination by our board of directors that such issuance is in our and our stockholders’ best interests.

If we were to sell shares of our common stock below its then current net asset value per share, such sales would result in an immediate dilution to the net asset value per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.

In addition, if we issue warrants or securities to subscribe for or convert into shares of our common stock, subject to certain limitations, the exercise or conversion price per share could be less than net asset value per share at the time of exercise or conversion (including through the operation of anti-dilution protections). Because we would incur expenses in connection with any issuance of such securities, such issuance could result in a dilution of the net asset value per share at the time of exercise or conversion. This dilution would include reduction in net asset value per share as a result of the proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest than the increase in our assets resulting from such issuance.

We incur significant costs as a result of being a publicly traded company.

As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the SEC.

The trading market or market value of our publicly issued debt securities may fluctuate.

Our publicly issued debt securities may or may not have an established trading market. We cannot assure you that a trading market for our publicly issued debt securities will ever develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely affect the trading market for, and market value of, our publicly issued debt securities. These factors include, but are not limited to, the following:

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the time remaining to the maturity of these debt securities;

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the outstanding principal amount of debt securities with terms identical to these debt securities;

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the ratings assigned by national statistical ratings agencies;

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the general economic environment;

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the supply of debt securities trading in the secondary market, if any;

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the redemption or repayment features, if any, of these debt securities;

•

the level, direction and volatility of market interest rates generally; and

•

market rates of interest higher or lower than rates borne by the debt securities.

You should also be aware that there may be a limited number of buyers when you decide to sell your debt securities. This too may materially adversely affect the market value of the debt securities or the trading market for the debt securities.

Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue.

If your debt securities are redeemable at our option, we may choose to redeem your debt securities at times when prevailing interest rates are lower than the interest rate paid on your debt securities. In addition, if your debt securities are subject to mandatory redemption, we may be required to redeem your debt securities also at times when prevailing interest rates are lower than the interest rate paid on your debt securities. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as your debt securities being redeemed.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

We do not own any real estate or other physical properties materially important to our operation. Our headquarters are currently located at 100 Federal Street, 31st Floor, Boston, MA 02110. THL Credit Advisors furnishes us office space and we reimburse it for such costs on an allocated basis.

Item 3.

Legal proceedings

As of December 31, 2015, we are not a defendant in any material pending legal proceeding, and no such material proceedings are known to be contemplated. However, from time to time, we may be party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under the contracts with our portfolio companies. Third parties may also seek to impose liability on us in connection with the activities of our portfolio companies.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock is traded on the NASDAQ Global Select Market under the ticker symbol “TCRD.” The following table sets forth, for the periods indicated, the range of high and low sales prices for our common stock, as reported on The NASDAQ Global Select Market:


	High		Low
Fiscal year ended December 31, 2015
First Quarter	$	12.64	$	10.71
Second Quarter	$	12.70	$	11.54
Third Quarter	$	12.51	$	10.77
Fourth Quarter	$	12.22	$	9.97
Fiscal year ended December 31, 2014
First Quarter	$	16.61	$	13.78
Second Quarter	$	14.27	$	12.80
Third Quarter	$	14.30	$	12.90
Fourth Quarter	$	13.42	$	11.22

The last reported price for our common stock on March 9, 2016 was $10.07 per share. As of March 9, 2016, we had 2 stockholders of record, which did not include stockholders for whom shares are held in nominee or “street” name.

Stock Performance Graph

This graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index and the NASDAQ Financial 100 Index for the period from April 21, 2010 (initial public offering) through December 31, 2015. The graph assumes that on April 21, 2010, $100 was invested in each of our common stock, the S&P 500 Index and the NASDAQ Financial 100 Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.

The NASDAQ Financial 100 Index replaces Russell 2000 Financial Services Index which was used as the industry market index in our 2014 Form 10-K. We believe that the NASDAQ Financial 100 Index, which measures the performance of the 100 largest financial services firms listed on the NASDAQ Stock Market by market capitalization, is a more appropriate industry market index because it includes companies traded on the same exchange as us, including other publicly traded business development companies.

The following graph compares the total return on our common stock with that of the S&P 500 Index, the newly selected NASDAQ Financial 100 Index and the Russell 2000 Financial Services Index used in our 2014 annual report.

LOGO

The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance.

Sales of unregistered securities

We issued no shares of common stock under our dividend reinvestment plan during the years ended December 31, 2015, 2014 and 2013, respectively.

Issuer purchases of equity securities

On March 6, 2015, our board of directors authorized a $25.0 million stock repurchase program that was put into effect in May 2015. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any particular amount will be purchased. This stock repurchase program terminated on March 6, 2016. On March 8, 2016, our board of directors authorized a new $25.0 million stock repurchase program. Unless extended by our board of directors, the stock repurchase program will terminate on March 8, 2017 and may be modified or terminated at any time for any reason without prior notice. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We will retire immediately all such shares of common stock that the Company purchases in connection with the stock repurchase program.

The following table summarizes our share repurchases under our stock repurchase program for the years ended December 31, 2015, 2014, and 2013 (in millions):


	For the year ended December 31,
	2015			2014		2013
Dollar amount repurchased	$	7.3			—		—
Shares repurchased		0.6			—		—
Average price per share (including commission)	$	12.27			—		—
Weighted average discount to net asset value		7.38	%		—		—

Dividends

We have elected to be taxed as a regulated investment company under Subchapter M of the Code. In order to maintain our status as a regulated investment company, we are required to distribute at least 90% of our investment company taxable income. To avoid a 4% excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. We intend to make distributions to stockholders on a quarterly basis of substantially all of our net investment income. Although we intend to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In addition, the extent and timing of special dividends, if any, will be determined by our board of directors and will largely be driven by portfolio specific events and tax considerations at the time.

In addition, we may be limited in our ability to make distributions due to the BDC asset coverage test for borrowings applicable to us as a BDC under the 1940 Act.

The following table summarizes our dividends declared and paid or to be paid on all shares, including dividends reinvested, if any:


Date Declared	Record Date	Payment Date	Amount Per Share
August 5, 2010	September 2, 2010	September 30, 2010	$0.05
November 4, 2010	November 30, 2010	December 28, 2010	$0.10
December 14, 2010	December 31, 2010	January 28, 2011	$0.15
March 10, 2011	March 25, 2011	March 31, 2011	$0.23
May 5, 2011	June 15, 2011	June 30, 2011	$0.25
July 28, 2011	September 15, 2011	September 30, 2011	$0.26
October 27, 2011	December 15, 2011	December 30, 2011	$0.28
March 6, 2012	March 20, 2012	March 30, 2012	$0.29
March 6, 2012	March 20, 2012	March 30, 2012	$0.05
May 2, 2012	June 15, 2012	June 29, 2012	$0.30
July 26, 2012	September 14, 2012	September 28, 2012	$0.32
November 2, 2012	December 14, 2012	December 28, 2012	$0.33
December 20, 2012	December 31, 2012	January 28, 2013	$0.05
February 27, 2013	March 15, 2013	March 29, 2013	$0.33
May 2, 2013	June 14, 2013	June 28, 2013	$0.34
August 2, 2013	September 16, 2013	September 30, 2013	$0.34
August 2, 2013	September 16, 2013	September 30, 2013	$0.08
October 30, 2013	December 16, 2013	December 31, 2013	$0.34
March 4, 2014	March 17, 2014	March 31, 2014	$0.34
May 7, 2014	June 16, 2014	June 30, 2014	$0.34
August 7, 2014	September 15, 2014	September 30, 2014	$0.34
November 4, 2014	December 15, 2014	December 31, 2014	$0.34
March 6, 2015	March 20, 2015	March 31, 2015	$0.34
May 5, 2015	June 15, 2015	June 30, 2015	$0.34
August 4, 2015	September 15, 2015	September 30, 2015	$0.34
November 3, 2015	December 15, 2015	December 31, 2015	$0.34
March 8, 2016	March 21, 2016	March 31, 2016	$0.34

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a regulated investment company. We cannot assure stockholders that they will receive any distributions at a particular level.

We maintain an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, we reserve the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

Distributions in excess of our current and accumulated profits and earnings would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions will be made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. Each year, a statement on Form 1099-DIV identifying the source of the distribution will be sent to our U.S. stockholders of record. Our board of directors presently intends to declare and pay quarterly dividends. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

The tax character of distributions declared and paid in 2015 represented $45.6 million from ordinary income, $0 from capital gains and $0 from tax return of capital. The tax character of distributions declared and paid in 2014 represented $44.2 million from ordinary income, $1.9 million from capital gains and $0 from tax return of capital. Generally accepted accounting principles require adjustments to certain components of net assets to reflect permanent differences between financial and tax reporting. These adjustments have no effect on net asset value per share. Permanent differences between financial and tax reporting at December 31, 2015 and 2014 were $0.3 million and $1.3 million, respectively.

Item 6.

Selected Financial Data

The following selected financial data should be read together with our consolidated financial statements and the related notes and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which is included elsewhere in this annual report on Form 10-K. Financial information is presented for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 in thousands, except for per share data. The Consolidated Statement of Operations, Per share, and the Consolidated Statement of Assets and Liabilities data for the years ending 2015, 2014, 2013, 2012 and 2011 has been derived from our consolidated financial statements that were audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for more information.


	For the years ended
	2015			2014			2013			2012			2011
Statement of Operations data:
Total investment income	$	94,195		$	91,928		$	74,650		$	53,125		$	37,409
Incentive fees		11,894			11,184			10,682			7,017			4,790
Base management fees		11,825			11,142			7,521			4,943			4,012
All other expenses		23,147			20,372			14,547			10,392			7,550
Income tax (benefit) provision and excise tax		(243	)		1,040			511			581			22
Net investment income		47,572			48,190			41,389			30,192			21,035
Interest rate derivative periodic interest payments, net		(443	)		(458	)		(433	)		(180	)		—
Net realized gain (loss) on investments		190			(12,855	)		2,604			353			979
Provision for taxes on realized gain on investments		(8	)		(249	)		—			—			—
Net change in unrealized appreciation (depreciation) on investments		(17,875	)		2,243			309			(1,241	)		2,121
Net change in unrealized appreciation (depreciation) on interest rate derivative		7			71			769			(1,053	)		—
Provision for taxes on unrealized gain on investments		(1,226	)		(151	)		(1,960	)		(454	)		—
Net increase in net assets resulting from operations		28,217			36,791			42,678			27,617			24,135
Per share data:
Net asset value per common share at year end	$	12.58		$	13.08		$	13.36		$	13.20		$	13.24
Market price at year end		10.70			11.76			16.49			14.79			12.21
Net investment income		1.41			1.42			1.37			1.38			1.04
Net realized gain (loss) on investments		0.01			(0.38	)		0.09			0.01			0.05
Provision for taxes on realized gain on investments		—			(0.01	)		—			—			—
Net change in unrealized appreciation on investments		(0.53	)		0.06			0.01			(0.06	)		0.11
Net change in unrealized appreciation (depreciation) on interest rate derivative		—			—			0.01			(0.06	)		—
Provision for taxes on unrealized gain on investments		(0.04	)		—			(0.07	)		(0.02	)		—
Interest rate derivative periodic interest payments, net		(0.01	)		(0.01	)		(0.01	)		—			—
Net increase in net assets resulting from operations		0.84			1.08			1.41			1.26			1.20
Dividends declared		1.36			1.36			1.43			1.34			1.02
Consolidated Statement of Assets and Liabilities data at period end:
Total investments at fair value	$	754,163		$	784,220		$	648,867		$	394,349		$	266,993
Cash and cash equivalents		3,850			2,656			7,829			4,819			5,573
Other assets		18,371			25,609			16,195			7,090			4,583
Total assets		776,384			812,485			672,891			406,258			277,149
Loans payable		258,651			294,851			204,300			50,000			5,000
Notes payable		85,000			50,000			—			—			—
Other liabilities		13,834			24,013			15,649			8,774			4,532
Total liabilities		357,485			368,864			219,949			58,774			9,532
Total net assets		418,899			443,621			452,942			347,484			267,617


	For the years ended
	2015			2014			2013			2012			2011
Other data:
Weighted average annual yield on debt investments		11.0	%		11.1	%		11.4	%		13.7	%		13.8	%
Weighted average annual yield on debt and income-producing investments		11.2	%		11.1	%		11.5	%		13.9	%		14.0	%
Weighted average annual yield on Logan JV⁽¹⁾		12.8	%		n/a			n/a			n/a			n/a
Weighted average annual yield on debt and income-producing investments including Logan JV⁽¹⁾		11.3	%		n/a			n/a			n/a			n/a
Number of portfolio investments at year end		55			60			54			34			24

⁽¹⁾	Not relevant to the years ending December 31, 2014, 2013, 2012, or 2011 as Logan JV commenced operations on December 3, 2014.

Selected Quarterly Financial Data (Unaudited):

The tables below present selected financial data for the quarters within the last two fiscal years. The quarterly financial data presented has been derived from unaudited financial data which, in the opinion of management, presents fairly, in all material respects, the financial positions and results of operations of the Fund.


Quarter Ended	Investment Income				Net Investment Income				Net Change in Unrealized Appreciation (Depreciation) on Investments						Net Realized Gain (Loss) on Investments, net of taxes						Net Realized/ Unrealized Gain (Loss) on Interest Rate Derivative						Provision for taxes (benefit) on unrealized gain on investments						Net Increase In Net Assets From Operations
	Total		Per Share		Total		Per Share		Total			Per Share			Total			Per Share			Total			Per Share			Total			Per Share			Total			Per Share
December 31, 2015	$	23,565	$	0.71	$	12,079	$	0.36	$	(15,566	)	($	0.46	)	$	(101	)		—		$	157			—		$	(567	)	($	0.02	)	$	(3,998	)	($	0.12	)
September 30, 2015		23,117		0.69		11,649		0.35		(8,595	)		(0.27	)		207			0.01			(223	)		—			(444	)		(0.01	)		2,594			0.08
June 30, 2015		23,751		0.71		11,934		0.35		2,539			0.08			46			—			(72	)		—			(388	)		(0.01	)		14,059			0.42
March 31, 2015		23,762		0.71		11,910		0.35		3,747			0.12			30			—			(298	)		(0.01	)		173			—			15,562			0.46

Quarter Ended	Investment Income				Net Investment Income				Net Change in Unrealized Appreciation (Depreciation) on Investments						Net Realized Gain (Loss) on Investments, net of taxes						Net Realized/ Unrealized Gain (Loss) on Interest Rate Derivative						Provision for taxes (benefit) on unrealized gain on investments						Net Increase In Net Assets From Operations
	Total		Per Share		Total		Per Share		Total			Per Share			Total			Per Share			Total			Per Share			Total			Per Share			Total			Per Share
December 31, 2014	$	24,143	$	0.71	$	12,380	$	0.37	$	5,198		$	0.15		$	(11,804	)	($	0.36	)	$	(213	)	($	0.01	)	$	(844	)	($	0.02	)	$	4,717		$	0.13
September 30, 2014		23,145		0.68		12,223		0.36		505			0.01			(777	)		(0.02	)		151			0.01			(292	)		(0.01	)		11,810			0.35
June 30, 2014		23,745		0.70		12,887		0.38		(2,851	)		(0.08	)		(501	)		(0.02	)		(266	)		(0.01	)		14			—			9,283			0.28
March 31, 2014		20,895		0.62		10,700		0.32		(609	)		(0.03	)		(22	)		—			(59	)		—			971			0.03			10,981			0.32

Item 7.

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

The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously identified elsewhere in this filing, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

•

the introduction, withdrawal, success and timing of business initiatives and strategies;

•

changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;

•

the relative and absolute investment performance and operations of our investment adviser;

•

the impact of increased competition;

•

the impact of future acquisitions and divestitures;

•

the unfavorable resolution of legal proceedings;

•

our business prospects and the prospects of our portfolio companies;

•

the impact, extent and timing of technological changes and the adequacy of intellectual property protection;

•

the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or THL Credit Advisors LLC, the Advisor;

•

the ability of the Advisor to identify suitable investments for us and to monitor and administer our investments;

•

our contractual arrangements and relationships with third parties;

•

any future financings by us;

•

the ability of the Advisor to attract and retain highly talented professionals;

•

fluctuations in foreign currency exchange rates; and

•

the impact of changes to tax legislation and, generally, our tax position.

•

the ability to fund Logan JV’s unfunded commitments to the extent approved by each member of the Logan JV investment committee.

Overview

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009 and initially funded on July 23, 2009. We commenced principal operations on April 21, 2010. Our investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated investments in debt and equity securities of lower middle market companies.

As of December 31, 2015, we, together with our credit-focused affiliates, collectively had $6,571 million of assets under management. This amount included $776.4 million of our assets, $177.5 million of assets of the managed funds and a separate account managed by us, and $5,617 million of assets of the collateralized loan obligations (CLOs), separate accounts and various fund formats managed by the investment professionals of THL Credit Senior Loan Strategies LLC, a consolidated subsidiary of the Advisor.

We are a direct lender to lower middle market companies and invest in first lien and second lien secured loans, including through unitranche investments, as well as subordinated debt, which may include an associated equity component such as warrants, preferred stock or other similar securities. In certain instances, we will also make direct equity investments and may also selectively invest in the residual interests, or equity, of collateralized loan obligations. We may also provide advisory services to managed funds.

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940 Act, as amended, or the 1940 Act. 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 of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less.

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant U.S. Securities and Exchange Commission, or SEC, rules the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States.

We are also registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act.

Since April 2010, after we completed our initial public offering and commenced principal operations, we have been responsible for making, on behalf of ourselves, managed funds and separately managed account, over approximately $1,709 million in aggregate commitments into 84 separate portfolio companies through a combination of both initial and follow-on investments. Since April 2010, we, along with our managed funds and separately managed account, have received $913.6 million from paydowns and sales of these investments. The Company alone has received $747.9 million from paydowns and sales of investments.

We have elected to be treated for tax purposes as a regulated investment company, or RIC, under Subchapter M of the Code. To qualify as a RIC, we must, among other things, meet certain source of income and asset diversification requirements. Pursuant to these elections, we generally will not have to pay corporate-level income taxes on any income we distribute to our stockholders.

Portfolio Composition and Investment Activity

Portfolio Composition

As of December 31, 2015, we had $754.2 million of portfolio investments (at fair value), which represents a $30.0 million, or 3.8% decrease from the $784.2 million (at fair value) as of December 31, 2014. Our portfolio consisted of 55 investments, including THL Credit Greenway Fund LLC, or Greenway, and THL Credit Greenway Fund II LLC, or Greenway II, as of December 31, 2015, compared to 60 portfolio investments, including Greenway and Greenway II, as of December 31, 2014.

At December 31, 2015, our average portfolio company investment, exclusive of Greenway, Greenway II and portfolio investments where we only have an equity investment or an investment in a fund (including restructured investments where we converted debt to equity and Logan JV), at amortized cost and fair value was approximately $15.5 million and $15.1 million, respectively and our largest portfolio company investment by cost was approximately $32.8 million and by fair value was $29.8 million. At December 31, 2014, our average portfolio company investment at both amortized cost and fair value was approximately $14.3 million and $14.3 million, respectively, and our largest portfolio company investment by both amortized cost and fair value was approximately $39.9 million and $39.7 million, respectively.

At December 31, 2015, based upon fair value, 78.1% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 21.9% bore interest at fixed rates. At December 31, 2014, 72.2% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 27.8% bore interest at fixed rates.

The following table shows the weighted average yield by investment category at their current cost.


	As of
Description:	December 31, 2015			December 31, 2014
First lien secured debt		11.5	%		11.3	%
Second lien debt		11.0	%		11.0	%
Subordinated debt⁽¹⁾		8.7	%		13.4	%
Investments in payment rights⁽²⁾		17.6	%		16.8	%
CLO residual interests⁽²⁾		14.8	%		13.4	%
Income-producing equity securities		11.4	%		10.6	%

Debt and income-producing investments⁽³⁾		11.2	%		11.7	%
Debt investments		11.0	%		11.6	%
Logan JV⁽⁴⁾		12.8	%		n/a
Debt and income-producing investments including Logan JV⁽⁴⁾		11.3	%		n/a

⁽¹⁾	Includes the impact of all loans on non-accrual status.

⁽²⁾	Yields from investments in payment rights and CLO residual interests represent an effective yield expected from anticipated cash flows.

⁽³⁾	Excludes yield on the Logan JV.

⁽⁴⁾	As of December 31, 2015, dividend income earned of $1.5 million of the three months ended December 31, 2015, represented a yield to us of 12.8% based on average equity invested. Not relevant to the year ending December 31, 2014 as Logan JV commenced operations on December 3, 2014.

As of December 31, 2015 and 2014, portfolio investments, in which we have debt investments, had a median earnings before interest, taxes, depreciation and amortization, or EBITDA, of approximately $16 million and $16 million, respectively, based on the latest available financial information provided by the portfolio companies for each of these periods. As of December 31, 2015 and 2014, our median attachment point in the

capital structure of our debt investments in portfolio companies is approximately 4.3 times and 4.1 times EBITDA, respectively, based on our latest available financial information for each of these periods.

As of December 31, 2015, excluding nominal investments made in Greenway and Greenway II, 79.2% of our portfolio investments are in sponsored investments and 20.8% of our portfolio investments are in unsponsored investments. As of December 31, 2015, we have closed portfolio investments with 49 different sponsors since inception.

As of December 31, 2014, excluding nominal investments made in Greenway and Greenway II, 81.0% of our portfolio investments are in sponsored investments and 19.0% of our portfolio investments are in unsponsored investments. As of December 31, 2014, we have closed portfolio investments with 46 different sponsors since inception.

Consistent with our sourcing strategy, approximately 86% and 89% of the Company’s new investments for the years ended December 31, 2015 and 2014 were directly originated from our relationships with private equity firms, financial advisors, banks and other lending partners, respectively.

The following table summarizes the amortized cost and fair value of investments as of December 31, 2015 (in millions).


Description	Amortized Cost		Percentage of Total			Fair Value⁽¹⁾		Percentage of Total
First lien secured debt	$	377.6		49.3	%	$	366.5		48.6	%
Second lien debt		179.3		23.4	%		177.1		23.5	%
Equity investments		52.7		6.9	%		69.7		9.2	%
Subordinated debt		75.2		9.8	%		63.8		8.5	%
Investment in Logan JV		49.4		6.4	%		44.8		5.9	%
CLO residual interests		17.1		2.2	%		15.0		2.0	%
Investment in payment rights		11.5		1.5	%		13.3		1.8	%
Investments in funds		4.0		0.5	%		4.0		0.5	%

Total investments	$	766.8		100.0	%	$	754.2		100.0	%

⁽¹⁾	All investments are categorized as Level 3 in the fair value hierarchy, except for an equity investment in Surgery Center Holdings, Inc., which is now Level 1.

The following table summarizes the amortized cost and fair value of investments as of December 31, 2014 (in millions).


Description	Amortized Cost		Percentage of Total			Fair Value⁽¹⁾		Percentage of Total
First lien secured debt	$	396.6		50.9	%	$	393.8		50.3	%
Second lien debt		168.9		21.7	%		168.5		21.5	%
Subordinated debt		103.9		13.3	%		100.7		12.8	%
Equity investments		43.5		5.6	%		52.7		6.7	%
CLO residual interests		34.2		4.4	%		34.9		4.5	%
Investment in Logan JV		16.8		2.2	%		16.7		2.1	%
Investment in payment rights		11.9		1.5	%		13.5		1.7	%
Investments in funds		3.2		0.4	%		3.4		0.4	%

Total investments	$	779.0		100.0	%	$	784.2		100.0	%

⁽¹⁾	All investments are categorized as Level 3 in the fair value hierarchy.

We expect the percent of first lien senior secured loans to increase as a percent of total investments as we are repaid or liquidate our second lien, subordinated debt, CLO residual interests and other equity holdings over time and redeploy these proceeds.

The following is a summary of the industry classification in which the Company invests as of December 31, 2015 (in millions).


Industry	Amortized Cost		Fair Value		% of Net Assets
Consumer products	$	157.3	$	155.8		37.16	%
Financial services		126.8		113.7		27.15	%
IT services		100.7		99.1		23.66	%
Healthcare		61.6		66.9		15.97	%
Manufacturing		69.4		63.4		15.13	%
Retail & grocery		34.6		44.5		10.62	%
Energy / utilities		46.6		41.7		9.96	%
Business services		41.8		34.7		8.29	%
Industrials		28.2		27.4		6.54	%
Food & beverage		22.4		23.4		5.59	%
Transportation		19.5		21.6		5.15	%
Restaurants		20.9		20.9		4.98	%
Media, entertainment and leisure		15.4		20.7		4.95	%
Structured products		17.1		15.0		3.58	%
Aerospace & defense		4.5		5.4		1.30	%

Total Investments	$	766.8	$	754.2		180.03	%

The following is a summary of the industry classification in which the Company invests as of December 31, 2014 (in millions).


Industry	Amortized Cost		Fair Value		% of Net Assets
Consumer products	$	120.7	$	120.4		27.15	%
IT services		108.7		106.5		24.02	%
Healthcare		77.5		83.2		18.75	%
Financial services		71.4		68.9		15.55	%
Manufacturing		70.8		68.4		15.41	%
Retail & grocery		53.0		55.8		12.58	%
Industrials		54.6		54.1		12.18	%
Energy / utilities		50.3		48.9		11.04	%
Food & beverage		38.6		39.3		8.85	%
Structured products		34.2		34.9		7.87	%
Business services		32.2		32.2		7.27	%
Media, entertainment and leisure		25.1		29.7		6.69	%
Restaurants		20.8		20.8		4.68	%
Transportation		14.3		14.3		3.21	%
Aerospace & defense		6.8		6.8		1.53	%

Total Investments	$	779.0	$	784.2		176.78	%

As required by the 1940 Act, we classify our investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that we are deemed to “control”, which, in general, includes a company in which we own 25% or more of the voting securities of such company or have greater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of ours, as defined in the 1940 Act, which are not control investments. We are deemed to be an “affiliate” of a company in which we have invested if we own 5% or more, but less than 25%, of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither control investments nor affiliate investments.

The following table summarizes our realized gains (losses) and changes in our unrealized appreciation and depreciation on control and affiliate investments for the years ended December 31, 2015 and December 31, 2014 (in millions):


	Year Ended December 31, 2015
Type of Investment/Portfolio company⁽¹⁾	Fair Value at December 31, 2015		Investment Income⁽²⁾		Change in Unrealized Appreciation/ (Depreciation)			Reversal of Change in Unrealized Appreciation/ (Depreciation)		Realized Gains/ (Losses)
Control Investments
C&K Market, Inc.⁽³⁾
1,992,365 shares of common stock	$	14.2	$	0.8	$	8.1		$	—	$	—
1,992,365 shares of preferred stock		9.9		—		0.1			—		—
Dimont & Associates, Inc.⁽⁴⁾
Subordinated term loan 11.0% PIK due 4/16/2018		0.3		—		(4.3	)		—		—
50,004 shares of common stock		—		—		(2.0	)		—		—
Thibaut, Inc
Senior secured term loan 14.0% cash due 6/19/19		6.4		0.9		—			—		—
4,747 shares of series A preferred stock		5.2		0.1		0.3			—		—
20,639 shares of common stock		1.0		—		0.2			—		—
THL Credit Logan JV LLC⁽⁵⁾
80% economic interest		44.8		3.8		(4.6	)		—		—

Total Control Investments	$	81.8	$	5.6	$	(2.2	)	$	—	$	—

Affiliate Investments
THL Credit Greenway Fund LLC⁽⁶⁾
Investment in fund		—		0.6		—			—		—
THL Credit Greenway Fund II LLC⁽⁶⁾
Investment in fund		—		1.6		—			—		—

Total Affiliate Investments	$	—	$	2.2	$	—		$	—	$	—

Total Control and Affiliate Investments	$	81.8	$	7.8	$	(2.2	)	$	—	$	—


	Year Ended December 31, 2014
Type of Investment/Portfolio company⁽¹⁾	Fair Value at December 31, 2014		Investment Income⁽²⁾		Change in Unrealized Appreciation/ (Depreciation)			Reversal of Change in Unrealized Appreciation/ (Depreciation)		Realized Gains/ (Losses)
Control Investments
C&K Market, Inc.⁽³⁾
1,967,367 shares of common stock	$	6.0	$	0.2	$	3.8		$	—	$	—
1,967,367 shares of preferred stock		9.8		—		(1.1	)		—		—
Dimont & Associates, Inc.⁽⁴⁾
Subordinated term loan 11.0% PIK due 4/16/2018		4.6		0.1		0.1			—		—
50,004 shares of common stock		2.0		—		(4.6	)		—		—
Thibaut, Inc
Senior secured term loan 12.0% cash due 6/19/19		6.5		0.4		0.1			—		—
4,747 shares of series A preferred stock		4.9		0.1		0.2			—		—
20,639 shares of common stock		0.8		—		0.8			—		—
THL Credit Logan JV LLC⁽⁵⁾
80% economic interest		16.7		—		(0.1	)		—		—

Total Control Investments	$	51.3	$	0.8	$	(0.8	)	$	—	$	—

Affiliate Investments
THL Credit Greenway Fund LLC⁽⁶⁾
Investment in fund		—		0.9		—			—		—
THL Credit Greenway Fund II LLC⁽⁶⁾
Investment in fund		—		2.1		—			—		—

Total Affiliate Investments	$	—	$	3.0	$	—		$	—	$	—

Total Control and Affiliate Investments	$	51.3	$	3.8	$	(0.8	)	$	—	$	—

⁽¹⁾	The principal amount and ownership detail is shown in the Consolidated Schedule of Investments as of December 31, 2015 and 2014. Common stock and preferred stock, in some cases, are generally non-income producing.

⁽²⁾	Represents the total amount of interest, fees, and dividends credited to income for the portion of the year an investment was included in the Control and Affiliate categories

⁽³⁾	C&K Market, Inc., or C&K, filed for bankruptcy in November 2013. On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14.3 million was converted to common and preferred equity.

⁽⁴⁾

On October 20, 2014, THL Credit restructured its investment in Wingspan Portfolio Holdings, Inc., or Wingspan. As part of the restructuring, THL Credit exchanged the cost basis of its subordinated term loan totaling $18.4 million for a controlled equity position of an affiliated entity, Dimont Acquisition Inc., or Dimont. In connection with the restructuring and conversion to equity, we recognized a loss in the amount of $11.9 million and invested $4.6 million in the subordinated term loan of Dimont.

⁽⁵⁾

Together with Perspecta Trident LLC, or Perspecta, an affiliate of Perspecta Trust LLC, we invest in THL Credit Logan JV LLC, of Logan JV. Logan JV is capitalized through equity contributions from its members and investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each Perspecta and us.

⁽⁶⁾	Income includes certain fees relating to investment management services provided by the Company, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction.

Investment Activity

The following is a summary of our investment activity, presented on a cost basis, for the years ended December 31, 2015 and 2014 (in millions).


	Years ended December 31,
	2015			2014
New portfolio investments⁽¹⁾	$	64.6		$	239.2
Existing portfolio investments:
Follow-on investments		84.9			88.7
Delayed draw and revolver investments		14.4			19.6

Total existing portfolio investments		99.3			108.3

Total portfolio investment activity	$	163.9		$	347.5

Number of new portfolio investments		5			17
Number of existing portfolio investments		16			13
First lien secured debt	$	55.6		$	178.6
Second lien debt		57.2			103.4
Investment in Logan JV		32.6			16.8
Equity investments		9.6			19.9
Subordinated debt		8.0			18.0
Investments in funds		0.9			2.3
CLO residual interests		—			8.5

Total portfolio investments	$	163.9		$	347.5

Weighted average yield of new debt investments		10.8	%		11.1	%
Weighted average yield, including all new income-producing investments		11.0	%		11.1	%

⁽¹⁾	Excludes two investments in broadly syndicated term loans made for short-term investment purposes that were made and sold during the quarter ended December 31, 2015.

For the years ended December 31, 2015 and 2014, we received proceeds from prepayments and sales of our investments, including any prepayment premiums, totaling $193.5 million and $204.7 million, respectively.

The following are proceeds received from notable prepayments, sales and other activity related to our investments (in millions):

For the year ended December 31, 2015

•

Recognition of $0.9 million of interest income previously deferred as part of the repayment of our subordinated term loan in investment of Express Courier International, Inc. for the quarter ended December 31, 2015. Approximately $0.2 million of proceeds previously received remain in deferred revenue.

•

Recognition of $0.7 million of dividend income from our equity investment in C&K Market, Inc. for the quarter ended December 31, 2015. We expect to recognize dividend income quarterly from this investment.

•

Repayment of a first lien secured debt investment in Embarcadero Technologies, Inc., which resulted in proceeds of $9.0 million, which included a prepayment premium of $0.1 million;

•

Sale of second lien debt investments in Expert Global Solutions, Inc., which resulted in proceeds of $12.7 million and included a nominal realized loss;

•

Repayment of a first lien secured debt investment in Harrison Gypsum, LLC, which resulted in proceeds of $31.6 million, which included a prepayment premium of $0.1 million;

•

Sale of a CLO residual interest in Adirondack Park CLO Ltd., which resulted in proceeds of $7.8 million, including a nominal realized gain;

•

Sale of a CLO residual interest in Sheridan Square CLO, Ltd., which resulted in proceeds of $5.0 million, including a nominal realized loss;

•

Sale of a second lien debt investment in BBB US Industries Holdings, Inc., which resulted in proceeds of $7.1 million and included a nominal realized gain;

•

Partial sale of a first lien secured debt investment in Charming Charlie, LLC, which resulted in proceeds of $9.9 million and included a nominal realized gain;

•

Repayment of a subordinated debt investment in Country Pure Foods, LLC at par, resulting in proceeds of $16.2 million;

•

Repayment of a first lien secured debt investment in Ingenio Acquisition, LLC, resulting in proceeds of $9.3 million, which included a prepayment premium of $0.2 million;

•

Repayment of a subordinated debt investment in The Studer Group, L.L.C. at par, resulting in proceeds of $16.9 million;

•

Repayment of second lien and subordinated debt investments in Sheplers, Inc. at par, resulting in proceeds of $13.5 million;

•

Partial sale of first lien secured debt and common equity investments in Igloo Products Corp., which resulted in proceeds of $14.1 million and included a nominal realized gain; and

•

Partial sale of a second lien debt investment in Vision Solutions, Inc., which resulted in proceeds of $2.0 million.

For the year ended December 31, 2014

•

Sale of a second lien debt investment in Blue Coat Systems, Inc., resulting in proceeds of $15.3 million and included a realized gain of $0.6 million;

•

Repayment of a first lien secured debt investment in Cydcor LLC at par, resulting in proceeds of $13.2 million;

•

Sale of a first lien secured debt investment in Hostway Corporation, resulting in proceeds of $9.9 million and included a nominal realized gain;

•

Repayment of an investment in LCP Capital Fund LLC, resulting in proceeds of $8.4 million;

•

Repayment of a first lien secured debt investment in NCM Group Holdings, LLC, resulting in proceeds of $28.1 million, which included a prepayment premium of $1.3 million;

•

Repayment of a subordinated debt investment in SeaStar Solutions, resulting in proceeds of $16.8 million, which included a prepayment premium of $0.3 million;

•

Partial sale of $4.9 million, which included a nominal realized gain, and a $10.0 million repayment, which included a prepayment premium of $0.2 million, of a second lien debt investment in Surgery Center Holdings, Inc;

•

Repayment of a second lien debt investment in Tectum Holdings Inc. at par, resulting in proceeds of $12.0 million;

•

Repayment of a subordinated debt investment in Trinity Services Group Inc., resulting in proceeds of $23.5 million, which included a prepayment premium of $0.5 million;

•

Repayment of a second lien debt investment in TriMark USA, LLC, resulting in proceeds of $20.2 million, which included a prepayment premium of $0.2 million;

•

Repayment of a subordinated term loan in Express Courier International, Inc. at par, resulting in proceeds of $7.8 million;

•

Partial sale of a second lien debt investment in Expert Global Solutions, Inc., which resulted in proceeds of $5.1 million and included a realized loss of $0.3 million;

•

Sale of a CLO residual interest in Octagon Income Note XIV, Ltd, which resulted in proceeds of $7.7 million and included a realized gain of $0.2 million;

•

Partial sale of a second lien debt investment in BBB US Industries Holdings, Inc., which resulted in proceeds of $9.5 million and included a realized gain of $0.1 million.

Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to lower middle market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make. The frequency and volume of any prepayments may fluctuate significantly from period to period.

Aggregate Cash Flow Realized Gross Internal Rate of Return

Since April 2010, after we completed our initial public offering and commenced principal operations, our fully exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of 16.9% (based on cash principal invested of $597.4 million and total proceeds from these exited investments of $750.8 million). 95.5% of these exited investments resulted in an aggregate cash flow realized gross internal rate of return to us of 10% or greater.

Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in our investments is equal to the present value of all realized returns from the investments. Our IRR calculations are unaudited.

Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment.

Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), amendment fees and other fees and proceeds.

Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the date in which they did occur.

Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of management fees, expenses, incentive fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.

Aggregate cash flow realized gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio or non-cash restructuring transactions. Cash flows exclude sales of participations if they were anticipated at the time of the initial investment.

Investment Risk

The value of our investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, our ability to dispose of investments at a price and time that we deem advantageous may be impaired.

Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. The value of lower-quality debt securities often fluctuates in response to company, political, or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality debt securities is likely to be higher during economic recessions or periods of high interest rates.

THL Credit Logan JV LLC

On December 3, 2014, we entered into an agreement with Perspecta Trident LLC, an affiliate of Perspecta Trust LLC, or Perspecta, to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which invests primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of us and Perspecta.

We have determined that Logan JV is an investment company under ASC 946, however, in accordance with such guidance, we will generally not consolidate our investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our non-controlling interest in Logan JV.

Logan JV is capitalized with equity contributions which are generally called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by the Logan JV to call down on capital commitments requires the explicit authorization of us, coupled with that of Perspecta, and we may withhold such authorization for any reason in our sole discretion. As of December 31, 2015 and December 31, 2014, Logan JV had the following commitments, contributions and unfunded commitments from its Members.


	As of December 31, 2015
Member	Total Commitments		Contributed Capital		Unfunded Commitments
THL Credit, Inc.	$	200.0	$	49.4	$	150.6
Perspecta Trident LLC		50.0		12.4		37.6

Total Investments	$	250.0	$	61.8	$	188.2


	As of December 31, 2014
Member	Total Commitments		Contributed Capital^(a)		Unfunded Commitments
THL Credit, Inc.	$	120.0	$	16.8	$	103.2
Perspecta Trident LLC		30.0		4.2		25.8

Total Investments	$	150.0	$	21.0	$	129.0

(a)	Logan JV had called but not yet received $13.0 million in aggregate capital of which THL Credit, Inc.’s share was $10.4 million. This was recorded as a payable for investments purchased in the Consolidated Statements of Assets and Liabilities.

On December 17, 2014, Logan JV entered into a senior credit facility, or the Logan JV Credit Facility, with Deutsche Bank AG which allows Logan JV to borrow up to $50.0 million subject to leverage and borrowing base restrictions. Throughout the course of 2015, in accordance with the terms of the Logan JV Credit Facility, Deutsche Bank AG increased its commitment amount to $125.0 million. The revolving loan period ends on December 17, 2016 and the final maturity date is December 17, 2019. As of December 31, 2015, Logan JV had $108.1 million of outstanding debt under the credit facility. As of December 31, 2014, Logan JV had no outstanding debt under the credit facility. The Logan JV Credit Facility bears interest at three month LIBOR (with no LIBOR floor) plus 2.50%.

As of December 31, 2015 and December 31, 2014, Logan JV had total investments at fair value of $161.9 million and $30.7 million, respectively. As of December 31, 2015 and December 31, 2014, Logan JV’s portfolio was comprised of senior secured first lien and second lien loans to 85 and 22 different borrowers, respectively. As of December 31, 2015 and December 31, 2014, none of these loans were on non-accrual status. Additionally, as of December 31, 2015 and December 31, 2014, Logan JV had unfunded commitments to fund revolver and delayed draw loans to its portfolio companies totaling $0.3 million and $0.2 million, respectively. The portfolio companies in Logan JV are in industries similar to those in which we may invest directly.

Below is a summary of Logan JV’s portfolio, followed by a listing of the individual loans in Logan JV’s portfolio as of December 31, 2015 and December 31, 2014:


	As of December 31,			As of December 31,
	2015			2014
	(Dollars in thousands)			(Dollars in thousands)
First lien secured debt⁽¹⁾	$	148,463		$	30,237
Second lien debt⁽¹⁾		21,976			1,000

Total debt investments	$	170,439		$	31,237

Weighted average yield on first lien secured loans⁽²⁾		6.3	%		6.7	%
Weighted average yield on second lien loans⁽²⁾		9.0	%		10.0	%
Weighted average yield on all loans⁽²⁾		6.7	%		6.5	%
Number of borrowers in Logan JV		85			22
Largest loan to a single borrower⁽¹⁾	$	4,975		$	2,500
Total of five largest loans to borrowers⁽¹⁾	$	24,748		$	8,994

⁽¹⁾	At current principal amount.

⁽²⁾	Weighted average yield at their current cost.

For the year ended December 31, 2015 and for the period from December 3, 2014 to December 31, 2014, our share of income from distributions declared related to our Logan JV LLC equity interest was $3.8 million and $0, which amounts are included in dividend income from controlled investments and net realized gain (loss) from controlled, investments in the Consolidated Statement of Operations. As of December 31, 2015 and December 31, 2014, $1.9 million and $0, respectively, of income related to the Logan JV was included in Interest, dividends and fees receivable on the Consolidated Statements of Assets and Liabilities. As of December 31, 2015, dividend income earned of $1.5 million for the quarter ended December 31, 2015, represented a dividend yield to the Company of 12.8% based upon average equity invested.

Logan JV Loan Portfolio as of December 31, 2015

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Senior Secured First Lien Term Loans

Ability Networks Inc.

Healthcare &
pharmaceuticals

6% (LIBOR + 5%)

03/17/2015

05/14/2021

1,485

1,498

1,470

AgroFresh Inc.

Services

5.75% (LIBOR + 4.75%)

12/01/2015

07/31/2021

1,995

1,980

1,968

Albertson’s Holdings LLC

Retail

5.5% (LIBOR + 4.5%)

12/05/2014

08/25/2021

1,985

1,988

1,972

Ancestry.com Inc.

Services

5% (LIBOR + 4%)

09/04/2015

08/29/2022

2,993

2,974

2,975

AP Gaming I LLC

Hotel, gaming &
leisure

9.25% (LIBOR + 8.25%)

05/27/2015

12/21/2020

2,982

2,964

2,885

Arctic Glacier U.S.A., Inc

Beverage, food &
tobacco

6% (LIBOR + 5%)

02/12/2015

05/10/2019

2,035

1,991

1,964

Aristotle Corporation

Healthcare &
pharmaceuticals

5.5% (LIBOR + 4.5%)
7.0% (Prime + 3.5%)

07/13/2015

06/30/2021

4,975

4,952

4,950

Avago Technologies Cayman Finance Ltd

High tech industries

4.25% (LIBOR + 3.5%)

11/13/2015

02/01/2023

2,000

1,980

1,983

Avaya Inc

Telecommunications

6.25% (LIBOR + 5.25%)

04/30/2015

05/29/2020

991

982

695

Avaya Inc

Telecommunications

6.5% (LIBOR + 5.5%)

12/18/2014

03/31/2018

986

995

750

Bioplan USA

Services

5.75% (LIBOR + 4.75%)

05/13/2015

09/23/2021

993

857

859

BioScrip, Inc.

Healthcare &
pharmaceuticals

6.5% (LIBOR + 5.25%)

12/22/2014

07/31/2020

938

939

857

BioScrip, Inc.

Healthcare &
pharmaceuticals

6.5% (LIBOR + 5.25%)

12/22/2014

07/31/2020

563

564

514

Birch Communications, Inc.

Telecommunications

7.75% (LIBOR + 6.75%)

12/05/2014

07/17/2020

1,433

1,416

1,380

CAbi

Retail

5.75% (LIBOR + 4.75%)

06/19/2015

06/12/2019

1,219

1,208

1,213

Caesars Entertainment Resort Properties, LLC

Hotel, gaming &
leisure

7% (LIBOR + 6%)

01/15/2015

10/11/2020

4,968

4,742

4,537

Cengage Learning Acquisitions, Inc.

Media

7% (LIBOR + 6%)

12/15/2014

03/31/2020

4,417

4,378

4,318

Clear Balance Holdings, LLC

Banking, finance,
insurance & real
estate

6.75% (LIBOR + 5.75%)

07/07/2015

06/30/2020

4,875

4,854

4,851

Commercial Barge Line Co

Transportation

9.75% (LIBOR + 8.75%)

11/06/2015

11/12/2020

1,500

1,427

1,403

Communications Sales & Leasing, Inc.

Telecommunications

5% (LIBOR + 4%)

05/28/2015

10/24/2022

2,985

2,982

2,768

Compuware Corp

Services

6.25% (LIBOR + 5.25%)

12/11/2014

12/15/2021

2,974

2,889

2,782

CPI Acquisition, Inc.

Services

5.5% (LIBOR + 4.5%)

08/14/2015

08/17/2022

3,375

3,354

3,343

Creative Artists

Media

5.5% (LIBOR + 4.5%)

03/16/2015

12/17/2021

2,475

2,508

2,471

Crowne Group LLC

Automotive

6% (LIBOR + 5%)

01/14/2015

09/30/2020

1,485

1,469

1,455

CT Technologies Intermediate Holdings

Healthcare &
pharmaceuticals

5.25% (LIBOR + 4.25%)

02/11/2015

12/01/2021

1,980

1,989

1,918

CWGS Group, LLC

Automotive

5.75% (LIBOR + 4.75%)

12/22/2014

02/20/2020

2,375

2,376

2,348

Eastman Kodak Company

High tech industries

7.25% (LIBOR + 6.25%)

09/09/2015

09/03/2019

1,990

1,934

1,724

EnergySolutions, LLC

Environmental
industries

6.75% (LIBOR + 5.75%)

03/16/2015

05/29/2020

2,000

2,022

1,550

Evergreen Skills Lux S.á r.l.

High tech industries

5.75% (LIBOR + 4.75%)

01/15/2015

04/28/2021

1,486

1,460

1,167

Getty Images, Inc.

Media

4.75% (LIBOR + 3.5%)

02/18/2015

10/18/2019

990

927

629

Global Healthcare Exchange LLC

Services

5.5% (LIBOR + 4.5%)

08/12/2015

08/15/2022

998

993

992

Gold Standard Baking Inc

Wholesale

5.25% (LIBOR + 4.25%)
6.75% (Prime + 3.25%)

05/19/2015

04/23/2021

2,985

2,972

2,955

Green Plains Renewable Energy Inc

Energy

6.5% (LIBOR + 5.5%)

06/09/2015

06/30/2020

1,956

1,957

1,929

Logan JV Loan Portfolio as of December 31, 2015—(Continued)

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

GTCR Valor Companies, Inc.

Services

6% (LIBOR + 5%)

12/05/2014

05/30/2021

1,977

1,960

1,968

IMG LLC

Media

5.25% (LIBOR + 4.25%)

12/31/2014

05/06/2021

1,481

1,452

1,459

Insurance Technologies

High tech industries

8% (LIBOR + 7%)

03/26/2015

12/01/2019

1,896

1,880

1,896

Insurance Technologies⁽³⁾

High tech industries

0% (LIBOR + 0%)

03/26/2015

12/01/2019

209

)

—

J Jill

Retail

6% (LIBOR + 5%)

05/08/2015

05/09/2022

1,047

1,043

1,026

Jackson Hewitt Tax Service Inc

Services

8% (LIBOR + 7%)

07/24/2015

07/30/2020

1,000

982

963

Koosharem, LLC

Services

7.5% (LIBOR + 6.5%)

02/04/2015

05/15/2020

2,972

2,962

2,794

Lannett Company Inc

Healthcare &
pharmaceuticals

5.75% (LIBOR + 4.75%)

11/20/2015

11/25/2020

1,500

1,389

1,410

Lannett Company Inc

Healthcare &
pharmaceuticals

6.375% (LIBOR + 5.375%)

11/20/2015

11/25/2022

1,500

1,351

1,403

LegalZoom

Services

8% (LIBOR + 7%)

06/15/2015

05/13/2020

4,967

Lindblad Expeditions Inc

Hotel, gaming &
leisure

5.5% (LIBOR + 4.5%)

06/23/2015

05/08/2021

2,644

2,659

2,631

Lindblad Maritime

Hotel, gaming &
leisure

5.5% (LIBOR + 4.5%)

06/23/2015

05/08/2021

341

343

339

Margaritaville Holdings LLC

Beverage, food &
tobacco

7% (LIBOR + 6%)

03/12/2015

03/12/2021

4,963

4,920

4,814

Match Group Inc

High tech industries

5.5% (LIBOR + 4.5%)

11/06/2015

11/16/2022

3,000

2,972

2,970

MediArena Acquisition B.V.

Media

6.75% (LIBOR + 5.75%)

12/18/2014

08/13/2021

1,481

1,462

1,321

Merrill Communications LLC

Media

6.25% (LIBOR + 5.25%)

05/29/2015

06/01/2022

1,988

1,977

1,740

Mood Media Corporation

Media

7% (LIBOR + 6%)

12/05/2014

05/01/2019

987

976

942

Navistar Inc

Automotive

6.5% (LIBOR + 5.5%)

08/06/2015

08/07/2020

2,000

1,980

1,772

NextCare, Inc.

Healthcare &
pharmaceuticals

7% (LIBOR + 6%)

08/21/2015

07/31/2018

2,985

2,972

2,985

Novitex Acquisition, LLC

Consumer goods

7.5% (LIBOR + 6.25%)

12/05/2014

07/07/2020

980

966

924

Parq Holdings LP

Hotel, gaming &
leisure

8.5% (LIBOR + 7.5%)

12/05/2014

12/17/2020

1,000

986

975

Petrochoice Holdings Inc

Chemicals, plastics
& rubber

6% (LIBOR + 5%)

09/02/2015

08/19/2022

998

974

983

Physiotherapy Associates Inc

Healthcare &
pharmaceuticals

5.75% (LIBOR + 4.75%)

06/04/2015

06/04/2021

998

993

995

Pre-Paid Legal Services, Inc

Services

6.5% (LIBOR + 5.25%)

05/21/2015

07/01/2019

966

961

Quincy Newspapers Inc

Media

5.5% (LIBOR + 4.5%)

11/23/2015

11/02/2022

2,988

2,981

2,956

RentPath, Inc.

Media

6.25% (LIBOR + 5.25%)

12/11/2014

12/17/2021

2,475

2,450

2,184

Riverbed Technology, Inc.

High tech industries

6% (LIBOR + 5%)

02/25/2015

04/25/2022

993

988

990

SCS Holdings Inc.

Services

6% (LIBOR + 5%)

11/20/2015

10/30/2022

1,978

1,963

1,950

Sirva Worldwide, Inc.

Transportation

7.5% (LIBOR + 6.25%)

12/18/2014

03/27/2019

1,928

1,924

1,870

Smart Start, Inc.

Services

5.75% (LIBOR + 4.75%)

08/28/2015

02/20/2022

2,500

2,476

2,475

SourceHOV LLC

Services

7.75% (LIBOR + 6.75%)

03/17/2015

10/31/2019

1,938

1,868

1,724

Stonewall Gas Gathering LLC

Energy

8.75% (LIBOR + 7.75%)

01/26/2015

01/28/2022

993

949

990

TOMS Shoes LLC

Retail

6.5% (LIBOR + 5.5%)

12/18/2014

10/31/2020

1,985

1,860

1,355

Travelport Finance Luxembourg Sarl

Services

5.75% (LIBOR + 4.75%)

09/04/2015

09/02/2021

2,992

3,007

2,936

TTM Technologies Inc

High tech industries

6% (LIBOR + 5%)

05/07/2015

05/31/2021

998

966

905

TWCC Holding Corp.

Media

5.75% (LIBOR + 5%)

05/21/2015

02/11/2020

2,516

2,498

2,517

US Renal Care Inc

Healthcare &
pharmaceuticals

5.25% (LIBOR + 4.25%)

11/17/2015

12/31/2022

2,000

1,980

1,987

Varsity Brands

Consumer goods

5% (LIBOR + 4%)

12/10/2014

12/11/2021

990

982

Logan JV Loan Portfolio as of December 31, 2015—(Continued)

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Verdesian Life Sciences LLC

Chemicals, plastics
& rubber

6% (LIBOR + 5%)

12/09/2014

07/01/2020

937

936

903

Zep Inc

Chemicals, plastics
& rubber

5.75% (LIBOR + 4.75%)

09/04/2015

06/27/2022

2,985

2,992

2,977

Total Senior Secured First Lien Term Loans

146,466

141,514

Second Lien Term Loans

ABG Intermediate Holdings 2 LLC⁽⁴⁾

Consumer goods

8.50%

07/13/2015

05/27/2022

133

)

ABG Intermediate Holdings 2 LLC

Consumer goods

9.5% (LIBOR + 8.5%)

06/19/2015

05/27/2022

867

859

850

AssuredPartners Inc

Banking, finance,
insurance & real
estate

10% (LIBOR + 9%)

10/16/2015

10/20/2023

1,000

961

980

Asurion Delivery and Installation Services

Telecommunications

8.5% (LIBOR + 7.5%)

02/18/2015

03/03/2021

4,000

3,872

3,442

Cirque Du Soleil

Hotel, gaming &
leisure

9.25% (LIBOR + 8.25%)

06/25/2015

07/08/2023

1,000

986

950

Confie Seguros Holding II Co.

Banking, finance,
insurance & real
estate

10.25% (LIBOR + 9%)

06/29/2015

05/09/2019

500

496

495

EagleView Technology Corporation

Services

9.25% (LIBOR + 8.25%)

07/29/2015

07/14/2023

1,000

986

959

Eastman Kodak Company

High tech industries

10.75% (LIBOR + 9.5%)

03/24/2015

09/03/2020

1,000

996

865

Filtration Group Corporation

Services

8.25% (LIBOR + 7.25%)

03/16/2015

11/22/2021

524

526

511

GENEX Services, Inc.

Services

8.75% (LIBOR + 7.75%)

06/26/2015

05/30/2022

1,000

988

943

Gruden Acquisition Inc.

Transportation

9.5% (LIBOR + 8.5%)

07/31/2015

08/18/2023

500

476

Hyland Software, Inc.

High tech industries

8.25% (LIBOR + 7.25%)

06/12/2015

07/03/2023

1,500

1,493

1,410

IPC Corp

Telecommunications

10.5% (LIBOR + 9.5%)

03/03/2015

02/06/2022

1,500

1,402

1,350

Learfield Communications, Inc.

Media

8.75% (LIBOR + 7.75%)

02/18/2015

10/08/2021

952

957

943

Linxens France SA

Telecommunications

9.5% (LIBOR + 8.5%)

07/31/2015

10/16/2023

1,000

990

987

MRI Software LLC

High tech industries

9% (LIBOR + 8%)

06/19/2015

06/23/2022

1,000

986

970

RentPath, Inc.

Media

10% (LIBOR + 9%)

12/11/2014

12/17/2022

1,000

921

813

Royal Adhesives and Sealants LLC

Chemicals, plastics
& rubber

8.5% (LIBOR + 7.5%)

06/12/2015

06/19/2023

1,000

993

985

TWCC Holding Corp.

Media

7% (LIBOR + 6%)

05/28/2015

06/26/2020

2,000

1,879

1,997

Wash Multifamily Laundry Systems, LLC.

Services

8% (LIBOR + 7%)

05/04/2015

05/12/2023

Wash Multifamily Laundry Systems, LLC.

Services

8% (LIBOR + 7%)

05/04/2015

05/15/2023

425

423

403

Total Second Lien Term Loans

21,263

20,397

Total Investments

167,729

161,911

⁽¹⁾	Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.

⁽²⁾	Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.

⁽³⁾	Represents a delayed draw commitment of $0.2 million, which was unfunded as of December 31, 2015.

⁽⁴⁾	Represents a delayed draw commitment of $0.1 million, which was unfunded as of December 31, 2015.

Logan JV Loan Portfolio as of December 31, 2014

(dollar amounts in thousands)

Portfolio Company

Industry

Interest
Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair Value⁽²⁾

Senior Secured First Lien Term Loans

Albertson's Holdings LLC

Retail

5.5% (LIBOR
+4.5%)

12/05/14

08/25/2021

2,000

2,004

2,003

American Pacific Corporation

Chemicals, Plastics
& Rubber

7% (LIBOR
+6%)

12/10/14

02/27/2019

997

996

AP NMT Acquisition B.V.

Media: Broadcasting
& Subscription

6.75% (LIBOR
+5.75%)

12/18/14

08/13/2021

1,496

1,474

Avaya Inc.

Telecommunications

6.5% (LIBOR
+5.5%)

12/18/14

03/31/2018

1,496

1,481

1,476

BioScrip, Inc.

Healthcare &
Pharmaceuticals

6.5% (LIBOR
+5.25%)

12/22/14

07/31/2020

1,500

1,504

1,496

Birch Communications, Inc.

Telecommunications

7.75% (LIBOR
+6.75%)

12/05/14

07/17/2020

972

950

957

Cengage Learning Acquisitions, Inc.

Media: Advertising,
Printing &
Publishing

7% (LIBOR
+6%)

12/15/14

03/31/2020

2,494

2,470

2,473

Compuware Corp

Services: Business

6.25% (LIBOR
+5.25%)

12/11/14

12/15/2021

1,500

1,426

1,427

CWGS Group, LLC

Automotive

5.75% (LIBOR
+4.75%)

12/22/14

02/20/2020

1,490

1,494

Delta 2 Lux Sarl

Telecommunications

4.75% (LIBOR
+3.75%)

12/18/14

07/30/2021

1,500

1,466

1,468

FR Utility Services LLC

Construction &
Building

6.75% (LIBOR
+5.75%)

12/18/14

10/18/2019

1,496

1,493

1,491

GTCR Valor Companies, Inc.

Services: Business

6% (LIBOR
+5%)

12/05/14

05/30/2021

995

975

972

IMG LLC/William Morris Endeavor Entertainment, LLC

Media: Diversified
& Production

5.25% (LIBOR
+4.25%)

12/31/14

05/06/2021

1,496

1,463

1,451

Mood Media Corporation

Media: Broadcasting
& Subscription

7% (LIBOR
+6%)

12/05/14

05/01/2019

997

983

979

Novitex Acquisition, LLC

Consumer goods:
Non-Durable

7.5% (LIBOR
+6.25%)

12/05/14

07/07/2020

998

980

958

Parq Holdings L.P.⁽³⁾

Hotel, Gaming &
Leisure

8.5% (LIBOR
+7.5%)

12/05/14

12/17/2020

—

)

—

Parq Holdings L.P.

Hotel, Gaming &
Leisure

8.5% (LIBOR
+7.5%)

12/05/14

12/17/2020

830

814

818

Radio One, Inc.

Media: Broadcasting
& Subscription

7.5% (LIBOR
+6%)

12/22/14

03/31/2016

1,496

1,492

1,491

RentPath, Inc.

Media: Diversified
& Production

6.25% (LIBOR
+5.25%)

12/11/14

12/17/2021

1,500

1,470

1,476

Sirva Worldwide, Inc.

Transportation:
Cargo

7.5% (LIBOR
+6.25%)

12/18/14

03/27/2019

1,496

1,489

1,492

TOMS Shoes LLC

Retail

6.5% (LIBOR
+5.5%)

12/18/14

10/31/2020

1,500

1,388

Varsity Brands

Consumer goods:
Durable

6% (LIBOR
+5%)

12/10/14

12/11/2021

1,000

990

1,001

Logan JV Loan Portfolio as of December 31, 2014

(dollar amounts in thousands)

Portfolio Company

Industry

Interest
Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair Value⁽²⁾

Verdesian Life Sciences LLC

Chemicals, Plastics
& Rubber

6% (LIBOR
+5%)

12/09/14

07/01/2020

987

986

982

Total Senior Secured First Lien Term Loans

29,786

29,763

Second Lien Term Loans

RentPath, Inc.

Media: Diversified
& Production

10% (LIBOR
+9%)

12/11/14

12/17/22

1,000

911

915

Total Second Lien Term Loans

911

915

Total Investments

30,697

30,678

⁽¹⁾	Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.

⁽²⁾	Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.

⁽³⁾	Represents a delayed draw commitment of $0.2 million, which was unfunded as of December 31, 2014.

Below is certain summarized financial information for Logan JV as of December 31, 2015 and 2014 and for the year ended December 31, 2015 and for the period from December 3, 2014 to December 31, 2014:

Selected Balance Sheet Information


	As of December 31,		As of December 31,
	2015		2014
	(Dollars in thousands)		(Dollars in thousands)
Investments at fair value (cost of $167,729 and $30,697, respectively)	$	161,911	$	30,678
Capital contributions receivable		—		13,000
Cash		7,671		3,898
Other assets		2,091		898

Total assets	$	171,673	$	48,474

Loans payable	$	108,137	$	—
Payable for investments purchased		4,367		26,732
Distribution payable		2,375		—
Other liabilities		816		813

Total liabilities	$	115,695	$	27,545

Members’ Equity	$	55,978	$	20,929

Total liabilities and Member’s Equity	$	171,673	$	48,474

Selected Statement of Operations Information


	For the year ended December 31, 2015			For the period from December 3, 2014 to December 31, 2014
	(Dollars in thousands)			(Dollars in thousands)
Interest income	$	7,310		$	27
Fee income		88			—

Total revenues		7,398			27
Credit facility expenses		2,358			79
Other expenses		208			—

Total expenses		2,566			79

Net investment income (loss)		4,832			(52	)
Net realized gains		45			—
Net change in unrealized appreciation (depreciation) on investments		(5,799	)		(19	)

Net decrease in net assets from operations	$	(922	)	$	(71	)

Managed Funds

The Advisor and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Advisor may serve as investment adviser to one or more private funds or registered closed-end funds, and presently serves as an investment adviser to CLOs, THL Credit Wind River 2013-2 CLO, Ltd., THL Credit Wind River 2014-1 CLO, Ltd., THL Credit Wind River 2014-2 CLO, Ltd., THL Credit Wind River 2014-3 CLO, Ltd., and a subadviser to a closed-end fund, THL Credit Senior Loan Fund (NYSE: TSLF). In addition, our officers may serve in similar capacities for one or more private funds or registered closed-end funds. The Advisor and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Advisor or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Advisor’s allocation procedures.

The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with affiliates absent an order from the SEC permitting the BDC to do so. The SEC staff has granted us relief pursuant to the Order. Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) or our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

Greenway

On January 14, 2011, THL Credit Greenway Fund LLC, or Greenway, was formed as a Delaware limited liability company. Greenway is a portfolio company of ours. Greenway is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011, or the Agreement. Greenway will continue in existence until

January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150 million of capital committed by affiliates of a single institutional investor, and is managed by us. Our capital commitment to Greenway is $0.02 million. As of December 31, 2015 and December 31, 2014, all of the capital had been called by Greenway. Our nominal investment in Greenway is reflected in the December 31, 2015 and December 31, 2014 Consolidated Schedules of Investments. As of December 31, 2015, distributions representing 111.0% of the committed capital of the investor have been made from Greenway. Distributions from Greenway, including return of capital and earnings, to its members from inception through December 31, 2015 totaled $166.5 million.

We act as the investment adviser to Greenway and are entitled to receive certain fees relating to our investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway is classified as an affiliate of ours. For the years ended December 31, 2015, 2014 and 2013, we earned $0.6 million, $0.9 million and $1.6 million in fees related to Greenway, respectively, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, $0.1 million and $0.3 million of fees related to Greenway, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway invested in securities similar to those that we invest in pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and us. However, we have the discretion to invest in other securities.

Greenway II

On January 31, 2013, THL Credit Greenway Fund II, LLC, or Greenway II LLC, was formed as a Delaware limited liability company and is a portfolio company of ours. Greenway II LLC is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway II LLC operates under a limited liability agreement dated February 11, 2013, as amended, or the Greenway II LLC Agreement. Greenway II LLC will continue in existence for eight years from the final closing date, subject to earlier termination pursuant to certain terms of the Greenway II LLC Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Greenway II LLC Agreement. Greenway II LLC has a two year investment period.

As contemplated in the Greenway II LLC Agreement, we have established a related investment vehicle and entered into an investment management agreement with an account set up by an unaffiliated third party investor to invest alongside Greenway II LLC pursuant to similar economic terms. The account is also managed by us. References to “Greenway II” herein include Greenway II LLC and the account of the related investment vehicle. Greenway II has $186.5 million of commitments primarily from institutional investors. As of December 31, 2015, all commitments have been called. Our capital commitment to Greenway II is $0.01 million. Our nominal investment in Greenway II LLC is reflected in the December 31, 2015 and December 31, 2014 Consolidated Schedules of Investments. Greenway II LLC is managed by us. As of December 31, 2015, distributions representing 32.1% of the committed capital of the Greenway II investors have been made from Greenway II. Distributions from Greenway II to its members and investors, including return of capital and earnings, from inception through December 31, 2015 totaled $60.0 million.

We act as the investment adviser to Greenway II and are entitled to receive certain fees relating to our investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway II is classified as an affiliate of the

Company. For the years ended December 31, 2015, 2014 and 2013, we earned $1.6 million, $2.1 million and $1.3 million, respectively, in fees related to Greenway II, which are included in other income from non-controlled, affiliated investment in the Consolidated Statements of Operations. As of December 31, 2015 and 2014, $0.4 million and $0.7 million of fees related to Greenway II were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Other deferred costs consist of placement agent expenses incurred in connection with the offer and sale of partnership interests in Greenway II. These costs are capitalized when commitments close and are recognized as an expense over the period when the Company expects to collect management fees from Greenway II. For the years ended December 31, 2015, 2014 and 2013, we recognized $0.2 million, $0.2 million and $0.1 million, respectively, in expenses related to placement agent expenses, which are included in other general and administrative expenses in the Consolidated Statements of Operations. As of December 31, 2015 and 2014, $0.4 million and $0.6 million, respectively, were included in other deferred costs on the Consolidated Statements of Assets and Liabilities.

Greenway II invests in securities similar to those that we invest in pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway II and us. However, we have the discretion to invest in other securities.

Investment in Funds

LCP Capital Fund LLC

We had invested in a membership interest of LCP Capital Fund LLC, or LCP, a private investment company that was organized to participate in investment opportunities that arose when a special purpose entity, or SPE, or sponsor thereof, needed to raise capital to achieve ratings, regulatory, accounting, tax, or other objectives. LCP was a closed vehicle which provided for no liquidity or redemption options and is not readily marketable. LCP was managed by an unaffiliated third party. We had originally contributed $12.0 million of capital in the form of membership interests in LCP, which was invested in an underlying SPE referred to as Series 2005-01.

We expected that Series 2005-01 would terminate on February 15, 2015; however, on February 3, 2014, LCP was liquidated and we received proceeds of $8.4 million, On December 31, 2015, we received proceeds of $0.1 million, which represented a final distribution of the remaining operating income retained by LCP for expenses.

Our contributed capital in LCP was maintained in a collateral account held by a third-party custodian, who was neither affiliated with us nor with LCP, nor acted as collateral on certain credit default swaps for the Series 2005-01 for which LCP received fixed premium payments throughout the year, adjusted for expenses incurred by LCP. The SPE purchased assets on a non-recourse basis and LCP agreed to reimburse the SPE up to a specified amount for potential losses. LCP held the contributed cash invested for an SPE transaction in a segregated account that secured the payment obligation of LCP.

CLO Residual Interests

As of December 31, 2015 and 2014, we had investments in the CLO residual interests, or subordinated notes, which can also be structured as income notes. These subordinated notes are subordinate to the secured notes issued in connection with each CLO. The secured notes in each structure are collateralized by portfolios consisting primarily of broadly syndicated senior secured bank loans. The following table shows a summary of our investments in CLO residual interests (in millions):


						As of December 31, 2015				As of December 31, 2014
Issuer	Ownership Interest			Total CLO Amount at initial par		THL Credit Residual Amount at Amortized Cost		THL Credit Residual Amount at Fair Value		THL Credit Residual Amount at Amortized Cost		THL Credit Residual Amount at Fair Value
Adirondack Park CLO Ltd.		18.7	%	$	517.0	$	—	$	—	$	8.2	$	8.2
Dryden CLO, Ltd.		23.1	%		516.4		6.8		6.2		8.0		8.2
Flagship VII, Ltd.		12.6	%		441.8		3.5		3.1		4.1		4.3
Flagship VIII, Ltd.		25.1	%		470.9		6.8		5.7		8.5		8.5
Sheridan Square CLO, Ltd		10.4	%		724.5		—		—		5.4		5.7

		Total CLO residual interests				$	17.1	$	15.0	$	34.2	$	34.9

The subordinated notes and income notes do not have a stated rate of interest, but are entitled to receive distributions on quarterly payment dates subject to the priority of payments to secured note holders in the structures if and to the extent funds are available for such purpose. The payments on the subordinated notes and income notes are subordinated not only to the interest and principal claims of all secured notes issued, but to certain administrative expenses, taxes, and the base and subordinated fees paid to the collateral manager. Payments to the subordinated notes and income notes may vary significantly quarter to quarter for a variety of reasons and may be subject to 100% loss. Investments in subordinated notes and income notes, due to the structure of the CLO, can be significantly impacted by change in the market value of the assets, the distributions on the assets, defaults and recoveries on the assets, capital gains and losses on the assets along with prices, interest rates and other risks associated with the assets.

For the years ended December 2015, 2014 and 2013, we recognized interest income totaling $3.7 million, $4.7 million, and $3.5 million, respectively, related to CLO residual interests.

Investment in Tax Receivable Agreement Payment Rights

In June 2012, we invested in a TRA that entitles us to certain payment rights, or TRA Payment Rights, from Duff & Phelps Corporation, or Duff & Phelps. The TRA transfers the economic value of certain tax deductions, or tax benefits, taken by Duff & Phelps to us and entitles us to a stream of payments to be received. The TRA payment right is, in effect, a subordinated claim on the issuing company which can be valued based on the credit risk of the issuer, which includes projected future earnings, the liquidity of the underlying payment right, risk of tax law changes, the effective tax rate and any other factors which might impact the value of the payment right.

Through the TRA, we are entitled to receive an annual tax benefit payment based upon 85% of the savings from certain deductions along with interest. The payments that we are entitled to receive result from cash savings, if any, in U.S. federal, state or local income tax that Duff & Phelps realizes (i) from the tax savings derived from the goodwill and other intangibles created in connection with the Duff & Phelps initial public offering and (ii) from other income tax deductions. These tax benefit payments will continue until the relevant deductions are fully utilized, which is projected to be 16 years. Pursuant to the TRA, we maintain the right to enforce Duff & Phelps payment obligations as a transferee of the TRA contract. If Duff & Phelps chooses to pre-pay and terminate the TRA, we will be entitled to the present value of the expected future TRA payments. If Duff & Phelps breaches any material obligation then all obligations are accelerated and calculated as if an early termination occurred. Failure to make a payment is a breach of a material obligation if the failure occurs for more than three months.

The projected annual tax benefit payment is accrued on a quarterly basis and paid annually. The payment is allocated between a reduction in the cost basis of the investment and interest income based upon an amortization schedule. Based upon the characteristics of the investment, we have chosen to categorize the investment in the TRA payment rights as an investment in payment rights.

The amortized cost basis and fair value of the TRA as of December 31, 2015 was $11.5 million and $13.3 million, respectively. The amortized cost basis and fair value of the TRA as of December 31, 2014 was $11.9 million and $13.5 million, respectively. For the years ended December 31, 2015, 2014, and 2013, the Company recognized interest income totaling $2.0 million, $2.1 million, and $2.0 million, respectively, related to the TRA.

Asset Quality

We employ the use of board observation and information rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to actively monitor performance. Additionally, THL Credit has developed a monitoring template that promotes compliance with these standards and that is used as a tool to assess investment performance relative to plan.

As part of the monitoring process, the Advisor assesses the risk profile of each of our investments and assigns each portfolio investment a score of a 1, 2, 3, 4 or 5

The revised investment performance scores, or IPS, are as follows:

1 – The portfolio investment is performing above our underwriting expectations.

2 – The portfolio investment is performing as expected at the time of underwriting. All new investments are initially scored a 2.

The Advisor monitors and, when appropriate, changes the investment scores assigned to each investment in our portfolio. In connection with our investment valuation process, the Advisor and board of directors review these investment scores on a quarterly basis. Our average investment score was 2.13 and 2.07 at December 31, 2015 and December 31, 2014, respectively. The following is a distribution of the investment scores of our portfolio companies at December 31, 2015 and 2014 (in millions):


	December 31, 2015					December 31, 2014
Investment Score	Fair Value		% of Total Portfolio			Fair Value		% of Total Portfolio
1^(a)	$	137.6		18.2	%	$	72.1		9.2	%
2^(b)		417.4		55.4	%		569.5		72.7	%
3^(c)		185.3		24.6	%		136.0		17.3	%
4^(d)		13.6		1.8	%		6.6		0.8	%
5^(e)		0.3		0.0	%		—		—

Total	$	754.2		100.0	%	$	784.2		100.0	%

^(a)	As of December 31, 2015 and December 31, 2014, Investment Score “1” included $26.5 million and $0, respectively, of loans to companies in which we also hold equity securities.

^(b)	As of December 31, 2015 and December 31, 2014, Investment Score “2” included $122.0 million and $126.0 million, respectively, of loans to companies in which we also hold equity securities.

^(c)	As of December 31, 2015 and December 31, 2014, Investment Score “3” included $48.4 million and $24.7 million, respectively, of loans to companies in which we also hold equity securities.

^(d)	As of December 31, 2015 and December 31, 2014, Investment Score “4” included $0 million and $4.6 million, respectively, of loans to companies in which we also hold equity securities.

^(d)	As of December 31, 2015 and December 31, 2014, Investment Score “5” included $0.3 million and $0, respectively, of loans to companies in which we also hold equity securities.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of December 31, 2015, we had two loans on non-accrual with an amortized cost basis of $25.0 million and fair value of $13.9 million. As of December 31, 2014, we had no loans on non-accrual. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations.

Results of Operations

Comparison of the Years Ended December 31, 2015, 2014 and 2013

Investment Income

We generate revenues primarily in the form of interest on the debt and other income-producing securities we hold. Other income-producing securities include investments in funds, investment in payment rights and residual interests, or equity, of collateralized loan obligations, or CLOs. Our investments in fixed income instruments generally have an expected maturity of five to seven years, and typically bear interest at a fixed or floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt instruments and preferred stock investments may defer payments of dividends or pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. In addition to interest income, we may receive dividends and other distributions related to our equity investments. We may also generate revenue in the form of fees from the management of Greenway and Greenway II,

prepayment premiums, commitment, loan origination, structuring or due diligence fees, exit fees, portfolio company administration fees, fees for providing significant managerial assistance and consulting fees.

The following shows the breakdown of investment income for the years ended December 31, 2015, 2014 and 2013 (in millions):


	Years ended December 31,
	2015		2014		2013
Interest income on debt securities
Cash interest	$	68.3	$	67.4	$	51.7
PIK interest		3.9		2.3		3.2
Prepayment premiums		0.3		2.5		1.3
Net accretion of discounts and other fees		3.2		4.4		4.1

Total interest on debt securities		75.7		76.6		60.3
Dividend income from Logan JV		3.8		—		—
Other dividend income		1.1		3.1		4.1
Interest income on other income-producing securities		7.8		7.2		6.5
Fees related to Greenway and Greenway II		2.2		3.0		3.0
Other income		3.6		2.0		0.8

Total	$	94.2	$	91.9	$	74.7

The increase in investment income from 2014 to 2015 was due primarily to the increase in dividend income related to the Logan JV and other income related to fees earned on certain portfolio investments. This increase was offset by lower fees from our managed funds.

The increase in investment income from 2013 to 2014 was due primarily to the growth in the overall investment portfolio and related interest income as well as other income.

The following shows a rollforward of PIK income activity for the years ended December 31, 2015, 2014 and 2013 (in millions):


	Years ended December 31,
	2015			2014			2013
Accumulated PIK balance, beginning of year	$	7.0		$	6.1		$	5.8
PIK income capitalized/receivable		4.6			2.3			3.2
PIK received in cash from repayments		(2.3	)		(1.4	)		(2.9	)

Accumulated PIK balance, end of year	$	9.3		$	7.0		$	6.1

In certain investment transactions, we may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. We earned no income from advisory services related to portfolio companies for the years ended December 31, 2015, 2014 and 2013.

Expenses

Our primary operating expenses include the payment of base management fees, an incentive fee, borrowing expenses related to our credit facilities, and expenses reimbursable under the investment management agreement and the allocable portion of overhead under the administration and investment management agreements (“administrator expenses”). The base management fee compensates the Advisor for work in identifying,

evaluating, negotiating, closing and monitoring our investments. Our investment management agreement and administration agreement provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for facilities, office equipment and utilities allocable to the performance by the Advisor of its duties under the agreements, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to us. We bear all other costs and expenses of our operations and transactions.

The following shows the breakdown of expenses for the years ended December 31, 2015, 2014 and 2013 (in millions):


	Years ended December 31,
	2015			2014		2013
Expenses
Interest and fees on Borrowings^(a)	$	14.5		$	11.1	$	7.1
Incentive fees^(b)		11.9			11.2		10.7
Base management fees		11.8			11.1		7.5
Other expenses		4.9			5.5		3.9
Administrator expenses		3.7			3.8		3.6

Total expenses before taxes		46.8			42.7		32.8
Income tax (benefit) provision, excise and other taxes^(c)		(0.2	)		1.0		0.5

Total expenses after taxes	$	46.6		$	43.7	$	33.3

^(a)	Interest, fees and amortization of deferred financing costs related to our Revolving Facility, Term Loan Facility, and Notes. For the year ended December 31, 2015, we accelerated the amortization of $0.3 million of deferred financing costs in connection with the August 19, 2015 amendment.

^(b)

For the years ended December 31, 2015, 2014 and 2013, incentive fees include the effect of the GAAP Incentive Fee (reversal) expense of $0, ($0.7) million and $0.3 million, respectively. See Footnote 4 ‘Related Party Transactions- Investment Management Agreement’ for more details. The GAAP Incentive Fee accrual considers the cumulative aggregate realized gains and losses and unrealized appreciation or depreciation of investments or other financial instruments. There can be no assurance that such amounts of unrealized appreciation or depreciation will be realized in the future. Accordingly, such GAAP Incentive Fee, as calculated and accrued, would not necessarily be payable under the Investment Management Agreement, and may never be paid based upon the computation of incentive fees in subsequent quarters.

^(c)	Amounts include the income taxes related to earnings by our consolidated wholly-owned corporate subsidiaries established to hold equity or equity-like portfolio company investments organized as pass-through entities and excise taxes related to our undistributed earnings and other taxes.

The increase in operating expenses from 2014 to 2015 was due primarily to the increase in interest and fees on borrowings as result of increased credit facility commitments and average outstanding borrowings as well as higher management and incentive fees. These increases were offset by lower other expenses as a result of lower professional fees, related to a restructured investment for the year ended December 31, 2014, and a lower tax provision associated with our blocker corporations.

The increase in operating expenses from 2013 to 2014 was due primarily to the increase in base management fees related to the growth of the portfolio and credit facility expenses, which was a result of an increase in the credit facility commitments and borrowings outstanding. The increase to other expenses was due to an increase in professional fees and other operating costs related to the growth and maturity of the portfolio. Professional fees for the year ended December 31, 2014 included $0.7 million related to recently restructured investments.

We expect certain of our operating expenses, including administrator expenses, professional fees and other general and administrative expenses to decline as a percentage of our total assets during periods of growth and increase as a percentage of our total assets during periods of asset declines.

Net Investment Income

Net investment income was $47.6 million, or $1.41 per common share based on a weighted average of 33,636,806 common shares outstanding for the year ended December 31, 2015, as compared to $48.2 million, or $1.42 per common share based on a weighted average of 33,905,202 common shares outstanding for the year ended December 31, 2014 and, as compared to $41.4 million, or $1.37 per common share based on a weighted average of 30,286,955 common shares outstanding for the year ended December 31, 2013.

The decrease in net investment income from 2014 to 2015 was due primarily to the increase in borrowing costs and higher management and incentive fees. The decrease was offset by an increase in investment income from the portfolio and a favorable income tax benefit in 2015 compared to the prior period.

The increase in net investment income from 2013 to 2014 is primarily attributable to the growth of the overall investment portfolio and related interest income.

Net Realized Gains and Losses on Investments, net of income tax provision

The following shows the breakdown of realized gains and losses for the years ended December 31, 2015, 2014 and 2013 (in millions):


	For the years ended December 31,
	2015			2014			2013
Escrow receivable settlement^(a)	$	—		$	(1.0	)	$	—
BBB Industries, Inc.		—			0.1			—
Blue Coat Systems, Inc.		—			0.6			—
Expert Global Solutions, Inc.		(0.1	)		(0.3	)		—
C&K Market, Inc.^(b)		—			(1.0	)		—
Jefferson Management Holdings, LLC		—			(0.5	)		—
Octagon Income Note XIV, Ltd.		—			0.2			—
Surgery Center Holdings, Inc.		0.2			0.7			0.7
YP Equity Investors, LLC^(c)		—			—			2.0
Wingspan Portfolio Holdings, Inc.^(d)		—			(11.9	)		—
Other		0.1			0.2			(0.1	)

Net realized (losses)/gains	$	0.2		$	(12.9	)	$	2.6

^(a)

Escrow receivable settlement in connection with arbitration proceedings. Escrow related to the sale of IMDS Corporation in a prior period. In addition to the realized loss, we reversed $0.3 million of previously accelerated amortization income against interest income recognized for the year ended December 31, 2014.

^(b)

On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14.3 million were converted to common and preferred equity. In connection with the extinguishment and conversion to equity, the Company recognized a realized loss in the amount of $1.0 million, which was offset by a corresponding change in unrealized appreciation.

^(c)

For the year ended December 31, 2014, an offsetting tax provision of $0.2 million was recorded in the Consolidated Statements of Operations. For the year ending December 31, 2013 there was no tax provision. These amounts reflect a revision to previously recognized estimated realized gains and dividend income as a result of adjusted tax estimates from the portfolio company.

^(d)

On October 20, 2014, the cost basis of the subordinated note totaling $18.4 million was converted to common equity as part of a restructuring of the business. In connection with the extinguishment and conversion to equity of an affiliate, Dimont & Associates, Inc., the Company recognized a realized loss in the amount of $11.9 million, which was offset by a corresponding change in unrealized appreciation.

The change in realized (losses) and gains for the respective periods is primarily attributable to realized losses recognized in 2014 on C&K Market Inc. and Wingspan Portfolio Holdings, Inc. as a result of converting subordinated debt and warrants into controlling equity ownership interests as part of a restructuring of each business, the loss on the IMDS Corporation escrow and the number and size of sales in 2014.

For the year ended December 31, 2015, a nominal tax (benefit) provision was recorded in the Consolidated Statements of Operations and reflected a revision to previously recognized estimated realized gains and dividend income as a result of adjusted tax estimates from the portfolio company. For the years ended December 31, 2014 and December 31, 2013, a tax (benefit) provision of $(0.2) million and $0, respectively, was recorded in the Consolidated Statements of Operations and reflected a revision to previously recognized estimated realized gains and dividend income as a result of adjusted tax estimates from the portfolio company.

Net Change in Unrealized Appreciation (Depreciation) of Investments

Net change in unrealized appreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

The following shows the breakdown in the changes in unrealized appreciation of investments for the years ended December 31, 2015, 2014 and 2013 (in millions):


	Years ended December 31,
	2015			2014			2013
Gross unrealized appreciation on investments	$	15.6		$	13.3		$	9.1
Gross unrealized depreciation on investments		(33.1	)		(17.0	)		(8.8	)
Reversal of prior period net unrealized depreciation (appreciation) upon a realization		(0.4	)		5.9			—

Total	$	(17.9	)	$	2.2		$	0.3

The net change in unrealized appreciation on our investments for each of the years ended December 31, 2015, 2014 and 2013 was driven primarily by changes in the capital market conditions and the financial performance of certain portfolio companies, including two portfolio companies where loans are non-accrual status at December 31, 2015. In addition, change in unrealized depreciation on our investments for the year ended December 31, 2015 from unrealized appreciation for the year ended December 31, 2014 was partially offset by an increase in unrealized appreciation on our investment in C&K Market, Inc. of approximately $8.3 million.

Provision for Taxes on Unrealized Gains on Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable entities are not consolidated with the Company for income tax purposes and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the years ended December 31, 2015, 2014 and 2013, the Company recognized a provision for tax on unrealized gains on investments of $1.2 million, $0.2 million and $2.0 million for consolidated subsidiaries, respectively. As of December 31, 2015 and December 31, 2014, $3.9 million and $2.6 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to deferred tax on unrealized gain on investments. The change in provision for tax on unrealized gains on investments relates primarily to changes to the unrealized appreciation (depreciation) of the investments held in these taxable consolidated subsidiaries, other temporary differences and a change in the prior year estimates received from certain portfolio companies.

Realized and Unrealized Appreciation (Depreciation) of Interest Rate Derivative

The interest rate derivative was entered into on May 10, 2012. Unrealized depreciation reflects the value of the interest rate derivative agreement at the end of the reporting period. For the years ended December 31, 2015, 2014 and 2013, the net change of unrealized appreciation (depreciation) on interest rate derivative totaled $0.0 million, $0.1 million and $0.8 million, respectively, which is listed under net change in unrealized appreciation (depreciation) on interest rate derivatives in the Consolidated Statement of Operations. The changes were due to capital market changes impacting swap rates.

We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amount paid on the interest rate derivative. For the years ended December 31, 2015, 2014 and 2013, we realized a loss of $0.4 million, $0.5 million and $0.4 million, respectively, as interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations.

Net Increase in Net Assets Resulting from Operations

Net increase in net assets resulting from operations totaled $28.2 million, or $0.84 per common share based on a weighted average of 33,636,806 common shares for the year ended December 31, 2015, as compared to $36.8 million, or $1.08 per common share based on a weighted average of 33,905,202 common shares for the year ended December 31, 2014, as compared to $42.7 million, or $1.41 per common share based on a weighted average of 30,286,955 common shares outstanding for the year ended December 31, 2013.

The decrease in net assets resulting from operations between the years ended December 31, 2015 and 2014 is due primarily to unrealized losses in the portfolio and taxes on unrealized gains on investments. The decrease in net assets from operations between the years ended December 31, 2014 and 2013 is due primarily to the growth in net investment income offset by net realized and unrealized losses in the portfolio.

Financial condition, liquidity and capital resources

Cash Flows from Operating and Financing Activities

Our liquidity and capital resources are derived from our borrowings, equity raises and cash flows from operations, including investment sales and repayments, and investment income earned. Our primary use of funds from operations includes investments in portfolio companies, payment of dividends to the holders of our common stock and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our borrowings and the proceeds from the turnover in our portfolio and from public and private offerings of securities to finance our investment objectives, to the extent permitted by the 1940 Act.

We may raise additional equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, by securitizing a portion of our investments or borrowings from credit facilities. To the extent we determine to raise additional equity through an offering of our common stock at a price below net asset value, existing investors will experience dilution. During our 2015 Annual Stockholder Meeting held on June 2, 2015, our stockholders authorized us, with the approval of our Board of Directors, to sell up to 25% of our outstanding common stock at a price below our then current net asset value per share and to offer and issue debt with warrants or debt convertible into shares of our common stock at an exercise or conversion price that will not be less than the fair market value per share but may be below the then current net asset value per share. There can be no assurance that these capital resources will be available.

In December 2014, we closed a public debt offering selling $50.0 million of Notes due in 2021, or the 2021 Notes, including the exercise of the over allotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $48.5 million. In December 2015, we closed a public debt offering selling $35.0 million of Notes due in 2022, or the 2022 Notes, including the exercise of the over allotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $34.0 million. Collectively, the 2021 Notes and 2022 Notes are referred to as the Notes.

We borrowed $166.3 million under our Revolving Facility for the year ended December 31, 2015 and repaid $202.5 million on our Revolving Facility from proceeds received from prepayments and sales and investment income. We borrowed $321.3 million under our Revolving Facility and $13.5 million under our Term Loan Facility for the year ended December 31, 2014 and repaid $244.2 million on our Revolving Facility from proceeds received from the Term Loan Facility and investment income.

Our operating activities provided (used) cash of $58.5 million, ($95.9) million, and ($210.5) million for the years ended December 31, 2015, 2014 and 2013, respectively, primarily in connection with the purchase and sales of portfolio investments. For the year ended December 31, 2015, our financing activities used $36.2 million to repay borrowings on our facility, primarily from the net proceeds of the $35.0 million from the 2022 Notes, $45.6 million for distributions to stockholders, $7.3 million to repurchase common stock and $3.2 million for payment of financing and offering costs. For the year ended December 31, 2014, our financing activities provided cash of $90.6 million from our net borrowings as well as $50.0 million from the 2021 Notes and used $46.1 million for distributions to stockholders and $3.7 million for the payment of financing and offering costs. For the year ended December 31, 2013, our financing activities provided cash of $265.3 million from our common stock offering and net borrowings and used cash of $44.7 million for distributions to stockholders and $7.0 million for payment of financing and offering costs.

As of December 31, 2015 and December 31, 2014, we had cash of $3.9 million and $2.7 million, respectively. We had no cash equivalents as of December 31, 2015 and December 31, 2014.

We believe cash balances, our Revolving Facility capacity and any proceeds generated from the sale or pay down of investments provides us with the liquidity necessary to acquit our pipeline in the near future.

Borrowings

The following shows a summary of our Borrowings as of December 31, 2015 and December 31, 2014 (in millions):


	As of
	December 31, 2015							December 31, 2014
Facility	Commitments		Borrowings Outstanding		Weighted Average Interest Rate			Commitments		Borrowings Outstanding		Weighted Average Interest Rate
Revolving Facility	$	303.5	$	152.2		2.94	%	$	303.5	$	188.4		2.69	%
Term Loan Facility		106.5		106.5		3.19	%		106.5		106.5		3.44	%
2021 Notes		50.0		50.0		6.75	%		50.0		50.0		6.75	%
2022 Notes		35.0		35.0		6.75	%		—		—		—

Total	$	495.0	$	343.7		3.96	%	$	460.0	$	344.9		3.51	%

Credit Facility

On August 19, 2015, the Company entered into an amendment, or the Revolving Amendment, to its existing revolving credit agreement, or Revolving Facility, and entered into an amendment, or the Term Loan Amendment, to its Term Loan Facility. The Revolving Facility and Term Loan Facility are collectively referred to as the Facilities.

prepayments on its loans from the proceeds it receives from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Revolving Facility has an interest rate of LIBOR plus 2.5% (with no LIBOR floor). The non-use fee is 1.0% annually if the Company uses 35% or less of the Revolving Facility and 0.50% annually if the Company uses more than 35% of the Revolving Facility. The Company elects the LIBOR rate on the loans outstanding on its Revolving Facility, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on the borrowings outstanding on its Revolving Facility currently has a one month maturity.

The Term Loan Amendment revised the Term Loan Facility dated April 30, 2014 to, among other things, extend the maturity date from April 2019 to August 2021. The Term Loan Amendment also changes the interest rate of the Term Loan Facility to LIBOR plus 2.75% (with no LIBOR Floor) and has substantially similar terms to the existing Revolving Facility (as amended by the Revolving Amendment). The Company elects the LIBOR rate on its Term Loan, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on its Term Loan currently has a one month maturity.

Each of the Facilities includes an accordion feature permitting us to expand the Facilities, if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $600.0 million.

The Facilities generally require payment of interest on a quarterly basis for ABR loans (commonly based on the Prime Rate or the Federal Funds Rate), and at the end of the applicable interest period for Eurocurrency loans bearing interest at LIBOR, the interest rate benchmark used to determine the variable rates paid on the Facilities. LIBOR maturities can range between one and nine months at the election of the Company. All outstanding principal is due upon each maturity date. The Facilities also require a mandatory prepayment of interest and principal upon certain customary triggering events (including, without limitation, the disposition of assets or the issuance of certain securities).

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base. The Facilities have certain collateral requirements and/or covenants, including, but limited to, 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) limitations on the creation or existence of agreements that prohibit liens on certain properties of ours and our subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of us and our subsidiaries, of not less than 2.00: 1.0, (iii) minimum liquidity, (iv) minimum net worth, and (v) a consolidated interest coverage ratio. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the Facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in our portfolio.

The Facilities’ documents also include default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control, and the failure by us to materially perform under the operative agreements governing the Facilities, which, if not complied with, could, at the option of the lenders under the Facilities, accelerate repayment under the Facilities, thereby materially and adversely affecting our liquidity, financial condition and results of operations. Each loan originated under the Revolving Facility is subject to the satisfaction of certain conditions. We cannot be assured that we will be able to borrow funds under the Revolving Facility at any particular time or at all. We are currently in compliance with all financial covenants under the Facilities.

For the year ended December 31, 2015, we borrowed $166.3 million and repaid $202.5 million under the Facilities. For the year ended December 31, 2014, we borrowed $334.8 million and repaid $244.2 million under the Facilities. For the year ended December 31, 2013, we borrowed $453.7 million and repaid $299.4 million under the Facilities.

As of December 31, 2015 and December 31, 2014, the carrying amount of the Company’s outstanding Facilities approximated fair value. The fair values of the Company’s Facilities are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Facilities are estimated based upon market interest rates and entities with similar credit risk. As of December 31, 2015 and December 31, 2014, the Facilities would be deemed to be Level 3 of the fair value hierarchy.

Interest expense and related fees, excluding amortization of deferred financing costs, of $12.6 million, $9.8 million and $5.6 million were incurred in connection with the Facilities during the years ended December 31, 2015, 2014 and 2013, respectively.

In accordance with the 1940 Act, with certain exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. The asset coverage as of December 31, 2015 is in excess of 200%.

Notes

In December 2014, we completed a public offering of $50.0 million in aggregate principal amount of 6.75% notes due 2021, or the 2021 Notes. The 2021 Notes mature on November 15, 2021, and may be redeemed in whole or in part at any time or from time to time at our option on or after November 15, 2017. The 2021 Notes bear interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning December 30, 2014 and trade on the New York Stock Exchange under the trading symbol “TCRX”.

In December 2015, we completed a public offering of $35.0 million in aggregate principal amount of 6.75% notes due 2022, or the 2022 Notes. The 2022 Notes mature on December 30, 2022, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 30, 2018. The 2022 Notes bear interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning March 30, 2016 and trade on the New York Stock Exchange under the trading symbol “TCRZ”. We refer to the 2021 Notes and the 2022 Notes collectively as the Notes.

The Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) senior to any of our future indebtedness that expressly provides it is subordinated to the Notes; (iii) effectively subordinated to all our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, including without limitation, borrowings under our Revolving Facility and Term Loan Facility; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.

The Base Indenture, as supplemented by the First and Second Supplemental Indentures (the “Indenture”), contains certain covenants including covenants requiring us to comply with (regardless of whether it is subject to) the Section 18 (a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC. Currently these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings. These covenants are subject to important limitations and exceptions that are described in the Indenture. The Indenture provides for customary events of default and further provides that the Trustee or the holders of 25% in aggregate principal amount of the outstanding Notes in a series may declare such Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period. As of December 31, 2015, we were in compliance with the terms of the indenture and the supplemental indenture governing the Notes. See Note 7 to our consolidated financial statements for more detail on the Notes.

As of December 31, 2015, the carrying amount and fair value of our 2021 and 2022 Notes was $85.0 million and $84.7 million, respectively. As of December 31, 2014, the carrying value and fair value of our 2021 Notes was $50.0 million and $51.6 million, respectively. The fair value of our Notes is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Notes is based on the closing price of the security, which is a Level 2 input under ASC 820 due to the trading volume.

In connection with the issuance of the 2021 and 2022 Notes, we incurred $1.4 million and $2.1 million of fees and expenses, respectively. These amounts were capitalized and are being amortized using the effective interest method over the term of the Notes. For the years ended December 31, 2015 and December 31, 2014, we amortized approximately $0.3 million and $0.04 million of deferred financing costs, respectively, which is included under amortization of deferred financing costs on the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, we had approximately $3.2 million and $2.1 million, respectively, of remaining deferred financing costs on the Notes, which is included under Deferred Financing Costs on our Consolidated Statements of Assets and Liabilities.

For the years ending December 31, 2015 and 2014, we incurred interest expense on the Notes of approximately $3.5 million and $0.4 million, respectively.

Interest Rate Derivative

On May 10, 2012, we entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC. Under the swap agreement, with a notional value of $50 million, we pay a fixed rate of 1.1425% and receive a floating rate based upon the current three-month LIBOR rate. We entered into the swap agreement to manage interest rate risk and not for speculative purposes.

We record the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss) as interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations.

For the years ended December 31, 2015, 2014 and 2013, we recognized $0.4 million, $0.5 million and $0.4 million, respectively, of realized loss from the swap agreement, which is reflected as interest rate derivative periodic interest payments, net in the Consolidated Statements of Operations.

For the years ended December 31, 2015, 2014 and 2013, we recognized $0.0 million, $0.1 million and $0.8 million of net change in unrealized appreciation (depreciation) from the swap agreement, respectively, which is listed under net change in unrealized depreciation on interest rate derivative in the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, the fair value of our swap agreement is $(0.2) million and $(0.2) million, respectively, which is listed as an interest rate derivative liability on the Consolidated Statements of Assets and Liabilities.

Contractual Obligations and Off-Balance Sheet Arrangements

From time to time, we, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of our rights under contracts with our portfolio companies. Neither we, nor the Advisor, are currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected in our Consolidated Statements of Assets and Liabilities. Our unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance

sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We intend to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments.

As of December 31, 2015 and December 31, 2014, we have the following unfunded commitments to portfolio companies (in millions):


	As of
	December 31, 2015		December 31, 2014
Unfunded delayed draw facilities	$	3.4	$	29.8
Unfunded revolving commitments		4.5		4.5
Unfunded commitments to investments in funds		1.0		1.9

Total unfunded commitments	$	8.9	$	36.2

Dividends

We have elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain our status as a regulated investment company, we are required to distribute at least 90% of our investment company taxable income. To avoid a 4% excise tax on undistributed earnings, we are required to distribute each calendar year the sum of (i) 98% of our ordinary income for such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. We intend to make distributions to stockholders on a quarterly basis of substantially all of our net investment income. Although we intend to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In addition, the extent and timing of special dividends, if any, will be determined by our board of directors and will largely be driven by portfolio specific events and tax considerations at the time.

In addition, we may be limited in our ability to make distributions due to the BDC asset coverage test for borrowings applicable to us as a BDC under the 1940 Act.

The following table summarizes our dividends declared and paid or to be paid on all shares including dividends reinvested, if any:


Date Declared	Record Date	Payment Date	Amount Per Share
August 5, 2010	September 2, 2010	September 30, 2010	$0.05
November 4, 2010	November 30, 2010	December 28, 2010	$0.10
December 14, 2010	December 31, 2010	January 28, 2011	$0.15
March 10, 2011	March 25, 2011	March 31, 2011	$0.23
May 5, 2011	June 15, 2011	June 30, 2011	$0.25
July 28, 2011	September 15, 2011	September 30, 2011	$0.26
October 27, 2011	December 15, 2011	December 30, 2011	$0.28
March 6, 2012	March 20, 2012	March 30, 2012	$0.29
March 6, 2012	March 20, 2012	March 30, 2012	$0.05
May 2, 2012	June 15, 2012	June 29, 2012	$0.30
July 26, 2012	September 14, 2012	September 28, 2012	$0.32
November 2, 2012	December 14, 2012	December 28, 2012	$0.33
December 20, 2012	December 31, 2012	January 28, 2013	$0.05
February 27, 2013	March 15, 2013	March 29, 2013	$0.33
May 2, 2013	June 14, 2013	June 28, 2013	$0.34
August 2, 2013	September 16, 2013	September 30, 2013	$0.34
August 2, 2013	September 16, 2013	September 30, 2013	$0.08
October 30, 2013	December 16, 2013	December 31, 2013	$0.34
March 4, 2014	March 17, 2014	March 31, 2014	$0.34
May 7, 2014	June 16, 2014	June 30, 2014	$0.34
August 7, 2014	September 15, 2014	September 30, 2014	$0.34
November 4, 2014	December 15, 2014	December 31, 2014	$0.34
March 6, 2015	March 20, 2015	March 31, 2015	$0.34
May 5, 2015	June 15, 2015	June 30, 2015	$0.34
August 4, 2015	September 15, 2015	September 30, 2015	$0.34
November 3, 2015	December 15, 2015	December 31, 2015	$0.34
March 8, 2016	March 21, 2016	March 31, 2016	$0.34

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, we reserve the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

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will be sent to our U.S. stockholders of record. Our board of directors presently intends to declare and pay quarterly dividends. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

Contractual obligations

We have entered into a contract with the Advisor to provide investment advisory services. Payments for investment advisory services under the investment management agreement in future periods will be equal to (a) an annual base management fee of 1.5% of our gross assets and (b) an incentive fee based on our performance. In addition, under our administration agreement, the Advisor will be reimbursed for administrative services incurred on our behalf. See description below under Related Party Transactions.

The following table shows our contractual obligations as of December 31, 2015 (in millions):


	Payments due by period
Contractual Obligations⁽¹⁾	Total		Less than 1 year		1 – 3 years		3 – 5 years		After 5 years
Term Loan Facility	$	106.5		—		—		—	$	106.5
Notes Payable	$	85.0		—		—		—	$	85.0

⁽¹⁾	Excludes $8.9 million in commitments to extend credit to our portfolio companies.

The following table shows our contractual obligations as of December 31, 2014 (in millions):


	Payments due by period
Contractual Obligations⁽¹⁾	Total		Less than 1 year		1 – 3 years		3 – 5 years		After 5 years
Term Loan Facility	$	106.5		—		—	$	106.5		—
Note Payable	$	50.0		—		—		—	$	50.0

⁽¹⁾	Excludes $36.2 million in commitments to extend credit to our portfolio companies.

We entered into an interest rate derivative to manage interest rate risk. We record the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly interest rate swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss). Further discussion of the interest rate derivative is included in Note 2 “Significant Accounting Policies” and Note 8 “Interest Rate Derivative” in the “Notes to Consolidated Financial Statements”.

Stock Repurchase Program

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any reason without prior notice. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We will retire immediately all such shares of common stock that we purchase in connection with the stock repurchase program.

The following table summarizes our share repurchases under our stock repurchase program for the years ended December 31, 2015, 2014 and 2013 (in millions):


	For the year ended December 31,
	2015			2014		2013
Dollar amount repurchased	$	7.3			—		—
Shares repurchased		0.6			—		—
Average price per share (including commission)	$	12.27			—		—
Weighted average discount to net asset value		7.38	%		—		—

Related Party Transactions

Investment Management Agreement

On March 8, 2016, our investment management agreement with the Advisor was re-approved by our Board of Directors. Under the investment management agreement, the Advisor, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to us.

The Advisor receives a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

The base management fee is calculated at an annual rate of 1.5% of our gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined as the value of our assets without deduction for any liabilities. The base management fee is calculated based on the value of our gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

For the years ended December 31, 2015, 2014 and 2013, we incurred base management fees payable to the Advisor of $11.8 million, $11.1 million and $7.5 million, respectively. As of December 31, 2015 and December 31, 2014, $2.9 million and $2.8 million, respectively, was payable to the Advisor.

The incentive fee has two components, ordinary income and capital gains, as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on our preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, amortization of original issue discount, commitment and origination fees, dividend income and any other income (including any other fees, such as, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under our administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon

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securities), accrued income that we have not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which our preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of our preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any, that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of our preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of our preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which our preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of our preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest (sometimes referred to as payment-in-kind interest, or PIK, or original issue discount, or OID) will be paid to THL Credit Advisors, together with interest thereon from the date of deferral to the date of payment, only if and to the extent we actually receive such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

For the years ended December 31, 2015, 2014 and 2013, we incurred $11.9 million, $11.9 million and $10.4 million, respectively, of incentive fees related to ordinary income. As of December 31, 2015 and 2014, $2.9 million and $3.1 million, respectively, of such incentive fees are currently payable to the Advisor. As of December 31, 2015 and 2014, $1.3 million and $1.1 million, respectively of incentive fees incurred by us were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received in cash.

GAAP requires that the incentive fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments or other financial instruments, such as an interest rate derivative, in the calculation, as an incentive fee would be payable if such realized gains and losses or unrealized capital appreciation or depreciation were realized, even though such realized gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the fee actually payable under the investment management agreement (“GAAP Incentive Fee”). There can be no assurance that such unrealized appreciation or depreciation will be realized in the future. Accordingly, such fee, as calculated and accrued, would not necessarily be payable under the investment management agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.

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For the years ended December 31, 2015, 2014 and 2013, we incurred (reversed) $0, ($0.7) million and $0.3 million, respectively, of incentive fees related to the GAAP incentive fee.

Administration Agreement

We have also entered into an administration agreement with the Advisor under which the Advisor will provide administrative services to us. Under the administration agreement, the Advisor performs, or oversees the performance of administrative services necessary for our operation, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, the Advisor assists in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. We will reimburse the Advisor for our allocable portion of the costs and expenses incurred by the Advisor for overhead in performance by the Advisor of its duties under the administration agreement and the investment management agreement, including facilities, office equipment and our allocable portion of cost of compensation and related expenses of our chief financial officer and chief compliance officer and their respective staffs, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided to us by the Advisor. Our board of directors reviews the allocation methodologies with respect to such expenses. Such costs are reflected as Administrator expenses in the accompanying Consolidated Statements of Operations. Under the administration agreement, the Advisor provides, on our behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. To the extent that our Advisor outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without profit to the Advisor.

For the years ended December 31, 2015, 2014 and 2013, we incurred administrator expenses of $3.7 million, $3.8 million and $3.6 million, respectively. As of December 31, 2015 and December 31, 2014, $0.0 million and $0.0 million, respectively, was payable to the Advisor.

License Agreement

We and the Advisor have entered into a license agreement with THL Partners under which THL Partners has granted to us and the Advisor a non-exclusive, personal, revocable worldwide non-transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with our respective businesses. This license agreement is royalty-free, which means we are not charged a fee for our use of the trade name and service mark THL. The license agreement is terminable either in its entirety or with respect to us or the Advisor by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either us or the Advisor by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either us or the Advisor at our or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, we and the Advisor must cease to use the name and mark THL, including any use in our respective legal names, filings, listings and other uses that may require us to withdraw or replace our names and marks. Other than with respect to the limited rights contained in the license agreement, we and the Advisor have no right to use, or other rights in respect of, the THL name and mark. We are an entity operated independently from THL Partners, and third parties who deal with us have no recourse against THL Partners.

Due to and from Affiliates

The Advisor paid certain other general and administrative expenses on our behalf. There was $0.04 million due to affiliate, which appeared on the Consolidated Statements of Assets and Liabilities, as of December 31, 2015. As of December 31, 2014, there were no amounts due to affiliate.

As of December 31, 2015, we owed $0.05 million of Administrator expense to the Advisor, which was included in accrued expenses and other payables on the Consolidated Statements of Assets and Liabilities. As of December 31, 2014, there were no amounts due to affiliate.

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As of December 31, 2015 and 2014, we incurred $0.1 million of other general and administrative expense on behalf of the Advisor, which was included in due from affiliates on the Consolidated Statement of Assets and Liabilities.

We act as the investment adviser to Greenway and Greenway II and are entitled to receive certain fees. As a result, each of Greenway and Greenway II is classified as an affiliate. As of December 31, 2015 and 2014, $0.6 million and $1.0 million of fees related to Greenway and Greenway II, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

We paid certain fees related to organizing Logan JV, on behalf of Logan JV. As of December 31, 2015 and December 31, 2014 $0 and $0.05 million of expenses, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Critical accounting policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, the Company’s significant accounting policies are further described in the notes to the consolidated financial statements.

Valuation of Portfolio Investments

As a BDC, we generally invest in illiquid securities including debt and equity investments of lower middle market companies. Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from an independent pricing service or one or more broker-dealers or market makers. Debt and equity securities for which market quotations are not readily available or are not considered to be the best estimate of fair value are valued at fair value as determined in good faith by our board of directors. Because we expect that there will not be a readily available market value for many of the investments in our portfolio, it is expected that many of our portfolio investments’ values will be determined in good faith by our board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors in accordance with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, 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;

•

preliminary valuation conclusions are then documented and discussed with senior management of the Advisor;

•

to the extent determined by the audit committee of our board of directors, independent valuation firms are used to conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

•

the audit committee of our board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firms to reflect any comments; and

•

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

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The types of factors that we may take into account in fair value pricing our investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. We generally utilize an income approach to value our debt investments and a combination of income and market approaches to value our equity investments. With respect to unquoted securities, the Advisor and our board of directors, in consultation with our independent third party valuation firms, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by our board of directors.

Debt Investments

For debt investments, we generally determine the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. Our estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. The enterprise value, a market approach, is used to determine the value of equity and debt investments that are credit impaired, close to maturity or where we also hold a controlling equity interest. The method for determining enterprise value uses a multiple analysis, whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization, or EBITDA.

Interest Rate Derivative

We value our interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

Collateralized Loan Obligations

We value our residual interest investments in collateralized loan obligations using an income approach that analyzes the discounted cash flows of our residual interest. The discounted cash flows model utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar collateralized loan obligation fund subordinated notes or equity, when available. Specifically, we use Intex cash flow models, or an appropriate substitute to form the basis for the valuation of our residual interest. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated cash flows. The assumptions are based on available market data and projections provided by third parties as well as management estimates.

Payment Rights

We value our investment in payment rights using an income approach that analyzes the discounted projected future cash flow streams assuming an appropriate discount rate, which will among other things consider other transactions in the market, the current credit environment, performance of the underlying portfolio company and the length of the remaining payment stream.

Equity

We use a combination of the income and market approaches to value our equity investments. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert

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future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, our principal market as the reporting entity, and enterprise values, among other factors.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, we disclose the fair value of our investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level l – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

We consider whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if we determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

We have adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, we estimate the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date. Redemptions are not generally permitted in our investments in funds. The remaining term of our investments in funds is expected to be four to eight years.

Revenue Recognition

We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis to the extent that we expect to collect such amounts. Dividend income is recognized on the ex-dividend date. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or 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/amortization of discounts and premiums and upfront loan origination fees.

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Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. We record the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations. As of December 31, 2015, we had two loans on non-accrual status with an amortized cost basis of $25.0 million and fair value of $13.9 million. As of December 31, 2014, we had no loans on non-accrual status.

We have investments in our portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. We will cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect amounts to be collectible and will generally only begin to recognize PIK income again when all principal and interest have been paid or upon a restructuring of the investment where the interest is deemed collectable. To maintain our status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though we have not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

We capitalize and amortize upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.

Interest income from our investment in TRA and CLO residual interest investments are recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows with any remaining amount recorded to the cost basis of the investment. We monitor the anticipated cash flows from our TRA and CLO residual interest investments and will adjust our effective yield periodically as needed.

Other income includes commitment fees, fees related to the management of Greenway and Greenway II, fees related to the management of certain controlled equity investments, structuring fees, amendment fees and unused commitment fees associated with investments in portfolio companies. These fees are recognized as income when earned by us in accordance with the terms of the applicable management or credit agreement.

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

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized. We measure realized gains or losses on the interest rate derivative based upon the difference between the proceeds received or the amounts paid on the interest rate derivative. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values or value of the interest rate derivative during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

U.S. Federal Income Taxes, including excise tax

We operate so as to maintain our status as a RIC under Subchapter M of the Code and intend to continue to do so. Accordingly, we are not subject to federal income tax on the portion of our taxable income and gains distributed to stockholders. In order to qualify for favorable tax treatment as a RIC, we are required to distribute annually to our stockholders at least 90% of our investment company taxable income, as defined by the Code. To avoid a 4% federal excise tax, we must distribute each calendar year the sum of (i) 98% of our ordinary income for each such calendar year (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year, and (iii) any income recognized, but not distributed, in preceding years and on which we paid no

108

federal income tax. We may choose not to distribute all of our taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. 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 from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. We will accrue excise tax on undistributed taxable income as required. Please refer to “Dividends” above for a summary of the distributions. For the years ended December 31, 2015, 2014, and 2013 we incurred U.S. federal excise tax and other tax expenses of $0.7 million, $0.3 million, and $0.2 million, respectively.

Certain consolidated subsidiaries are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries.

The following shows the breakdown of current and deferred income tax provisions (benefits) for the years ended December 31, 2015, 2014 and 2013 (in millions):


	For the years ended December 31,
	2015			2014			2013
Current income tax provision:
Current income tax (benefit) provision	$	(0.2	)	$	0.9		$	0.3
Current provision for taxes on realized gain on investments		—			0.2			—
Deferred income tax provision:
Deferred income tax benefit		(0.8	)		(0.2	)		—
Provision for taxes on unrealized gain on investments		1.2			0.2			2.0

These current and deferred income taxes are determined from taxable income estimates provided by portfolio companies where we hold equity or equity-like investments organized as pass-through entities in its corporate subsidiaries. These tax estimates may be subject to further change once tax information is finalized for the year. As of December 31, 2015 and December 31, 2014, $0.4 million and $0.2 million, respectively, of income tax receivable was included in prepaid expenses and other assets on the Consolidated Statements of Assets and Liabilities. As of December 31, 2015 and December 31, 2014, $3.9 million and $2.6 million, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities primarily relating to deferred taxes on unrealized gains and other temporary book to tax differences related to investments and other book to tax differences held in its corporate subsidiaries. As of December 31, 2015 and December 31, 2014, $1.1 million and $0.3 million, respectively of deferred tax assets were presented on the Consolidated Statements of Assets and Liabilities relating to net operating loss carryforwards and unrealized losses on investments and other temporary book to tax differences that are expected to be used in future periods. The Company believes that it will be able to fully utilize these deferred tax assets against future taxable income and has therefore not recognized an allowance against these deferred tax assets.

Under the RIC Modernization Act (the “RIC Act”), we are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during post-enactment taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under the rules applicable to pre-enactment capital losses.

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purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

We follow the provisions under the authoritative guidance on accounting for and disclosure of uncertainty in tax positions. The provisions require us to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no unrecognized tax benefits or obligations in the accompanying consolidated financial statements. Although we file U.S. federal and state tax returns, our major tax jurisdiction is U.S. federal. Our inception-to-date U.S. federal tax years remain subject to examination by taxing authorities.

Recent Developments

From January 1, 2016 through March 10, 2016, we closed two follow-on debt investments totaling $5.2 million in the consumer products and retail and grocery industries. One of the follow-on investments is a fixed rate subordinated debt investment and another is a floating rate first lien debt investment. The follow-on debt investments have a combined weighted average yield based upon cost at the time of the investment of 13.4%. We also made a $4.0 million investment in the Logan JV.

On February 16, 2016, we received proceeds of $7.3 million from the repayment of our second lien investment in Allen Edmonds Corporation at par.

On February 19, 2016, we received proceeds of $29.0 million from the repayment of our senior secured first lien investment in 20-20 Technologies Inc. at par.

On March 8, 2016, our board of directors authorized a new $25.0 million stock repurchase program that replaced the program that expired on March 6, 2016. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any particular amount will be purchased. Unless extended by our board of directors, the stock repurchase program will terminate on March 8, 2017 and may be modified or terminated at any time for any reason without prior notice. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We will retire immediately all such shares of common stock that we purchase in connection with the stock repurchase program.

On March 8, 2016, our board of directors declared a dividend of $0.34 per share payable on March 31, 2016 to stockholders of record at the close of business on March 21, 2016.

On March 8, 2016, our investment management agreement was re-approved by our board of directors.

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Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of December 31, 2015, 21.9%, of the debt investments in our portfolio bore interest at fixed rates based upon fair value. All of the debt investments in our portfolio have interest rate floors, which have effectively converted the debt investments to fixed rate loans in the current interest rate environment. In the future, we expect other debt investments in our portfolio will have floating rates. Our borrowings as well as the amount we receive under the interest rate derivative agreement are based upon floating rates.

Based on our December 31, 2015 Consolidated Statement of Assets and Liabilities, the following table shows the annual impact on net income of changes in interest rates, which assumes no changes in our investments and borrowings (in millions):


Change in Basis Points	Interest Income		Interest Expense		Net Income⁽¹⁾
Up 300 basis points	$	12.3	$	6.1	$	6.2
Up 200 basis points	$	7.4	$	4.0	$	3.4
Up 100 basis points	$	2.6	$	2.0	$	0.6
Down 300 basis points	$	—	$	—	$	—
Down 200 basis points	$	—	$	—	$	—
Down 100 basis points	$	—	$	—	$	—

¹⁾	Excludes the impact of incentive fees based on pre-incentive fee net investment income. See “Note 4. Related Party Transaction” footnote to our consolidated financial statements for the year ended December 31, 2015 for more information on the incentive fee.

Based upon the current three month LIBOR rate, a hypothetical decrease in LIBOR would not affect our net income, due to the aforementioned floors in place on our debt investments. Based upon the current one month LIBOR rates, a hypothetical decrease in LIBOR would not affect interest expense, due to the current rates being lower than 100 basis points. We currently hedge against interest rate fluctuations by using an interest rate swap whereby we pay a fixed rate of 1.1425% and receive three-month LIBOR on a notional amount of $50 million. In the future, we may use other standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.

Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations, or net income.

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Item 8.

Financial Statements and Supplementary Data

Index to Financial Statements


Report of Independent Registered Public Accounting Firm			113

Consolidated Statements of Assets & Liabilities as of December 31, 2015 and 2014			114

Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013			115

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2015, 2014 and 2013			116

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013			117

Consolidated Schedule of Investments as of December 31, 2015 and December 31, 2014			118

Notes to Consolidated Financial Statements			132

112

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Stockholders of THL Credit, Inc.:

In our opinion, the accompanying consolidated statements of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statements of operations, of changes in net assets, and of cash flows present fairly, in all material respects, the financial position of THL Credit, Inc. and its subsidiaries (together the “Company”) at December 31, 2015 and 2014, and the results of their operations, their changes in net assets, and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits, which included confirmation of securities at December 31, 2015 by correspondence with the custodian, transfer agent and brokers, and the application of alternative auditing procedures where replies had not been received, provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 10, 2016

113

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Assets and Liabilities

(in thousands, except per share data)


	December 31, 2015			December 31, 2014
Assets:
Investments at fair value:
Non-controlled, non-affiliated investments (cost of $682,065 and $726,811, respectively)	$	672,333		$	732,862
Controlled investments (cost of $84,773 and $52,208, respectively)		81,823			51,349
Non-controlled, affiliated investments (cost of $7 and $9, respectively)		7			9

Total investments at fair value (cost of $766,845 and $779,028, respectively)	$	754,163		$	784,220
Cash		3,850			2,656
Deferred financing costs		8,317			7,021
Interest, dividends, and fees receivable		7,060			6,221
Deferred tax assets		1,118			285
Due from affiliate		686			1,216
Other deferred assets		375			600
Receivable for paydown of investments		330			329
Prepaid expenses and other assets		485			399
Receivable for investments sold		—			9,538

Total assets	$	776,384		$	812,485

Liabilities:
Loans payable	$	258,651		$	294,851
Notes payable		85,000			50,000
Payable for investment purchased		—			10,400
Accrued incentive fees		4,243			4,175
Deferred tax liability		3,881			2,565
Base management fees payable		2,944			2,810
Accrued expenses and other payables		1,665			1,856
Accrued interest and fees		485			576
Other deferred liabilities		410			1,418
Interest rate derivative		206			213

Total liabilities		357,485			368,864
Commitments and contingencies (Note 9)
Net Assets:
Preferred stock, par value $.001 per share, 100,000 preferred shares authorized, no preferred shares issued and outstanding		—			—
Common stock, par value $.001 per share, 100,000 common shares authorized, 33,311 and 33,905 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively		33			34
Paid-in capital in excess of par		441,742			448,726
Net unrealized (depreciation) appreciation on investments, net of provision for taxes of $3,791 and $2,565, respectively		(16,473	)		2,627
Net unrealized depreciation on interest rate derivative		(206	)		(213	)
Accumulated undistributed net realized losses		(14,349	)		(13,360	)
Accumulated undistributed net investment income		8,152			5,807

Total net assets		418,899			443,621

Total liabilities and net assets	$	776,384		$	812,485

Net asset value per share	$	12.58		$	13.08

See accompanying notes to these consolidated financial statements.

114

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)


	For the years ended December 31,
	2015			2014			2013
Investment Income:
From non-controlled, non-affiliated investments:
Interest income	$	82,489		$	83,155		$	66,787
Dividend income		408			3,125			4,074
Other income		3,482			1,891			790
From non-controlled, affiliated investments:
Other income		2,228			2,997			2,999
From controlled investments:
Interest income		949			610			—
Dividend income		4,489			—			—
Other income		150			150			—

Total investment income		94,195			91,928			74,650
Expenses:
Interest and fees on borrowings		12,566			9,781			5,623
Base management fees		11,825			11,142			7,521
Incentive fees		11,894			11,184			10,682
Administrator expenses		3,677			3,780			3,608
Other general and administrative expenses		2,604			2,738			1,977
Amortization of deferred financing costs		1,894			1,351			1,470
Professional fees		1,518			2,096			1,288
Directors’ fees		888			626			581

Total expenses		46,866			42,698			32,750
Income tax (benefit) provision, excise and other taxes		(243	)		1,040			511

Net investment income		47,572			48,190			41,389
Realized Gain and Change in Unrealized Appreciation on Investments:
Net realized gain (loss) on investments:
Non-controlled, non-affiliated investments		170			(12,855	)		2,604
Controlled investments		20			—			—

Net realized gain (loss) on investments		190			(12,855	)		2,604

Net change in unrealized (depreciation) appreciation on investments:
Non-controlled, non-affiliated investments		(15,784	)		3,102			309
Controlled investments		(2,091	)		(859	)		—

Net change in unrealized (depreciation) appreciation on investments		(17,875	)		2,243			309

Net realized and unrealized gain (loss) from investments		(17,685	)		(10,612	)		2,913
Provision for taxes on realized gain on investments		(8	)		(249	)		—
Provision for taxes on unrealized gain on investments		(1,226	)		(151	)		(1,960	)
Interest rate derivative periodic interest payments, net		(443	)		(458	)		(433	)
Net change in unrealized appreciation (depreciation) on interest rate derivative		7			71			769

Net increase in net assets resulting from operations	$	28,217		$	36,791		$	42,678

Net investment income per common share:
Basic and diluted	$	1.41		$	1.42		$	1.37
Net increase in net assets resulting from operations per common share:
Basic and diluted	$	0.84		$	1.08		$	1.41
Dividends declared and paid
Weighted average shares of common stock outstanding:
Basic and diluted		33,637			33,905			30,287

See accompanying notes to these consolidated financial statements.

115

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets

(in thousands, except per share data)


	For the years ended December 31,
	2015			2014			2013
Increase in net assets from operations:
Net investment income	$	47,572		$	48,190		$	41,389
Interest rate derivative periodic interest payments, net		(443	)		(458	)		(433	)
Net realized gain (loss) on investments		190			(12,855	)		2,604
Income tax provision, realized gain		(8	)		(249	)		—
Net change in unrealized (depreciation) appreciation on investments		(17,875	)		2,243			309
Provision for taxes on unrealized gain (loss) on investments		(1,226	)		(151	)		(1,960	)
Net change in unrealized appreciation (depreciation) on interest rate derivative		7			71			769

Net increase in net assets resulting from operations		28,217			36,791			42,678
Distributions to stockholders:
Distributions to stockholders from net investment income		(45,649	)		(44,191	)		(42,999	)
Distributions to stockholders from net realized gain		—			(1,921	)		(400	)

Total distributions to stockholders		(45,649	)		(46,112	)		(43,399	)
Capital share transactions:
Repurchase of common stock		(7,290	)		—			—
Issuance of common stock		—			—			110,966
Less offering costs		—			—			(4,787	)

Net (decrease) increase in net assets from capital share transactions		(7,290	)		—			106,179

Total (decrease) increase in net assets		(24,722	)		(9,321	)		105,458
Net assets at beginning of year		443,621			452,942			347,484

Net assets at end of year	$	418,899		$	443,621		$	452,942

Common shares outstanding at end of year		33,311			33,905			33,905

Capital share activity:
Shares sold		—			—			7,590
Shares repurchased		(594	)		—			—

Net (decrease) increase in capital activity		(594	)		—			7,590

See accompanying notes to these consolidated financial statements

116

THL Credit, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)


	For the year ended December 31,
	2015			2014			2013
Cash flows from operating activities
Net increase in net assets resulting from operations	$	28,217		$	36,791			42,678
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Net change in unrealized (depreciation) appreciation on investments		17,875			(2,243	)		(309	)
Net change in unrealized (appreciation) depreciation on interest rate derivative		(7	)		(71	)		(769	)
Net realized loss on investments		26			12,874			—
Increase in investments due to PIK		(4,543	)		(2,309	)		(3,250	)
Amortization of deferred financing costs		1,894			1,351			1,470
Accretion of discounts on investments and other fees		(3,279	)		(4,795	)		(4,397	)
Changes in operating assets and liabilities:
Purchases of investments, net of payable for investment purchased		(184,137	)		(352,970	)		(411,135	)
Proceeds from sale and paydown of investments		203,250			210,500			168,824
(Increase) decrease in interest, dividends and fees receivable		(839	)		1,004			(4,631	)
Decrease (increase) in escrow receivable		—			1,800			(1,800	)
Decrease (increase) in other deferred assets		225			225			(825	)
Decrease (increase) in due from affiliate		530			(191	)		(605	)
Decrease (increase) in prepaid expenses and other assets		(86	)		42			(307	)
Increase in deferred tax asset		(833	)		(285	)		—
(Decrease) increase in accrued expenses		(261	)		168			878
(Decrease) increase in accrued interest and fees		(91	)		9			452
(Decrease) increase in income taxes payable		—			(71	)		71
Increase in deferred tax liability		1,316			151			1,960
Increase in base management fees payable		134			567			729
Increase (decrease) in accrued administrator expenses		—			(158	)		(146	)
(Decrease) increase in other deferred liabilities		(1,008	)		1,418			—
Increase in accrued incentive fees payable		68			754			142
Increase (decrease) in due to affiliate		—			(474	)		474

Net cash provided by (used in) operating activities		58,451			(95,913	)		(210,496	)
Cash flows from financing activities
Repurchase of common stock		(7,290	)		—			—
Proceeds from loans payable		166,250			334,800			453,700
Repayments of loans payable		(202,450	)		(244,249	)		(299,400	)
Issuance of notes		35,000			50,000			—
Issuance of shares of common stock		—			—			110,966
Distributions paid to stockholders		(45,649	)		(46,112	)		(44,715	)
Financing and offering costs paid		(3,118	)		(3,699	)		(7,045	)

Net cash (used in) provided by financing activities		(57,257	)		90,740			213,506

Net increase (decrease) in cash		1,194			(5,173	)		3,010
Cash, beginning of year		2,656			7,829			4,819

Cash, end of year	$	3,850		$	2,656		$	7,829

Supplemental Disclosure of Cash Flow Information:
Cash interest paid	$	11,906		$	7,937		$	3,770
Income taxes paid	$	66		$	1,076		$	646
PIK income earned	$	4,579		$	2,316		$	3,179

Non-cash Operating Activities:

For the year ended December 31, 2014, the Company converted the cost basis of a subordinated note, certain interest due and warrants of C&K Markets, Inc. totaling $14,272 to common and preferred equity. In connection with the extinguishment and conversion to equity, the Company recognized a realized loss of $1,000.

For the year ended December 31, 2014, the Company converted the cost basis of a subordinated note of Wingspan Portfolio Holdings, Inc. as part of a restructuring of the business totaling $18,447 to the common equity of an affiliate, Dimont & Associates, Inc. In connection with the extinguishment and conversion to equity, the Company recognized a realized loss of $11,878.

See accompanying notes to these consolidated financial statements.

117

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2015

(dollar amounts in thousands)

Type of Investment/
Portfolio company⁽¹⁾⁽²⁾

Industry

Interest Rate⁽³⁾

Initial
Acquisition
Date

Maturity/
Dissolution
Date

Principal⁽⁴⁾
No. of Shares /
No. of Units

Amortized
Cost

Fair Value

Non-controlled/non-affiliated investments —160.50% of net asset value

First lien secured debt

20-20 Technologies
Inc.⁽⁵⁾

IT services

9.8%⁽⁶⁾

9/12/2012

3/29/2019

29,437

29,183

29,436

Aerogroup International Inc.

Consumer
products

9.5% (LIBOR +
8.5%)

6/9/2014

12/9/2019

13,580

13,377

12,629

Airborne Tactical Advantage Company, LLC

Aerospace &
defense

11.0%

9/7/2011

3/7/2016

2,583

2,577

2,583

Airborne Tactical Advantage Company, LLC

Aerospace &
defense

11.0%

6/24/2014

3/7/2016

1,679

1,675

1,696

Allied Wireline Services, LLC

Energy /
Utilities

11.0% (LIBOR
+ 9.5%) (5.5%
Cash + 5.5%
PIK)⁽¹⁰⁾

2/28/2014

2/28/2019

9,664

9,363

8,408

American Achievement Corporation

Consumer
products

8.3% (LIBOR +
7.3%)

10/30/2015

9/30/2020

10,000

9,855

BeneSys Inc.

Business
services

10.8% (LIBOR
+ 9.8%)

3/31/2014

3/31/2019

10,196

10,079

10,145

BeneSys Inc.⁽⁷⁾

Business
services

10.8% (LIBOR
+ 9.8%)

8/1/2014

3/31/2019

218

210

217

Charming Charlie, LLC.

Retail &
grocery

9.0% (LIBOR +
8.0%)

12/18/2013

12/24/2019

21,870

21,339

20,339

Constructive Media, LLC

Consumer
products

10.5%
(LIBOR+10.0%)

11/23/2015

11/23/2020

15,500

15,196

Copperweld Bimetallics LLC

Industrials

16.0% (12.0%
Cash + 4.0%
PIK)⁽¹⁰⁾

12/11/2013

12/11/2018

19,525

19,026

18,354

CRS Reprocessing, LLC

Manufacturing

10.5% (LIBOR
+ 9.5%)

6/16/2011

6/16/2016

14,935

14,487

Dodge Data & Analytics LLC

IT services

9.8% (LIBOR +
8.8%)

11/20/2014

10/31/2019

11,496

11,315

11,324

Duff & Phelps Corporation⁽⁹⁾

Financial
services

4.8% (LIBOR +
3.8%)

5/15/2013

4/23/2020

244

246

239

Food Processing Holdings, LLC

Food &
beverage

10.5% (LIBOR
+ 9.5%)

10/31/2013

10/31/2018

22,063

21,794

22,173

Hart InterCivic, Inc.

IT services

13.0% (LIBOR
+ 10.5% Cash +
1.5% PIK)⁽¹⁰⁾

7/1/2011

7/1/2016

8,661

8,640

8,661

Hart InterCivic, Inc.⁽⁷⁾

IT services

11.5% (LIBOR
+ 10.0% Cash)

7/1/2011

7/1/2016

6,000

5,984

6,000

HEALTHCAREfirst, Inc.

Healthcare

13.5%⁽⁶⁾

8/31/2012

8/30/2017

9,016

8,903

8,588

Holland Intermediate Acquisition Corp.

Energy /
Utilities

10.0% (LIBOR
+ 9.0%)

5/29/2013

5/29/2018

22,050

21,797

20,286

Holland Intermediate Acquisition Corp.⁽⁷⁾

Energy /
Utilities

10.0% (LIBOR
+ 9.0%)

5/29/2013

5/29/2018

—

Igloo Products Corp.

Consumer
products

11.3% (LIBOR
+ 9.8%)

3/28/2014

3/28/2020

24,636

24,201

24,144

118

(Continued on next page)

See accompanying notes to these consolidated financial statements

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2015

(dollar amounts in thousands)

Type of Investment/
Portfolio company⁽¹⁾⁽²⁾

Industry

Interest
Rate⁽³⁾

Initial
Acquisition
Date

Maturity/
Dissolution
Date

Principal⁽⁴⁾
No. of Shares /
No. of Units

Amortized
Cost

Fair Value

Key Brand Entertainment, Inc.

Media,
entertainment
and leisure

8.8% (LIBOR
+ 7.5%)

8/8/2013

8/8/2018

12,025

11,889

12,085

Key Brand Entertainment, Inc.

Media,
entertainment
and leisure

12.5% (LIBOR
+ 11.3%)

5/29/2014

8/8/2018

2,874

2,836

2,931

Key Brand Entertainment, Inc.⁽⁷⁾⁽⁸⁾

Media,
entertainment
and leisure

8.8% (LIBOR
+ 7.5%)

8/8/2013

8/8/2018

—

(16

)

—

Key Brand Entertainment, Inc.⁽⁸⁾

Media,
entertainment
and leisure

12.5% (LIBOR
+ 11.3%)

5/29/2014

8/8/2018

—

(39

)

—

LAI International, Inc.

Manufacturing

10.6%⁽⁶⁾

10/22/2014

10/22/2019

17,553

17,241

17,202

LAI International, Inc.⁽⁷⁾

Manufacturing

9.0%⁽⁶⁾

10/22/2014

10/22/2019

4,546

4,455

Loadmaster Derrick & Equipment, Inc.

Energy /
Utilities

11.3% (LIBOR
+ 10.3%)

9/28/2012

9/28/2017

7,997

7,913

7,037

Loadmaster Derrick & Equipment, Inc.⁽⁷⁾

Energy /
Utilities

11.3% (LIBOR
+ 10.3%)

9/28/2012

9/28/2017

3,623

3,188

Loadmaster Derrick & Equipment, Inc.⁽⁷⁾

Energy /
Utilities

11.3% (LIBOR
+ 10.3%)

7/16/2014

9/28/2017

3,170

3,135

2,790

OEM Group, Inc.

Manufacturing

15.0% (7.5%
Cash + 7.5%
PIK)⁽¹⁰⁾

10/7/2010

2/15/2016

29,638

24,600

OEM Group, Inc.

Manufacturing

15.0% (7.5%
Cash + 7.5%
PIK)⁽¹⁰⁾

6/6/2014

2/15/2016

3,158

2,621

Virtus Pharmaceuticals, LLC

Healthcare

10.7%⁽⁶⁾

7/17/2014

7/17/2019

19,615

19,263

19,615

Wheels Up Partners, LLC

Transportation

9.6% (LIBOR
+ 8.6%)

1/31/2014

10/15/2021

8,929

8,833

9,018

Wheels Up Partners, LLC

Transportation

9.6% (LIBOR
+ 8.6%)

8/27/2014

7/15/2022

9,633

9,730

Subtotal first lien secured debt

376,114

371,348

360,032

Second lien debt

Alex Toys, LLC

Consumer
products

11.0% (LIBOR
+ 10.0%)

6/30/2014

12/30/2019

30,201

29,714

28,993

Allen Edmonds Corporation

Consumer
products

10.0% (LIBOR
+ 9.0%)

11/26/2013

5/27/2019

7,333

7,233

7,260

American Covers, Inc.

Consumer
products

9.5% (LIBOR
+ 8.5%)

9/1/2015

2/25/2021

10,000

9,859

Connecture, Inc.

Healthcare

12.0% (LIBOR
+ 11.0%)

3/18/2013

7/15/2018

21,831

21,668

22,049

Granicus, Inc

IT services

10.5% (LIBOR
+ 9.5%)

12/18/2015

12/18/2020

17,000

16,663

Hostway Corporation

IT services

10.0% (LIBOR
+ 8.8%)

12/27/2013

12/13/2020

17,500

17,273

16,625

Merchants Capital Access, LLC

Financial
services

11.5% (LIBOR
+ 10.5%)

4/20/2015

4/20/2021

12,500

12,278

12,250

Oasis Legal Finance Holding Company LLC

Financial
services

10.5%

9/30/2013

9/30/2018

12,549

12,400

12,675

(Continued on next page)

See accompanying notes to these consolidated financial statements

119

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2015

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾	Initial Acquisition Date	Maturity/ Dissolution Date	Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Specialty Brands Holdings, LLC	Restaurants	11.3% (LIBOR + 9.8%)	7/16/2013	7/16/2018		20,977		20,743		20,558
Synarc-Biocore Holdings, LLC	Healthcare	9.3% (LIBOR + 8.3%)	3/13/2014	3/10/2022		11,000		10,911		10,230
Vision Solutions, Inc.	IT services	9.5% (LIBOR + 8.0%)	3/31/2011	7/23/2017		9,625		9,601		9,144
Washington Inventory Service	Business services	10.3% (LIBOR + 9.0%)	12/27/2012	6/20/2019		11,000		10,910		10,780

			Subtotal second lien debt		$	181,516	$	179,253	$	177,086
Subordinated debt
A10 Capital, LLC⁽⁷⁾	Financial services	12.0%	8/25/2014	2/25/2021	$	8,968	$	8,889	$	8,879
Aerogroup International Inc.	Consumer products	12.0% PIK	8/5/2015	3/9/2020		264		264		185
Dr. Fresh, LLC	Consumer products	14.0% (12.0% Cash + 2.0% PIK)⁽¹⁰⁾	5/15/2012	11/15/2017		15,195		15,078		15,043
Gold, Inc.	Consumer products	11.0%	12/31/2012	6/30/2019		16,788		16,788		16,788
Martex Fiber Southern Corp.	Industrials	15.5% (12.0% Cash + 3.5% PIK)⁽¹⁰⁾	4/30/2012	6/30/2016		9,217		9,137		9,032
Tri Starr Management Services, Inc.⁽²³⁾	Business services	15.8% (2.1% Cash and 13.7% PIK)	3/4/2013	3/4/2019		20,906		20,558		13,589

			Subtotal subordinated debt		$	71,338	$	70,714	$	63,516
Equity investments⁽¹¹⁾
A10 Capital, LLC^(11)(13)(20)	Financial services		8/25/2014			5,109.53	$	17,178	$	17,322
Aerogroup International Inc.⁽²²⁾	Consumer products		6/9/2014			253,616		11		—
Aerogroup International Inc.⁽²⁰⁾	Consumer products		6/9/2014			28,180		1,108		—
AIM Media Texas Operating, LLC^(11)(14)(21)	Media, entertainment and leisure		6/21/2012			0.763636		764		727
Airborne Tactical Advantage Company, LLC⁽²¹⁾	Aerospace & defense		9/7/2011			511,812		113		657
Airborne Tactical Advantage Company, LLC⁽²⁰⁾	Aerospace & defense		9/17/2013			225,000		169		489
Alex Toys, LLC^{(11)(12)(14)(21)}	Consumer products		5/22/2015			153.85		1,000		771
Allied Wireline Services, LLC^(11)(14)(21)	Energy / Utilities		2/28/2014			618,867.92		619		—
Allied Wireline Services, LLC^(11)(14)(21)	Energy / Utilities		2/28/2014			501,159.24		175		—
Constructive Media, LLC	Consumer products		11/23/2015			750,000		750		750

(Continued on next page)

See accompanying notes to these consolidated financial statements

120

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2015

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾	Initial Acquisition Date	Maturity/ Dissolution Date	Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Firebirds International, LLC⁽²¹⁾	Restaurants		5/17/2011			1,906		191		310
Food Processing Holdings, LLC⁽²¹⁾	Food & beverage		4/20/2010			162.44		163		244
Food Processing Holdings, LLC⁽²¹⁾	Food & beverage		4/20/2010			406.09		408		1,006
Hostway Corporation⁽²¹⁾	IT services		12/27/2013			20,000		200		—
Hostway Corporation⁽²⁰⁾	IT services		12/27/2013			1,800		1,800		1,254
Igloo Products Corp.^(11)(21)	Consumer products		4/30/2014			1,902.04		1,716		1,625
OEM Group, Inc.^(21)(22)	Manufacturing		10/7/2010			—		—		—
Surgery Center Holdings, Inc.^(11)(21)	Healthcare		4/20/2013			264,068		—		5,411
Virtus Pharmaceuticals, LLC^(14)(21)	Healthcare		3/31/2015			6,796.47		127		263
Virtus Pharmaceuticals, LLC^(14)(21)	Healthcare		3/31/2015			83.92		94		109
Virtus Pharmaceuticals, LLC^(14)(21)	Healthcare		3/31/2015			589.76		590		626
Wheels Up Partners, LLC^(11)(14)(21)	Transportation		1/31/2014			1,000,000		1,000		2,840
YP Equity Investors, LLC^(11)(14)(21)	Media, entertainment and leisure		5/8/2012			—		—		5,000

				Subtotal equity			$	28,176	$	39,404
CLO residual interests
Dryden CLO, Ltd.^(5)(15)	Structured Products	15.8%	9/12/2013			—		6,845		6,205
Flagship VII, Ltd.^(5)(15)	Structured Products	15.8%	12/18/2013			—		3,517		3,110
Flagship VIII, Ltd.^(5)(15)	Structured Products	13.3%	10/3/2014			—		6,743		5,687

			Subtotal CLO residual interests				$	17,105	$	15,002
Investment in payment rights
Duff & Phelps Corporation⁽⁹⁾⁽¹⁵⁾	Financial services	17.6%	6/1/2012			—	$	11,482	$	13,307

		Subtotal investment in payment rights					$	11,482	$	13,307
Investments in funds⁽¹⁶⁾
Freeport Financial SBIC Fund LP	Financial services		6/14/2013				$	2,957	$	2,987
Gryphon Partners 3.5, L.P.	Financial services		11/20/2012					1,030		999

			Subtotal investments in funds				$	3,987	$	3,986

Total non-controlled/non-affiliated investments—160.50% of net asset value							$	682,065	$	672,333

(Continued on next page)

See accompanying notes to these consolidated financial statements

121

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2015

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾	Initial Acquisition Date	Maturity/ Dissolution Date	Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Controlled investments —19.53% of net asset value
First lien secured debt
Thibaut, Inc⁽¹⁷⁾	Consumer products	14.0%	6/19/2014	6/19/2019	$	6,455	$	6,397	$	6,455

			Subtotal first lien secured debt		$	6,455	$	6,397	$	6,455
Subordinated debt
Dimont & Associates, Inc.^(17)(23)	Financial services	11.0% PIK⁽¹⁰⁾	10/20/2014	4/20/2018	$	4,556	$	4,474	$	265

		Subtotal subordinated debt			$	4,556	$	4,474	$	265
Equity investments
C&K Market, Inc.^(17)(21)	Retail & grocery		11/3/2010			1,992,365	$	2,271	$	14,168
C&K Market, Inc.^(17)(20)	Retail & grocery		11/3/2010			1,992,365		10,956		9,962
Dimont & Associates, Inc.^(17)(21)	Financial services		10/20/2014			50,004		6,569		—
Thibaut, Inc⁽¹¹⁾^{(12)(17)(18)(20)}	Consumer products		6/19/2014			4,747		4,706		5,227
Thibaut, Inc^{(11)(12)(17)(21)}	Consumer products		6/19/2014			20,639		—		964

		Subtotal equity					$	24,502	$	30,321
Investments in funds
THL Credit Logan JV LLC^{(11)(16)(17)(19)(21)}	Financial services		12/3/2014			—	$	49,400	$	44,782

		Subtotal investments in funds					$	49,400	$	44,782

Total controlled investments —19.53% of net asset value							$	84,773	$	81,823

Non-controlled/affiliated investments —0.00% of net asset value
Investments in funds
THL Credit Greenway Fund LLC^(11)(16)(21)	Financial services		1/27/2011				$	3	$	3
THL Credit Greenway Fund II LLC^(11)(16)(21)	Financial services		3/1/2013					4		4

			Subtotal investments in funds				$	7	$	7

Total non-controlled/affiliated investments — 0.00% of net asset value							$	7	$	7

Total investments — 180.03% of net asset value							$	766,845	$	754,163

(Continued on next page)

See accompanying notes to these consolidated financial statements

122

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2015

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾		Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Derivative Instruments
Counterparty	Instrument	Interest Rate		Expiration Date		# of Contracts		Notional		Cost		Fair Value
ING Capital Markets, LLC	Interest Rate Swap – Pay Fixed/ Receive Floating		1.1425%/ LIBOR		05/10/17		1	$	50,000	$	—	$	(206	)

Total derivative instruments—0.05 % of net asset value								$	50,000	$	—	$	(206	)

⁽¹⁾	All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.

⁽²⁾	All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.

⁽³⁾

Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of September 30, 2014. LIBOR loans are typically indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors.

⁽⁴⁾	Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.

⁽⁵⁾	Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.

⁽⁶⁾	Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.

⁽⁷⁾	Issuer pays 0.50% unfunded commitment fee on delayed draw term loan and revolving loan facility.

⁽⁸⁾	The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.

⁽⁹⁾	Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

⁽¹⁰⁾	At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.

⁽¹¹⁾	Member interests of limited liability companies are the equity equivalents of the stock of corporations.

⁽¹²⁾	Equity ownership may be held in shares or units of companies related to the portfolio company.

⁽¹³⁾	Preferred stock investment return is income-producing with a stated rate of 12% cash and 2% PIK due on a monthly basis

⁽¹⁴⁾	Interest held by a wholly owned subsidiary of THL Credit, Inc.

⁽¹⁵⁾	Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of December 31, 2015.

⁽¹⁶⁾	Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.

(Continued on next page)

See accompanying notes to these consolidated financial statements

123

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2015

(dollar amounts in thousands)

⁽¹⁷⁾

As defined in Section 2(a)(9) of the 1940 Act, the Company is deemed to control this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities. See Schedule 12-14 in the accompanying notes to the consolidated financial statements for transactions during the year ended December 31, 2015 in which the issuer was a portfolio company that the Company is deemed to control.

⁽¹⁸⁾	Part of our preferred stock investment return is income-producing with a stated rate of 3% due on a quarterly basis.

⁽¹⁹⁾

On December 3, 2014, the Company entered into an agreement with Perspecta to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which invests primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta. Although the Company owns more than 25% of the voting securities of Logan JV, the Company does not believe that it has control over Logan JV (other than for purposes of the 1940 Act or otherwise). Funding to Logan JV will only be made pursuant to unanimous approval from the Company and Perspecta.

⁽²⁰⁾	Preferred stock

⁽²¹⁾	Common stock, member interest, and warrants

⁽²²⁾	Warrants received at initial acquisition date at no cost to the Company

⁽²³⁾	Loan was on non-accrual as of December 31, 2015.

See accompanying notes to these consolidated financial statements

124

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2014

(dollar amounts in thousands)

Type of Investment/

Portfolio company⁽¹⁾⁽²⁾

Industry

Interest Rate⁽³⁾

Initial
Acquisition
Date

Maturity/
Dissolution
Date

Principal⁽⁴⁾
No. of Shares /
No. of Units

Amortized
Cost

Fair Value

Non-controlled/non-affiliated investments—170.46% of net asset value

First lien secured debt

20-20 Technologies Inc.⁽⁵⁾

IT services

10.8%⁽⁶⁾

9/12/2012

3/31/2019

31,600

31,275

31,600

Airborne Tactical Advantage Company, LLC

Aerospace & defense

11.0%

9/7/2011

3/7/2016

4,000

3,939

3,980

Airborne Tactical Advantage Company, LLC

Aerospace & defense

11.0%

6/24/2014

3/7/2016

2,600

2,563

2,587

Allied Wireline Services, LLC

Energy /Utilities

9.5% (LIBOR

+ 8.0%)

2/28/2014

2/28/2019

9,928

9,524

9,630

BeneSys Inc.

Business services

10.8% (LIBOR

+ 9.8%)

3/31/2014

3/31/2019

8,611

8,457

8,525

BeneSys Inc.⁽⁷⁾⁽⁸⁾

Business services

10.8% (LIBOR
+ 9.8%)

8/1/2014

3/31/2019

—

(10

)

—

Charming Charlie, LLC.

Retail & grocery

9.0% (LIBOR
+ 8.0%)

12/18/2013

12/31/2019

26,798

26,446

26,459

Copperweld Bimetallics LLC

Industrials

12.0%

12/11/2013

12/11/2018

20,625

19,934

20,212

CRS Reprocessing, LLC

Manufacturing

10.5% (LIBOR
+ 9.5%)

6/16/2011

6/16/2015

15,461

15,447

14,687

Dodge Data & Analytics LLC

IT services

9.8% (LIBOR
+ 8.8%)

11/20/2014

10/31/2019

13,000

12,745

Duff & Phelps Corporation⁽⁹⁾

Financial services

4.5% (LIBOR
+ 3.5%)

5/15/2013

4/23/2020

246

249

244

Embarcadero Technologies, Inc.

IT services

10.7%⁽⁶⁾

2/15/2013

12/28/2017

9,300

9,208

9,300

Food Processing Holdings, LLC

Food & beverage

10.5% (LIBOR
+9.5%)

10/31/2013

10/31/2018

22,202

21,842

22,202

Harrison Gypsum, LLC

Industrials

10.0% (LIBOR
+ 8.5% and
0.5% PIK)⁽¹⁰⁾

12/21/2012

12/21/2017

25,963

25,699

25,444

Hart InterCivic, Inc.

IT services

12.3% (LIBOR
+ 9.8% Cash +
1.0% PIK)

7/1/2011

7/1/2016

8,556

8,496

8,342

Hart InterCivic, Inc.⁽⁷⁾

IT services

11.3% (LIBOR
+ 9.8% Cash)

7/1/2011

7/1/2016

3,000

2,982

3,000

HEALTHCAREfirst, Inc.

Healthcare

13.6%⁽⁶⁾

8/31/2012

8/30/2017

8,558

8,403

8,173

Holland Intermediate Acquisition Corp.

Energy / Utilities

10.0% (LIBOR
+ 9.0%)

5/29/2013

5/29/2018

24,227

23,841

23,500

Holland Intermediate Acquisition Corp.⁽⁷⁾

Energy / Utilities

10.0% (LIBOR
+ 9.0%)

5/29/2013

5/29/2018

—

Igloo Products Corp.

Consumer products

11.3% (LIBOR
+ 9.8%)

3/28/2014

3/28/2020

38,286

37,479

37,425

Ingenio Acquisition, LLC

Media, entertainment and leisure

11.3% (10.3%
Cash + 1.0%
PIK)

5/9/2013

3/14/2019

9,108

8,971

9,108

Key Brand Entertainment, Inc.

Media, entertainment and leisure

9.8% (LIBOR
+ 8.5%)

8/8/2013

8/8/2018

12,849

12,651

12,849

(Continued on next page)

See accompanying notes to these consolidated financial statements

125

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2014

(dollar amounts in thousands)

Type of Investment/

Portfolio company⁽¹⁾⁽²⁾

Industry

Interest Rate⁽³⁾

Initial
Acquisition
Date

Maturity/
Dissolution
Date

Principal⁽⁴⁾
No. of Shares /
No. of Units

Amortized
Cost

Fair Value

Key Brand Entertainment, Inc.

Media, entertainment and leisure

12.5% (LIBOR
+ 11.3%)

5/29/2014

8/8/2018

2,874

2,823

2,874

Key Brand Entertainment, Inc.⁽⁷⁾⁽⁸⁾

Media, entertainment and leisure

9.8% (LIBOR
+ 8.5%)

8/8/2013

8/8/2018

—

(21

)

—

Key Brand Entertainment, Inc.⁽⁸⁾

Media, entertainment and leisure

12.5% (LIBOR
+ 11.3%)

5/29/2014

8/8/2018

—

(54

)

—

LAI International, Inc.

Manufacturing

10.1%⁽⁶⁾

10/22/2014

10/22/2019

19,308

18,899

LAI International, Inc.

Manufacturing

10.1%⁽⁶⁾

10/22/2014

10/22/2019

—

Loadmaster Derrick & Equipment, Inc.

Energy / Utilities

9.3% (LIBOR
+ 8.3%)

9/28/2012

9/28/2017

8,828

8,686

7,990

Loadmaster Derrick & Equipment, Inc.⁽⁷⁾

Energy / Utilities

9.3% (LIBOR
+ 8.3%)

9/28/2012

9/28/2017

4,000

3,620

Loadmaster Derrick & Equipment, Inc.⁽⁷⁾

Energy / Utilities

9.3% (LIBOR
+ 8.3%)

7/16/2014

9/28/2017

3,500

3,439

3,168

OEM Group, Inc.

Manufacturing

15.0% (12.5%
Cash + 2.5%
PIK)⁽¹⁰⁾

10/7/2010

10/7/2015

26,597

26,376

24,735

OEM Group, Inc.

Manufacturing

15.0% (12.5%
Cash + 2.5%
PIK)⁽¹⁰⁾

6/6/2014

10/7/2015

3,044

3,036

2,892

Virtus Pharmaceuticals, LLC

Healthcare

10.7%⁽⁶⁾

7/17/2014

7/17/2019

20,124

19,667

19,822

Wheels Up Partners, LLC

Transportation

9.6% (LIBOR
+ 8.6%)

1/31/2014

10/15/2022

9,629

9,510

9,533

Wheels Up Partners, LLC

Transportation

9.6% (LIBOR
+ 8.6%)

8/27/2014

7/15/2023

3,763

3,726

Subtotal first lien secured debt

396,753

390,265

387,271

Second lien debt

Aerogroup International Inc.

Consumer products

9.0% (LIBOR
+ 8.0%)

6/9/2014

12/9/2019

13,648

13,397

13,102

Aerogroup International Inc.⁽⁷⁾⁽⁸⁾

Consumer products

9.0% (LIBOR
+ 8.0%)

6/9/2014

12/9/2019

—

(45

)

—

Alex Toys, LLC

Consumer products

11.0% (LIBOR
+ 10.0%)

6/30/2014

12/30/2019

17,000

16,683

Allen Edmonds Corporation

Consumer products

10.0% (LIBOR
+ 9.0%)

11/26/2013

5/27/2019

7,333

7,210

7,223

BBB Industries US Holding, Inc.

Manufacturing

9.75% (LIBOR
+ 8.75%)

10/7/2014

11/18/2022

7,500

7,059

7,144

Connecture, Inc.

Healthcare

12.0% (LIBOR
+ 11.0%)

3/18/2013

7/15/2018

21,831

21,609

22,049

Expert Global Solutions, Inc.

Business services

12.5% (LIBOR
+ 10.3% and
0.8% PIK)⁽¹⁰⁾

6/21/2013

10/3/2018

12,703

12,849

12,576

Expert Global Solutions, Inc.

Business services

13.0% PIK

6/21/2013

10/3/2018

144

—

143

Hostway Corporation

IT services

10.0% (LIBOR
+ 8.8%)

12/27/2013

12/13/2020

12,000

11,785

11,880

Oasis Legal Finance Holding Company LLC

Financial services

10.5%

9/30/2013

9/30/2018

13,246

13,035

13,312

(Continued on next page)

See accompanying notes to these consolidated financial statements

126

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2014

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾	Initial Acquisition Date	Maturity/ Dissolution Date	Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Sheplers, Inc.	Retail & grocery	13.2% (LIBOR + 11.7%)	12/20/2011	12/20/2016		11,426		11,292		11,426
Specialty Brands Holdings, LLC	Restaurants	11.3% (LIBOR + 9.8%)	7/16/2013	7/16/2018		20,977		20,656		20,453
Synarc-Biocore Holdings, LLC	Healthcare	9.3% (LIBOR + 8.3%)	3/13/2014	3/13/2022		11,000		10,898		10,010
Vision Solutions, Inc.	IT services	9.5% (LIBOR + 8.0%)	3/31/2011	7/23/2017		11,625		11,577		11,509
Washington Inventory Service	Business services	10.3% (LIBOR + 9.0%)	12/27/2012	6/20/2019		11,000		10,886		11,000

			Subtotal second lien secured debt		$	171,433	$	168,891	$	168,510

Subordinated debt
A10 Capital, LLC⁽⁷⁾	Financial services	12.0%	8/25/2014	2/25/2021	$	5,444	$	5,391	$	5,431
Country Pure Foods, LLC	Food & beverage	13.0%	8/13/2010	2/13/2017		16,181		16,181		16,181
Dr. Fresh, LLC	Consumer products	12.0% and 2.0% PIK⁽¹⁰⁾	5/15/2012	11/15/2017		14,743		14,565		14,448
Gold, Inc.	Consumer products	12.0%	12/31/2012	6/30/2019		16,788		16,788		16,620
Martex Fiber Southern Corp.	Industrials	12.0% and 1.5% PIK⁽¹⁰⁾	4/30/2012	10/31/2019		9,026		8,928		8,394
Sheplers, Inc.	Retail & grocery	17.0% (10.0% Cash + 7.0% PIK)⁽¹¹⁾	12/20/11	12/20/2017		2,040		2,020		2,040
The Studer Group, L.L.C.	Healthcare	12.0%	9/29/2011	1/31/2019		16,910		16,910		16,910
Tri Starr Management Services, Inc.	IT services	15.8% (12.5% Cash + 3.3% PIK)⁽¹⁰⁾	3/4/2013	3/4/2019		18,918		18,637		16,080

			Subtotal subordinated debt		$	100,050	$	99,420	$	96,104

Equity investments⁽¹³⁾
A10 Capital, LLC^(12)(14)(23)	Financial services		8/25/2014			2,967	$	9,837	$	9,837
Aerogroup International Inc.⁽²⁴⁾	Consumer products		6/9/2014			253,616		11		—
Aerogroup International Inc.⁽²⁵⁾	Consumer products		6/9/2014			28,180		1,108		467
AIM Media Texas Operating, LLC^(12)(15)(24)	Media, entertainment and leisure		6/21/2012			0.763636		764		857
Airborne Tactical Advantage Company, LLC⁽²⁴⁾	Aerospace & defense		9/7/2011			511,812		113		9
Airborne Tactical Advantage Company, LLC⁽²³⁾	Aerospace & defense		9/17/2013			225,000		169		204
Allied Wireline Services, LLC^(12)(15)(24)	Energy / Utilities		2/28/2014			619		619		779
Allied Wireline Services, LLC^(12)(15)(24)	Energy / Utilities		2/28/2014			501		175		302

(Continued on next page)

See accompanying notes to these consolidated financial statements

127

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2014

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾	Initial Acquisition Date	Maturity/ Dissolution Date	Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Firebirds International, LLC⁽²⁴⁾	Restaurants		5/17/2011			1,906		191		300
Food Processing Holdings, LLC⁽²⁴⁾	Food & beverage		4/20/2010			162.44		163		226
Food Processing Holdings, LLC⁽²⁴⁾	Food & beverage		4/20/2010			406.09		408		642
Hostway Corporation⁽²⁴⁾	IT services		12/27/2013			20,000		200		—
Hostway Corporation⁽²⁴⁾	IT services		12/27/2013			1,800		1,800		2,111
Igloo Products Corp.^(12) (24)	Consumer products		4/30/2014			2,406		2,407		2,241
OEM Group, Inc.^(24)(25)	Manufacturing		10/7/2010			—		—		—
Surgery Center Holdings, Inc.^(12)(24)	Healthcare		4/20/2013			469,673		—		6,200
Wheels Up Partners, LLC^(12)(15)(24)	Transportation		1/31/2014			1,000		1,000		1,000
YP Equity Investors, LLC^(12)(15)(24)	Media, entertainment and leisure		5/8/2012			—		—		4,000

			Subtotal equity				$	18,965	$	29,175

CLO residual interests
Adirondack Park CLO Ltd.^(5)(16)	Structured Products	12.8%	3/27/2013			—	$	8,172	$	8,216
Dryden CLO, Ltd.^(5)(16)	Structured Products	13.8%	9/12/2013			—		8,040		8,244
Flagship VII, Ltd.^(5)(16)	Structured Products	13.8%	12/18/2013			—		4,105		4,305
Flagship VIII, Ltd.^(5)(16)	Structured Products	12.8%	10/3/2014			—		8,450		8,450
Sheridan Square CLO, Ltd^(5)(16)	Structured Products	14.5%	3/12/2013			—		5,446		5,720

			Subtotal CLO residual interests				$	34,213	$	34,935

Investment in payment rights
Duff & Phelps Corporation^(9)(16)	Financial services	16.8%	6/1/2012			—	$	11,877	$	13,488

			Subtotal investment in payment rights				$	11,877	$	13,488

Investments in funds⁽¹⁷⁾
Freeport Financial SBIC Fund LP	Financial services		6/14/2013		$	2,314	$	2,314	$	2,316
Gryphon Partners 3.5, L.P.	Financial services		11/20/2012			1,251		866		1,063

			Subtotal investments in funds		$	3,565	$	3,180	$	3,379

Total non-controlled/non-affiliated investments —170.46% of net asset value					$	671,801	$	726,811	$	732,862

(Continued on next page)

See accompanying notes to these consolidated financial statements

128

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2014

(dollar amounts in thousands)


Type of Investment/ Portfolio company⁽¹⁾⁽²⁾	Industry	Interest Rate⁽³⁾	Initial Acquisition Date		Maturity/ Dissolution Date		Principal⁽⁴⁾ No. of Shares / No. of Units		Amortized Cost		Fair Value
Controlled investments —6.32% of net asset value
First lien secured debt
Thibaut, Inc⁽¹⁸⁾	Consumer products	12.0%		6/19/2014			$	6,520	$	6,445	$	6,520

Subtotal first lien secured debt							$	6,520	$	6,445	$	6,520
Subordinated debt
Dimont & Associates, Inc.^(18)(20)	Financial services	11.0% PIK		10/20/2014		4/20/2018	$	4,556	$	4,473	$	4,556

Subtotal subordinated debt							$	4,556	$	4,473	$	4,556
Equity investments
C&K Market, Inc.^(18)(19)(24)	Retail & grocery			11/3/2010				1,967,367	$	2,271	$	6,036
C&K Market, Inc.^(18)(19)(23)	Retail & grocery			11/3/2010				1,967,367		10,956		9,837
Dimont & Associates, Inc.^(18)(20)(24)	Financial services			10/20/2014				50,004		6,569		2,000
Thibaut, Inc^{(12)(13)(18)(21)(23)}	Consumer products			6/19/2014				4,747		4,694		4,874
Thibaut, Inc^{(12)(13)(18)(24)}	Consumer products			6/19/2014				20,639		—		785

Subtotal equity									$	24,490	$	23,532
Investments in Logan JV
THL Credit Logan JV LLC^{(12)(18)(22)(24)}	Financial services			12/3/2014				—		16,800		16,741

Subtotal investments in funds									$	16,800	$	16,741

Total controlled investments — 6.32% of net asset value							$	11,076	$	52,208	$	51,349

Non-controlled/affiliated investments—0.00% of net asset value
Investments in funds
THL Credit Greenway Fund LLC^{(12) (17) (24)}	Financial services			1/27/2011						5		5
THL Credit Greenway Fund II LLC^{(12) (17) (24)}	Financial services			3/1/2013						4		4

Subtotal investments in funds									$	9	$	9

Total non-controlled/affiliated investments—0.00% of net asset value									$	9	$	9

Total investments—176.78% of net asset value							$	682,877	$	779,028	$	784,220

(Continued on next page)

See accompanying notes to these consolidated financial statements

129

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2014

(dollar amounts in thousands)


Derivative Instruments
Counterparty	Instrument	Interest Rate		Expiration Date		# of Contracts		Notional		Cost		Fair Value
ING Capital Markets, LLC	Interest Rate Swap – Pay Fixed/Receive Floating		1.1425%/ LIBOR		05/10/17		1	$	50,000	$	—	$	(213	)

Total derivative instruments—0.03% of net asset value								$	50,000	$	—	$	(213	)

⁽¹⁾	All debt investments are income-producing, unless otherwise noted. Equity and member interests are non-income-producing unless otherwise noted.

⁽²⁾	All investments are pledged as collateral under the Revolving Facility and Term Loan Facility.

⁽³⁾

Variable interest rate investments bear interest in reference to LIBOR or ABR, which are effective as of December 31, 2014. LIBOR loans are typically indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors.

⁽⁴⁾	Principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.

⁽⁵⁾	Foreign company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.

⁽⁶⁾	Unitranche investment; interest rate reflected represents the implied interest rate earned on the investment for the most recent quarter.

⁽⁷⁾	Issuer pays 0.50% unfunded commitment fee on delayed draw term loan and revolving loan facility.

⁽⁸⁾	The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.

⁽⁹⁾	Publicly-traded company with a market capitalization in excess of $250 million at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940.

⁽¹⁰⁾	At the option of the issuer, interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum PIK that can be elected by the company.

⁽¹¹⁾	Issuer has the option to increase its aggregate interest rate to 18.5% all PIK for a period of time under certain conditions in the credit agreement.

⁽¹²⁾	Member interests of limited liability companies are the equity equivalents of the stock of corporations.

⁽¹³⁾	Equity ownership may be held in shares or units of companies related to the portfolio company.

⁽¹⁴⁾	Preferred stock investment return is income-producing with a stated rate of 12% cash and 2% PIK due on a monthly basis

⁽¹⁵⁾	Interest held by a wholly owned subsidiary of THL Credit, Inc.

⁽¹⁶⁾	Income-producing security with no stated coupon; interest rate reflects an estimation of the effective yield to expected maturity as of December 31, 2014.

⁽¹⁷⁾	Non-registered investment company at the time of investment and, as a result, is not a qualifying asset under Section 55(a) of the 1940 Act.

See accompanying notes to these consolidated financial statements

130

THL Credit, Inc. and Subsidiaries

Consolidated Schedule of Investments—(Continued)

December 31, 2014

(dollar amounts in thousands)

⁽¹⁸⁾

As defined in Section 2(a)(9) of the 1940 Act, the Company is deemed to control this portfolio company because it owns more than 25% of the portfolio company’s outstanding voting securities. See Schedule 12-14 in the accompanying notes to the consolidated financial statements for transactions during the year ended December 31, 2014 in which the issuer was a portfolio company that the Company is deemed to control.

⁽¹⁹⁾

C&K Market, Inc., or C&K, filed for bankruptcy in November 2013. On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14,272 were converted to common and preferred equity. In connection with the extinguishment and conversion to equity, the Company recognized a loss in the amount of $1,000. See Note 5, Realized Gains and Losses on Investments for additional detail.

⁽²⁰⁾

On October 20, 2014, THL Credit restructured its investment in Wingspan Portfolio Holdings, Inc., or Wingspan. As part of the restructuring, THL Credit exchanged the cost basis of its subordinated term loan totaling $18,447 for a controlled equity position of an affiliated entity, Dimont Acquisition Inc., or Dimont. In connection with the restructuring and conversion to equity, the Company recognized a loss in the amount of $11,878 and invested $4,557 in the subordinated term loan of Dimont. See Note 5, Realized Gains and Losses on Investments for additional detail.

⁽²¹⁾	Part of our preferred stock investment return is income-producing with a stated rate of 3% due on a quarterly basis.

⁽²²⁾

On December 3, 2014, the Company entered into an agreement with Perspecta to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which will invest primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta. Although the Company owns more than 25% of the voting securities of Logan JV, the Company does not believe that it has control over Logan JV for purposes of the 1940 Act or otherwise.

⁽²³⁾	Preferred stock

⁽²⁴⁾	Common stock, member interest, and warrants

⁽²⁵⁾	Warrants received at initial acquisition date at no cost to the Company

See accompanying notes to these consolidated financial statements

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THL Credit, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

(in thousands, except per share data)

1. Organization

THL Credit, Inc., or the Company, was organized as a Delaware corporation on May 26, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or 1940 Act. The Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, or as amended, the Code. In 2009, the Company was treated for tax purposes as a corporation. The Company’s investment objective is to generate both current income and capital appreciation, primarily through privately negotiated investments in debt and equity securities of lower middle market companies.

On April 20, 2010, in anticipation of completing an initial public offering and formally commencing principal operations, the Company entered into a purchase and sale agreement with THL Credit Opportunities, L.P. and THL Credit Partners BDC Holdings, L.P., or BDC Holdings, an affiliate of the Company, to effectuate the sale by THL Credit Opportunities, L.P. to the Company of certain securities valued at $62,107, as determined by the Company’s board of directors, and on the same day issued 4,140 shares of common stock to BDC Holdings valued at $15.00 per share, pursuant to such agreement, in exchange for the aforementioned securities. Subsequently, the Company filed an election to be regulated as a BDC.

On April 21, 2010, the Company completed its initial public offering, formally commencing principal operations, and sold 9,000 shares of its common stock through a group of underwriters at a price of $13.00 per share, less an underwriting discount and commissions totaling $0.8125 per share. Concurrently, the Company sold 6,308 shares of its common stock to BDC Holdings at $13.00 per share, the sale of which was not subject to an underwriting discount and commission. On April 27, 2010, the Company closed the sale of the aforementioned 15,308 shares and received $190,684 of net proceeds, which includes an underwriting discount and offering expenses.

On May 26, 2010, the underwriters exercised their over-allotment option under the underwriting agreement and elected to purchase an additional 337 shares of common stock at $13.00 per share resulting in additional net proceeds of $3,892, which includes an underwriting discount and offering expenses.

On September 25, 2012, the Company closed a public equity offering selling 6,095 shares of its common stock through a group of underwriters at a price of $14.09 per share, less an underwriting discount and offering expenses, and received $81,657 in net proceeds.

On June 24, 2013, the Company closed a public equity offering selling 7,590 shares of its common stock through a group of underwriters at a price of $14.62 per share, less an underwriting discount and offering expenses, and received $106,179 in net proceeds.

In December 2014, the Company completed a public debt offering selling $50,000 of 6.75% Notes due 2021, or the 2021 Notes, including the exercise of the overallotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $48,500.

In December 2015, the Company completed a public debt offering selling $35,000 of 6.75% Notes due 2022, or the 2022 Notes, including the exercise of the overallotment option, through a group of underwriters, less an underwriting discount, and received net proceeds of $33,950.

The Company has established wholly owned subsidiaries, THL Credit AIM Media Holdings Inc., THL Credit Holdings, Inc. and THL Credit YP Holdings Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability

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companies, or LLCs (or other forms of pass-through entities). Corporate subsidiaries are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.

The Company has a wholly owned subsidiary, THL Corporate Finance, Inc. and THL Corporate Finance, LLC, its wholly owned subsidiary, serves as the administrative agent on certain investment transactions.

2. Significant Accounting Policies and Recent Accounting Updates

Basis of Presentation

The Company is an investment company following the accounting and reporting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933, as amended, and the Securities and Exchange Act of 1934, as amended, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company.

The accompanying consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-K and Regulation S-X. The financial results of our portfolio companies are not consolidated in the financial statements. The accounting records of the Company are maintained in U.S. dollars.

Consolidation

The Company follows the guidance in ASC Topic 946 Financial Services—Investment Companies and will not generally consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. The Company consolidated the results of its wholly owned subsidiaries in its consolidated financial statements. The Company does not consolidate its non-controlling interest in THL Credit Logan JV LLC, or Logan JV. See also the disclosure under the heading, Significant Accounting Policies—THL Credit Logan JV LLC.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ and these differences could be material.

Cash

Cash consists of funds held in demand deposit accounts at several financial institutions and, at certain times, balances may exceed the Federal Deposit Insurance Corporation insured limit and is therefore subject to credit risk. There were no cash equivalents as of December 31, 2015 and December 31, 2014.

Deferred Financing Costs

Deferred financing costs consist of fees and expenses paid in connection with the closing of credit facilities and public debt offering of Notes. These costs are capitalized at the time of payment and are amortized using the straight line and effective yield methods over the term of the credit facilities and Notes, respectively.

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Deferred Offering Costs

Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering becomes effective.

Deferred Revenue

Deferred revenues consist of proceeds received for interest and other fees for which the earnings process is not yet complete. Such amounts will be recognized into income over such time that the income is earned.

Interest Rate Derivative

The Company recognizes derivatives as either interest rate derivative assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes and interest rate payments recorded as net change in unrealized appreciation (depreciation) on interest rate derivative and interest rate derivative periodic interest payments, net, respectively, on the Consolidated Statements of Operations. See also the disclosure in Note 8, Interest Rate Derivative.

Partial Loan Sales

The Company follows the guidance in ASC Topic 860 Transfers and Servicing when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest”, as defined in the guidance as a pro-rata ownership interest in an entire financial asset, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company’s Consolidated Statements of Assets and Liabilities and the proceeds are recorded as a secured borrowing until the definition is met.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are disclosed in Note 7, Borrowings.

Valuation of Investments

Investments, for which market quotations are readily available, are valued using market quotations, which are generally obtained from an independent pricing service or broker-dealers or market makers. Debt and equity securities, for which market quotations are not readily available or are not considered to be the best estimate of fair value, are valued at fair value as determined in good faith by the Company’s board of directors. Because the Company expects that there will not be a readily available market value for many of the investments in the Company’s portfolio, it is expected that many of the Company’s portfolio investments’ values will be determined in good faith by the Company’s board of directors in accordance with a documented valuation policy that has been reviewed and approved by our board of directors in accordance with GAAP. 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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

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With respect to investments for which market quotations are not readily available, 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;

•

preliminary valuation conclusions are then documented and discussed with senior management of THL Credit Advisors LLC, or the Advisor;

•

to the extent determined by the audit committee of the Company’s board of directors, independent valuation firms are used to conduct independent appraisals and review the Advisor’s preliminary valuations in light of their own independent assessment;

•

the audit committee of the Company’s board of directors reviews the preliminary valuations of the Advisor and independent valuation firms and, if necessary, responds and supplements the valuation recommendation of the independent valuation firms to reflect any comments; and

•

the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the audit committee.

The types of factors that the Company may take into account in fair value pricing its investments include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. The Company generally utilizes an income approach to value its debt investments and a combination of income and market approaches to value its equity investments. With respect to unquoted securities, the Advisor and the Company’s board of directors, in consultation with the Company’s independent third party valuation firms, values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors, which valuation is then approved by the board of directors.

Debt Investments

For debt investments, the Company generally determines the fair value primarily using an income, or yield, approach that analyzes the discounted cash flows of interest and principal for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of each portfolio investments. The Company’s estimate of the expected repayment date is generally the legal maturity date of the instrument. The yield analysis considers changes in leverage levels, credit quality, portfolio company performance and other factors. The enterprise value, a market approach, is used to determine the value of equity and debt investments that are credit impaired, close to maturity or where the Company also holds a controlling equity interest. The method for determining enterprise value uses a multiple analysis, whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization, or EBITDA.

Interest Rate Derivative

The Company values its interest rate derivative agreement using an income approach that analyzes the discounted cash flows associated with the interest rate derivative agreement. Significant inputs to the discounted cash flows methodology include the forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of the counterparty’s credit risk.

Collateralized Loan Obligations

The Company values its residual interest investments in collateralized loan obligations using an income approach that analyzes the discounted cash flows of its residual interest. The discounted cash flows model utilizes prepayment, re- investment and loss assumptions based on historical experience and

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projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar collateralized loan obligation fund subordinated notes or equity, when available. Specifically, the Company uses Intex cash flow models, or an appropriate substitute to form the basis for the valuation of the Company’s residual interest. The models use a set of assumptions including projected default rates, recovery rates, re-investment rates and prepayment rates in order to arrive at estimated cash flows. The assumptions are based on available market data and projections provided by third parties as well as management estimates.

Payment Rights

The Company values its investment in payment rights using an income approach that analyzes the discounted projected future cash flow streams assuming an appropriate discount rate, which will among other things consider other transactions in the market, the current credit environment, performance of the underlying portfolio company and the length of the remaining payment stream.

Equity

The company uses a combination of the income and market approaches to value its equity investments. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company’s investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, the current investment performance rating, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, transaction comparables, the Company’s principal market as the reporting entity and enterprise values, among other factors.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the

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Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

The Company has adopted the authoritative guidance under GAAP for estimating the fair value of investments in investment companies that have calculated net asset value per share in accordance with the specialized accounting guidance for Investment Companies. Accordingly, in circumstances in which net asset value per share of an investment is determinative of fair value, the Company estimates the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further adjustment if the net asset value per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date. Redemptions are not generally permitted in the Company’s investments in funds. The remaining term of the Company’s investments in funds is expected to be four to eight years.

The following provides quantitative information about Level 3 fair value measurements as of December 31, 2015:


Description	Fair Value		Valuation Technique	Unobservable Inputs	Range (Average)⁽¹⁾
First lien secured debt	$	332,810	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	12% - 14% (13%)
		33,677	Market comparable companies (market approach)	EBITDA Multiple	4.7x - 5.7x (5.2x)
Second lien debt		177,086	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	12% - 13% (12%)
Subordinated debt		49,927	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	15% - 16% (16%)
		13,854	Market comparable companies (market approach)	EBITDA Multiple	6.6x - 7.8x (7.1x)
				Revenue Multiple	0.3x - 0.5x (0.4x)
Investments in funds		3,993	Net asset value, as a practical expedient	Net asset value	N/A
Equity investments		46,992	Market comparable companies (market approach)	EBITDA Multiple	5.4x - 6.4x (5.9x)
		17,322	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	16% - 18% (17%)
Investment in Logan JV		44,782	Net asset value, as a practical expedient	Net asset value	N/A
Investment in payment rights		13,307	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	15% - 16% (15%)
				Federal Tax Rates	35% - 40% (38%)
CLO residual interests		15,002	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	20% - 25% (23%)
				Weighted average prepayment rate	25%
				Weighted average default rate	2%

Total Level 3 Investments	$	748,752

⁽¹⁾	Averages were determined using a weighted average based upon the fair value of the investments in each investment category.

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The following provides quantitative information about Level 3 fair value measurements as of December 31, 2014:


Description	Fair Value	Valuation Technique	Unobservable Inputs	Range (Average)⁽¹⁾
First lien secured debt	$393,791	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	13% - 14% (13%)
Second lien debt	168,510	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	11% - 13% (12%)
Subordinated debt	100,660	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	15% - 16% (15%)
Investments in funds	3,388	Net asset value, as a practical expedient	Net asset value	N/A
Equity investments	42,870	Market comparable companies (market approach)	EBITDA Multiple	5.8x - 6.5x (6.2x)
	9,837	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	15% - 17% (16%)
Investment in Logan JV	16,741	Net asset value, as a practical expedient	Net asset value	N/A
Investment in payment rights	13,488	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	14% - 15% (15%)
			Federal Tax Rates	35% - 40% (38%)
CLO residual interests	34,935	Discounted cash flows (income approach)	Weighted average cost of capital (WACC)	13% - 15% (14%)
			Weighted average prepayment premium	25%
			Weighted average default rate	2%

Total Investments	$784,220

⁽¹⁾	Averages were determined using a weighted average based upon the fair value of the investments in each investment category.

The primary significant unobservable input used in the fair value measurement of the Company’s debt securities (first lien secured debt, second lien debt and subordinated debt), including income-producing investments in funds and income producing securities, payment rights and CLO residual interests is the weighted average cost of capital, or WACC. Significant increases (decreases) in the WACC in isolation would result in a significantly lower (higher) fair value measurement. In determining the WACC, for the income, or yield approach, the Company considers current market yields and multiples, portfolio company performance, leverage levels, credit quality, among other factors, including U.S. federal tax rates, in its analysis. In the case of CLO residual interests, the Company considers prepayment, re-investment and loss assumptions based upon historical and projected performance as well as comparable yields for other similar structured products. In the case of the tax receivable agreement (“TRA”), the Company considers the risks associated with changes in tax rates, the performance of the portfolio company and the expected term of the investment. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate WACC to use in the income approach.

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple adjusted by management for differences between the investment and referenced comparables, or the Multiple. Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

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Investment Risk

The value of investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, the Company’s ability to dispose of investments at a price and time that the Company deems advantageous may be impaired. The extent of this exposure is reflected in the carrying value of these financial assets and recorded in the Consolidated Statements of Assets and Liabilities.

Security Transactions, Payment-in-Kind, Income Recognition, Realized/Unrealized Gains or Losses

Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation on investments in the Consolidated Statements of Operations. The Company reports changes in fair value of the interest rate derivative that is measured at fair value as a component of net change in unrealized appreciation or depreciation on interest rate derivative in the Consolidated Statements of Operations.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that the Company expects to collect such amounts. Dividend income is recognized on the ex-dividend date. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the acquisition of debt securities, and market discount or premium are capitalized and accreted or 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/amortization of discounts and premiums and upfront loan origination fees.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or when it is no longer probable that principal or interest will be collected. However, the Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. The Company records the reversal of any previously accrued income against the same income category reflected in the Consolidated Statement of Operations. As of December 31, 2015, the Company had two loans on non-accrual with an amortized cost basis of $25,032 and fair value of $13,854. As of December 31, 2014, the Company had no loans on non-accrual.

The Company has investments in its portfolio which contain a contractual paid-in-kind, or PIK, interest provision. PIK interest is computed at the contractual rate specified in each investment agreement, is added to the principal balance of the investment, and is recorded as income. The Company will cease accruing PIK interest if there is insufficient value to support the accrual or if the Company does not expect amounts to be collectible and will generally only begin to recognize PIK income again when all principal and interest have been paid or upon the restructuring of the investment where the interest is deemed collectable. To maintain the Company’s status as a RIC, PIK interest income, which is considered investment company taxable income, must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. Amounts necessary to pay these dividends may come from available cash.

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The following shows a rollforward of PIK income activity for the years ended December 31, 2015, 2014 and 2013:


	Years ended December 31,
	2015			2014			2013
Accumulated PIK balance, beginning of year	$	7,041		$	6,064		$	5,807
PIK income capitalized/receivable		4,579			2,316			3,179
PIK received in cash from repayments		(2,318	)		(1,339	)		(2,922	)

Accumulated PIK balance, end of year	$	9,302		$	7,041		$	6,064

Interest income from the Company’s TRA and CLO residual interests is recorded based upon an estimation of an effective yield to expected maturity using anticipated cash flows. Amounts in excess of income recognized are recorded as a reduction to the cost basis of the investment. The Company monitors the anticipated cash flows from its TRA and CLO residual interests and will adjust its effective yield periodically as needed.

The Company capitalizes and amortizes upfront loan origination fees received in connection with the closing of investments. The unearned income from such fees is accreted into interest income over the contractual life of the loan based on the effective interest method. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees, and unamortized discounts are recorded as interest income.

The Company will recognize any earned exit or back-end fees into income when it believes the amounts will ultimately become collected by using either the beneficial interest model or other appropriate income recognition frameworks.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned. The Company had no income from advisory services related to portfolio companies for the years ended December 31, 2015, 2014 and 2013.

The Company may also generate revenue in the form of fees from the management of Greenway and Greenway II, prepayment premiums, commitment, loan origination, structuring or due diligence fees, exit fees, portfolio company administration fees, fees for providing significant managerial assistance and consulting fees.

U.S. Federal Income Taxes, Including Excise Tax

The Company has elected to be taxed as a RIC under Subchapter M of the Code and currently qualifies, and intends to continue to qualify each year, as a RIC under the Code. Accordingly, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed to stockholders.

In order to qualify for favorable tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid a 4% U.S. federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no U.S. federal income tax. The Company, at its discretion, may choose not to distribute all of its taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. 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 from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate.

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The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income. See also the disclosure in Note 11, Dividends, for a summary of the dividends paid. For the years ended December 31, 2015, 2014 and 2013, the Company incurred U.S. federal excise tax and other tax expenses of $678, $348 and $175, respectively.

Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries.

The following shows the breakdown of current and deferred income tax provisions for the years ended December 31, 2015, 2014, and 2013:


	For the years ended December 31,
	2015			2014			2013
Current income tax provision:
Current income tax (benefit) provision	$	(169	)	$	902		$	336
Current provision for taxes on realized gain on investments		8			249			—

Deferred income tax provision:
Deferred income tax benefit		(752	)		(210	)		—
Provision for taxes on unrealized gain on investments		1,226			151			1,960

These current and deferred income taxes are determined from taxable income estimates provided by portfolio companies where the Company holds equity or equity-like investments organized as pass-through entities in its corporate subsidiaries. These tax estimates may be subject to further change once tax information is finalized for the year. As of December 31, 2015 and December 31, 2014, $396 and $162, respectively, of income tax receivable was included in prepaid expenses and other assets on the Consolidated Statements of Assets and Liabilities. As of December 31, 2015 and December 31, 2014, $3,881 and $2,565, respectively, were included in deferred tax liability on the Consolidated Statements of Assets and Liabilities primarily relating to deferred taxes on unrealized gains on investments and other temporary book to tax differences held in its corporate subsidiaries. As of December 31, 2015 and December 31, 2014, $1,118 and $285, respectively of deferred tax assets were included in deferred tax assets on the Consolidated Statements of Assets and Liabilities relating to net operating loss carryforwards and unrealized losses on investments and other temporary book to tax differences that are expected to be used in future periods.

Because U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

The Company follows the provisions under the authoritative guidance on accounting for and disclosure of uncertainty in tax positions. The provisions require management to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related

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appeals or litigation processes, based on the technical merits of the position. For tax positions not meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no unrecognized tax benefits or obligations in the accompanying consolidated financial statements. Although the Company files U.S. federal and state tax returns, the Company’s major tax jurisdiction is U.S. federal. The Company’s inception-to-date U.S. federal tax years remain subject to examination by taxing authorities.

Dividends

Dividends and distributions to stockholders are recorded on the applicable record date. The amount to be paid out as a dividend is determined by the Company’s board of directors on a quarterly basis. Net realized capital gains, if any, are generally distributed at least annually out of assets legally available for such distributions, although the Company may decide to retain such capital gains for investment.

Capital transactions in connection with the Company’s dividend reinvestment plan are recorded when shares are issued.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which amends the criteria for revenue recognition where an entity enters into contracts with customers to transfer goods or services or where there is a transfer of nonfinancial assets. Under ASU 2014-09, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods after December 15, 2017. The application of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis,” which amends the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. ASU 2015-02 changes the manner in which a reporting entity assesses one of the five characteristics that determine if an entity is a variable interest entity. The Company is currently assessing any additional disclosure requirements. ASU 2015-2 will be effective for annual reporting periods in fiscal years that begin after December 15, 2015. This guidance is not expected to have an impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs (Topic 835),” which amends the presentation of debt issuance costs on an entity’s balance sheet. Under ASU 2015-03, an entity would present debt issuance costs as a direct deduction from the carrying value of the associated liability instead of a separate deferred asset. ASU 2015-03 will be effective for annual and interim reporting periods beginning after December 15, 2015. The Company is in the process of evaluating the impact this guidance will have on its consolidated financial statements, however, because the update impacts presentation and disclosure only, the Company believes adoption will not have a significant impact on its Consolidated Financial Statements.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent),” which amends the presentation of investments measured at net asset value, as a practical expedient for fair value, from the fair value hierarchy. Under ASU 2015-07, an entity would remove investments measured using the practical expedient from the fair value hierarchy. ASU 2015-07 will be effective for annual and interim reporting periods after December 15, 2015. The application of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

142

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall”, which makes limited amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted specifically for the amendments pertaining to the presentation of certain fair value changes for financial liabilities measured at fair value. Early adoption of all other amendments is not permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements.

3. Investments

The following is a summary of the levels within the fair value hierarchy in which the Company invests as of December 31, 2015:


Description	Fair Value			Level 1		Level 2			Level 3
First lien secured debt	$	366,487		$	—	$	—		$	366,487
Second lien debt		177,086			—		—			177,086
Subordinated debt		63,781			—		—			63,781
Equity investments		69,725			5,411		—			64,314
CLO residual interests		15,002			—		—			15,002
Investment in Logan JV		44,782			—		—			44,782
Investment in payment rights		13,307			—		—			13,307
Investments in funds		3,993			—		—			3,993

Total investments	$	754,163		$	5,411	$	—		$	748,752

Interest rate derivative		(206	)		—		(206	)		—

Total liability at fair value	$	(206	)	$	—	$	(206	)	$	—

The following is a summary of the levels within the fair value hierarchy in which the Company invests as of December 31, 2014:


Description	Fair Value			Level 1		Level 2			Level 3
First lien secured debt	$	393,791		$	—	$	—		$	393,791
Second lien debt		168,510			—		—			168,510
Subordinated debt		100,660			—		—			100,660
Equity investments		52,707			—		—			52,707
CLO residual interests		34,935			—		—			34,935
Investment in Logan JV		16,741			—		—			16,741
Investment in payment rights		13,488			—		—			13,488
Investments in funds		3,388			—		—			3,388

Total investments	$	784,220		$	—	$	—		$	784,220

Interest rate derivative		(213	)		—		(213	)		—

Total liability at fair value	$	(213	)	$	—	$	(213	)	$	—

143

The following is a summary of the industry classification in which the Company invests as of December 31, 2015:


Industry	Amortized Cost		Fair Value		% of Net Assets
Consumer products	$	157,253	$	155,744		37.16	%
Financial services		126,910		113,712		27.15	%
IT services		100,659		99,107		23.66	%
Healthcare		61,556		66,891		15.97	%
Manufacturing		69,518		63,365		15.13	%
Retail & grocery		34,566		44,469		10.62	%
Energy / utilities		46,625		41,709		9.96	%
Business services		41,757		34,731		8.29	%
Industrials		28,163		27,386		6.54	%
Food & beverage		22,365		23,423		5.59	%
Transportation		19,466		21,588		5.15	%
Restaurants		20,934		20,868		4.98	%
Media, entertainment and leisure		15,434		20,743		4.95	%
Structured products		17,105		15,002		3.58	%
Aerospace & defense		4,534		5,425		1.30	%

Total Investments	$	766,845	$	754,163		180.03	%

The following is a summary of the industry classification in which the Company invests as of December 31, 2014:


Industry	Amortized Cost		Fair Value		% of Net Assets
Consumer products	$	120,742	$	120,388		27.15	%
IT services		108,705		106,567		24.02	%
Healthcare		77,487		83,164		18.75	%
Financial services		71,420		68,997		15.55	%
Manufacturing		70,817		68,357		15.41	%
Retail & grocery		52,985		55,798		12.58	%
Industrials		54,561		54,050		12.18	%
Energy / utilities		50,284		48,989		11.04	%
Food & beverage		38,594		39,251		8.85	%
Structured products		34,213		34,935		7.87	%
Business services		32,182		32,244		7.27	%
Media, entertainment and leisure		25,134		29,688		6.69	%
Restaurants		20,847		20,753		4.68	%
Transportation		14,273		14,259		3.21	%
Aerospace & defense		6,784		6,780		1.53	%

Total Investments	$	779,028	$	784,220		176.78	%

144

The following is a summary of the geographical concentration of our investment portfolio as of December 31, 2015:


Region	Amortized Cost		Fair Value		% of Net Assets
Northeast	$	258,931	$	247,863		59.17	%
Southwest		170,078		149,187		35.61	%
Midwest		108,568		106,517		25.43	%
Southeast		90,720		101,411		24.21	%
West		70,070		69,417		16.57	%
Northwest		39,294		50,331		12.01	%
International		29,184		29,437		7.03	%

Total Investments	$	766,845	$	754,163		180.03	%

The following is a summary of the geographical concentration of our investment portfolio as of December 31, 2014:


Region	Amortized Cost		Fair Value		% of Net Assets
Northeast	$	208,928	$	208,218		46.95	%
Southwest		211,098		204,531		46.10	%
Southeast		109,082		119,214		26.87	%
Midwest		117,329		116,468		26.25	%
West		72,861		73,048		16.47	%
International		31,275		31,600		7.12	%
Northwest		28,455		31,141		7.02	%

Total Investments	$	779,028	$	784,220		176.78	%

145

The following table rolls forward the changes in fair value during the year ended December 31, 2015 for investments classified within Level 3:


	First lien secured debt			Second lien debt			Subordinated debt			Investments in funds⁽²⁾			Equity investments			Investment in payment rights			CLO residual interests			Totals
Beginning balance, January 1, 2015	$	393,791		$	168,510		$	100,660		$	20,129		$	52,707		$	13,488		$	34,935		$	784,220
Transfers out of Level 3⁽³⁾		—			—			—			—			(7,097	)		—			—			(7,097	)
Purchases		60,498			62,051			8,043			33,509			9,632			—			—			173,733
Sales and repayments		(96,748	)		(38,787	)		(39,626	)		(105	)		(717	)		(395	)		(17,096	)		(193,474	)
Unrealized appreciation (depreciation)⁽¹⁾		(7,592	)		(2,535	)		(8,172	)		(4,758	)		9,483			214			(2,826	)		(16,186	)
Realized gain/(loss)		(33	)		(216	)		(6	)		—			—			—			(11	)		(266	)
Net amortization of premiums, discounts and fees		2,406			689			150			—			34			—			—			3,279
PIK		1,536			3			2,732			—			272			—			—			4,543
Transfers between categories⁽⁴⁾		12,629			(12,629	)		—			—			—			—			—			—

Ending balance, December 31, 2015	$	366,487		$	177,086		$	63,781		$	48,775		$	64,314		$	13,307		$	15,002		$	748,752

Net change in unrealized appreciation (depreciation) from investments still held as of the reporting date⁽¹⁾	$	(8,075	)	$	(1,990	)	$	(8,153	)	$	(4,758	)	$	8,586		$	214		$	(2,507	)	$	(16,683	)

⁽¹⁾	All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.

⁽²⁾	Includes investment in Logan JV.

⁽³⁾	Represents transfer of Surgery Center Holdings, Inc. from Level 3 to Level 1 as a result of a change in observable inputs at the reporting date.

⁽⁴⁾	Represents a transfer of $12,629 out of second lien debt into first lien secured debt to better reflect the nature of the split collateral investment in Aerogroup International, Inc.

The following table rolls forward the changes in fair value during the year ended December 31, 2014 for investments classified within Level 3:


	First lien secured debt			Second lien debt			Subordinated debt			Investments in funds⁽²⁾			Equity investments			Investment in payment rights			CLO residual interest			Totals
Beginning balance, January 1, 2014	$	262,965		$	157,878		$	155,979		$	9,546		$	11,037		$	13,844		$	37,618		$	648,867
Purchases		176,376			117,195			18,036			19,115			39,593			—			8,451			378,766
Sales and repayments		(73,440	)		(77,765	)		(67,117	)		(8,487	)		(938	)		(286	)		(11,718	)		(239,751	)
Unrealized appreciation
(depreciation)⁽¹⁾		(2,415	)		(2,828	)		3,390			(45	)		3,765			(70	)		446			2,243
Realized loss		—			(250	)		(11,955	)		—			(804	)		—			—			(13,009	)
Net amortization of premiums,
discounts and fees		2,465			1,378			804			—			10			—			138			4,795
PIK		213			529			1,523			—			44			—			—			2,309
Transfers between categories⁽³⁾		27,627			(27,627	)		—			—			—			—			—			—

Ending balance, December 31, 2014	$	393,791		$	168,510		$	100,660		$	20,129		$	52,707		$	13,488		$	34,935		$	784,220

Net change in unrealized appreciation (depreciation) from investments still held as of the reporting date⁽¹⁾	$	(1,933	)	$	(2,191	)	$	(2,916	)	$	(45	)	$	2,960		$	(70	)	$	524		$	(3,671	)

⁽¹⁾	All unrealized appreciation (depreciation) in the table above is reflected in the accompanying Consolidated Statements of Operations.

⁽²⁾	Includes investment in Logan JV.

⁽³⁾	Transfers represent a transfer of $27,627 out of second lien debt into first lien secured debt due to the change in the nature of the investment in OEM Group, Inc.

146

Unconsolidated Significant Subsidiaries

In accordance with the SEC’s Regulation S-X and GAAP, the Company is not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which the Company has a controlling interest. The Company had certain unconsolidated subsidiaries as of and for the years ended December 31, 2015 and 2014, that met at least one of the significant conditions of the SEC’s Regulation S-X. Accordingly, pursuant to Rule 4-08 of Regulation S-X, summarized, comparative financial information is presented below for our unconsolidated significant subsidiaries, which include C&K Market, Inc., Dimont & Associates, Inc., THL Credit Logan JV, LLC, and Thibaut, Inc., as of December 31, 2015 and 2014 and for the years ended December 31, 2015 and 2014.


	As of December 31,					For the years ended,
Balance Sheet	2015		2014		Income Statement	2015		2014
Current Assets	$	74,759	$	79,646	Net Sales	$	367,192	$	364,407
Noncurrent assets		277,308		163,143	Gross Profit		134,605		127,128
Current liabilities		43,819		57,294	Net income		4,521		(5,360	)
Noncurrent liabilities		234,844		124,445

THL Credit Logan JV LLC

On December 3, 2014, the Company entered into an agreement with Perspecta Trident LLC, an affiliate of Perspecta Trust LLC, or Perspecta, to create THL Credit Logan JV LLC, or Logan JV, a joint venture, which invests primarily in senior secured first lien term loans. All Logan JV investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta.

The Company has determined that Logan JV is an investment company under ASC 946, however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company does not consolidate its non-controlling interest in Logan JV.

Logan JV is capitalized with capital contributions which are generally called from its members, on a pro-rata basis based on their capital commitments, as transactions are completed. Any decision by the Logan JV to call down on capital commitments requires the explicit authorization of the Company, coupled with that of Perspecta, and the Company may withhold such authorization for any reason in its sole discretion.

As of December 31, 2015 and December 31, 2014, Logan JV had the following commitments, contributions and unfunded commitments from its Members.


	As of December 31, 2015
Member	Total Commitments		Contributed Capital		Unfunded Commitments
THL Credit, Inc.	$	200,000	$	49,400	$	150,600
Perspecta Trident LLC		50,000		12,350		37,650

Total Investments	$	250,000	$	61,750	$	188,250


	As of December 31, 2014
Member	Total Commitments		Contributed Capital^(a)		Unfunded Commitments
THL Credit, Inc.	$	120,000	$	16,800	$	103,200
Perspecta Trident LLC		30,000		4,200		25,800

Total Investments	$	150,000	$	21,000	$	129,000

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^(a)	Logan JV had called but not yet received $13,000 in aggregate capital of which THL Credit, Inc.’s share was $10,400. This was recorded as a payable for investments purchased in the Consolidated Statements of Assets and Liabilities.

On December 17, 2014, Logan JV entered into a senior credit facility, or the Logan JV Credit Facility, with Deutsche Bank AG which allows Logan JV to borrow up to $50,000 subject to leverage and borrowing base restrictions. Throughout the course of 2015, in accordance with the terms of the Logan JV Credit Facility, Deutsche Bank AG increased its commitment amount to $125,000. The revolving loan period ends on December 17, 2016 and the final maturity date is December 17, 2019. As of December 31, 2015, Logan JV had $108,137 outstanding debt under the credit facility. As of December 31, 2014, Logan JV had no outstanding debt under the Logan JV Credit Facility. The Logan JV Credit Facility bears interest at three month LIBOR (with no LIBOR floor) plus 2.50%.

As of December 31, 2015, and December 31, 2014 Logan JV had total investments at fair value of $161,911 and $30,678, respectively. As of December 31, 2015 and December 31, 2014, Logan JV’s portfolio was comprised of senior secured first lien loans and a second lien loan to 85 and 22 different borrowers, respectively. As of December 31, 2015 and December 31, 2014, none of these loans were on non-accrual status. Additionally, as of December 31, 2015 and December 31, 2014, Logan JV had unfunded commitments to fund revolver and delayed draw loans to its portfolio companies totaling $342 and $170, respectively. The portfolio companies in Logan JV are in industries similar to those in which the Company may invest directly.

Below is a summary of Logan JV’s portfolio, followed by a listing of the individual loans in Logan JV’s portfolio as of December 31, 2015 and December 31, 2014:


	As of December 31,			As of December 31,
	2015			2014
	(Dollars in thousands)			(Dollars in thousands)
First lien secured debt⁽¹⁾	$	148,463		$	30,237
Second lien debt⁽¹⁾		21,976			1,000

Total debt investments	$	170,439		$	31,237

Weighted average yield on first lien secured loans⁽²⁾		6.3	%		6.70	%
Weighted average yield on second lien loans⁽²⁾		9.0	%		10.0	%
Weighted average yield on all loans⁽²⁾		6.7	%		6.5	%
Number of borrowers in Logan JV		85			22
Largest loan to a single borrower⁽¹⁾	$	4,975		$	2,500
Total of five largest loans to borrowers⁽¹⁾	$	24,748		$	8,994

⁽¹⁾	At current principal amount.

⁽²⁾	Weighted average yield at their current cost.

For the year ended December 31, 2015 and for the period from December 3, 2014 to December 31, 2014, the Company’s share of income from distributions declared related to its Logan JV LLC equity interest was $3,824 and $0, respectively, which amounts are included in dividend income from controlled investments and net realized gain (loss) from controlled investments in the Consolidated Statement of Operations. As of December 31, 2015 and December 31, 2014, $1,900 and $0, respectively, of income related to the Logan JV was included in interest, dividends and fees receivable on the Consolidated Statements of Assets and Liabilities. As of December 31, 2015, dividend income earned of $1,520 for the quarter ended December 31, 2015, represented a dividend yield to the Company of 12.8% based upon average equity invested.

148

Logan JV Loan Portfolio as of December 31, 2015

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Senior Secured First Lien Term Loans

Ability Networks Inc.

Healthcare &
pharmaceuticals

6% (LIBOR + 5%)

03/17/2015

05/14/2021

1,485

1,498

1,470

AgroFresh Inc.

Services

5.75% (LIBOR + 4.75%)

12/01/2015

07/31/2021

1,995

1,980

1,968

Albertson’s Holdings LLC

Retail

5.5% (LIBOR + 4.5%)

12/05/2014

08/25/2021

1,985

1,988

1,972

Ancestry.com Inc.

Services

5% (LIBOR + 4%)

09/04/2015

08/29/2022

2,993

2,974

2,975

AP Gaming I LLC

Hotel, gaming &
leisure

9.25% (LIBOR + 8.25%)

05/27/2015

12/21/2020

2,982

2,964

2,885

Arctic Glacier U.S.A., Inc

Beverage, food &
tobacco

6% (LIBOR + 5%)

02/12/2015

05/10/2019

2,035

1,991

1,964

Aristotle Corporation

Healthcare &
pharmaceuticals

5.5% (LIBOR + 4.5%)
7.0% (Prime + 3.5%)

07/13/2015

06/30/2021

4,975

4,952

4,950

Avago Technologies Cayman Finance Ltd

High tech industries

4.25% (LIBOR + 3.5%)

11/13/2015

02/01/2023

2,000

1,980

1,983

Avaya Inc

Telecommunications

6.25% (LIBOR + 5.25%)

04/30/2015

05/29/2020

991

982

695

Avaya Inc

Telecommunications

6.5% (LIBOR + 5.5%)

12/18/2014

03/31/2018

986

995

750

Bioplan USA

Services

5.75% (LIBOR + 4.75%)

05/13/2015

09/23/2021

993

857

859

BioScrip, Inc.

Healthcare &
pharmaceuticals

6.5% (LIBOR + 5.25%)

12/22/2014

07/31/2020

938

939

857

BioScrip, Inc.

Healthcare &
pharmaceuticals

6.5% (LIBOR + 5.25%)

12/22/2014

07/31/2020

563

564

514

Birch Communications, Inc.

Telecommunications

7.75% (LIBOR + 6.75%)

12/05/2014

07/17/2020

1,433

1,416

1,380

CAbi

Retail

5.75% (LIBOR + 4.75%)

06/19/2015

06/12/2019

1,219

1,208

1,213

Caesars Entertainment Resort Properties, LLC

Hotel, gaming &
leisure

7% (LIBOR + 6%)

01/15/2015

10/11/2020

4,968

4,742

4,537

Cengage Learning Acquisitions, Inc.

Media

7% (LIBOR + 6%)

12/15/2014

03/31/2020

4,417

4,378

4,318

Clear Balance Holdings, LLC

Banking, finance,
insurance & real
estate

6.75% (LIBOR + 5.75%)

07/07/2015

06/30/2020

4,875

4,854

4,851

Commercial Barge Line Co

Transportation

9.75% (LIBOR + 8.75%)

11/06/2015

11/12/2020

1,500

1,427

1,403

Communications Sales & Leasing, Inc.

Telecommunications

5% (LIBOR + 4%)

05/28/2015

10/24/2022

2,985

2,982

2,768

Compuware Corp

Services

6.25% (LIBOR + 5.25%)

12/11/2014

12/15/2021

2,974

2,889

2,782

CPI Acquisition, Inc.

Services

5.5% (LIBOR + 4.5%)

08/14/2015

08/17/2022

3,375

3,354

3,343

Creative Artists

Media

5.5% (LIBOR + 4.5%)

03/16/2015

12/17/2021

2,475

2,508

2,471

Crowne Group LLC

Automotive

6% (LIBOR + 5%)

01/14/2015

09/30/2020

1,485

1,469

1,455

CT Technologies Intermediate Holdings

Healthcare &
pharmaceuticals

5.25% (LIBOR + 4.25%)

02/11/2015

12/01/2021

1,980

1,989

1,918

CWGS Group, LLC

Automotive

5.75% (LIBOR + 4.75%)

12/22/2014

02/20/2020

2,375

2,376

2,348

Eastman Kodak Company

High tech industries

7.25% (LIBOR + 6.25%)

09/09/2015

09/03/2019

1,990

1,934

1,724

EnergySolutions, LLC

Environmental
industries

6.75% (LIBOR + 5.75%)

03/16/2015

05/29/2020

2,000

2,022

1,550

149

Logan JV Loan Portfolio as of December 31, 2015—(Continued)

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Evergreen Skills Lux S.á r.l.

High tech industries

5.75% (LIBOR + 4.75%)

01/15/2015

04/28/2021

1,486

1,460

1,167

Getty Images, Inc.

Media

4.75% (LIBOR + 3.5%)

02/18/2015

10/18/2019

990

927

629

Global Healthcare Exchange LLC

Services

5.5% (LIBOR + 4.5%)

08/12/2015

08/15/2022

998

993

992

Gold Standard Baking Inc

Wholesale

5.25% (LIBOR + 4.25%)
6.75% (Prime + 3.25%)

05/19/2015

04/23/2021

2,985

2,972

2,955

Green Plains Renewable Energy Inc

Energy

6.5% (LIBOR + 5.5%)

06/09/2015

06/30/2020

1,956

1,957

1,929

GTCR Valor Companies, Inc.

Services

6% (LIBOR + 5%)

12/05/2014

05/30/2021

1,977

1,960

1,968

IMG LLC

Media

5.25% (LIBOR + 4.25%)

12/31/2014

05/06/2021

1,481

1,452

1,459

Insurance Technologies

High tech industries

8% (LIBOR + 7%)

03/26/2015

12/01/2019

1,896

1,880

1,896

Insurance Technologies⁽³⁾

High tech industries

0% (LIBOR + 0%)

03/26/2015

12/01/2019

209

)

—

J Jill

Retail

6% (LIBOR + 5%)

05/08/2015

05/09/2022

1,047

1,043

1,026

Jackson Hewitt Tax Service Inc

Services

8% (LIBOR + 7%)

07/24/2015

07/30/2020

1,000

982

963

Koosharem, LLC

Services

7.5% (LIBOR + 6.5%)

02/04/2015

05/15/2020

2,972

2,962

2,794

Lannett Company Inc

Healthcare &
pharmaceuticals

5.75% (LIBOR + 4.75%)

11/20/2015

11/25/2020

1,500

1,389

1,410

Lannett Company Inc

Healthcare &
pharmaceuticals

6.375% (LIBOR + 5.375%)

11/20/2015

11/25/2022

1,500

1,351

1,403

LegalZoom

Services

8% (LIBOR + 7%)

06/15/2015

05/13/2020

4,967

Lindblad Expeditions Inc

Hotel, gaming &
leisure

5.5% (LIBOR + 4.5%)

06/23/2015

05/08/2021

2,644

2,659

2,631

Lindblad Maritime

Hotel, gaming &
leisure

5.5% (LIBOR + 4.5%)

06/23/2015

05/08/2021

341

343

339

Margaritaville Holdings LLC

Beverage, food &
tobacco

7% (LIBOR + 6%)

03/12/2015

03/12/2021

4,963

4,920

4,814

Match Group Inc

High tech industries

5.5% (LIBOR + 4.5%)

11/06/2015

11/16/2022

3,000

2,972

2,970

MediArena Acquisition B.V.

Media

6.75% (LIBOR + 5.75%)

12/18/2014

08/13/2021

1,481

1,462

1,321

Merrill Communications LLC

Media

6.25% (LIBOR + 5.25%)

05/29/2015

06/01/2022

1,988

1,977

1,740

Mood Media Corporation

Media

7% (LIBOR + 6%)

12/05/2014

05/01/2019

987

976

942

Navistar Inc

Automotive

6.5% (LIBOR + 5.5%)

08/06/2015

08/07/2020

2,000

1,980

1,772

NextCare, Inc.

Healthcare &
pharmaceuticals

7% (LIBOR + 6%)

08/21/2015

07/31/2018

2,985

2,972

2,985

Novitex Acquisition, LLC

Consumer goods

7.5% (LIBOR + 6.25%)

12/05/2014

07/07/2020

980

966

924

Parq Holdings LP

Hotel, gaming &
leisure

8.5% (LIBOR + 7.5%)

12/05/2014

12/17/2020

1,000

986

975

Petrochoice Holdings Inc

Chemicals, plastics
& rubber

6% (LIBOR + 5%)

09/02/2015

08/19/2022

998

974

983

Physiotherapy Associates Inc

Healthcare &
pharmaceuticals

5.75% (LIBOR + 4.75%)

06/04/2015

06/04/2021

998

993

995

Pre-Paid Legal Services, Inc

Services

6.5% (LIBOR + 5.25%)

05/21/2015

07/01/2019

966

961

150

Logan JV Loan Portfolio as of December 31, 2015—(Continued)

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Quincy Newspapers Inc

Media

5.5% (LIBOR + 4.5%)

11/23/2015

11/02/2022

2,988

2,981

2,956

RentPath, Inc.

Media

6.25% (LIBOR + 5.25%)

12/11/2014

12/17/2021

2,475

2,450

2,184

Riverbed Technology, Inc.

High tech industries

6% (LIBOR + 5%)

02/25/2015

04/25/2022

993

988

990

SCS Holdings Inc.

Services

6% (LIBOR + 5%)

11/20/2015

10/30/2022

1,978

1,963

1,950

Sirva Worldwide, Inc.

Transportation

7.5% (LIBOR + 6.25%)

12/18/2014

03/27/2019

1,928

1,924

1,870

Smart Start, Inc.

Services

5.75% (LIBOR + 4.75%)

08/28/2015

02/20/2022

2,500

2,476

2,475

SourceHOV LLC

Services

7.75% (LIBOR + 6.75%)

03/17/2015

10/31/2019

1,938

1,868

1,724

Stonewall Gas Gathering LLC

Energy

8.75% (LIBOR + 7.75%)

01/26/2015

01/28/2022

993

949

990

TOMS Shoes LLC

Retail

6.5% (LIBOR + 5.5%)

12/18/2014

10/31/2020

1,985

1,860

1,355

Travelport Finance Luxembourg Sarl

Services

5.75% (LIBOR + 4.75%)

09/04/2015

09/02/2021

2,992

3,007

2,936

TTM Technologies Inc

High tech industries

6% (LIBOR + 5%)

05/07/2015

05/31/2021

998

966

905

TWCC Holding Corp.

Media

5.75% (LIBOR + 5%)

05/21/2015

02/11/2020

2,516

2,498

2,517

US Renal Care Inc

Healthcare &
pharmaceuticals

5.25% (LIBOR + 4.25%)

11/17/2015

12/31/2022

2,000

1,980

1,987

Varsity Brands

Consumer goods

5% (LIBOR + 4%)

12/10/2014

12/11/2021

990

982

Verdesian Life Sciences LLC

Chemicals, plastics
& rubber

6% (LIBOR + 5%)

12/09/2014

07/01/2020

937

936

903

Zep Inc

Chemicals, plastics
& rubber

5.75% (LIBOR + 4.75%)

09/04/2015

06/27/2022

2,985

2,992

2,977

Total Senior Secured First Lien Term Loans

146,466

141,514

Second Lien Term Loans

ABG Intermediate Holdings 2 LLC⁽⁴⁾

Consumer goods

8.50%

07/13/2015

05/27/2022

133

)

ABG Intermediate Holdings 2 LLC

Consumer goods

9.5% (LIBOR + 8.5%)

06/19/2015

05/27/2022

867

859

850

AssuredPartners Inc

Banking, finance,
insurance & real
estate

10% (LIBOR + 9%)

10/16/2015

10/20/2023

1,000

961

980

Asurion Delivery and Installation Services

Telecommunications

8.5% (LIBOR + 7.5%)

02/18/2015

03/03/2021

4,000

3,872

3,442

Cirque Du Soleil

Hotel, gaming &
leisure

9.25% (LIBOR + 8.25%)

06/25/2015

07/08/2023

1,000

986

950

Confie Seguros Holding II Co.

Banking, finance,
insurance & real
estate

10.25% (LIBOR + 9%)

06/29/2015

05/09/2019

500

496

495

EagleView Technology Corporation

Services

9.25% (LIBOR + 8.25%)

07/29/2015

07/14/2023

1,000

986

959

Eastman Kodak Company

High tech industries

10.75% (LIBOR + 9.5%)

03/24/2015

09/03/2020

1,000

996

865

Filtration Group Corporation

Services

8.25% (LIBOR + 7.25%)

03/16/2015

11/22/2021

524

526

511

GENEX Services, Inc.

Services

8.75% (LIBOR + 7.75%)

06/26/2015

05/30/2022

1,000

988

943

Gruden Acquisition Inc.

Transportation

9.5% (LIBOR + 8.5%)

07/31/2015

08/18/2023

500

476

151

Logan JV Loan Portfolio as of December 31, 2015—(Continued)

(dollar amounts in thousands)

Company/Security

Industry

Interest Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Hyland Software, Inc.

High tech industries

8.25% (LIBOR + 7.25%)

06/12/2015

07/03/2023

1,500

1,493

1,410

IPC Corp

Telecommunications

10.5% (LIBOR + 9.5%)

03/03/2015

02/06/2022

1,500

1,402

1,350

Learfield Communications, Inc.

Media

8.75% (LIBOR + 7.75%)

02/18/2015

10/08/2021

952

957

943

Linxens France SA

Telecommunications

9.5% (LIBOR + 8.5%)

07/31/2015

10/16/2023

1,000

990

987

MRI Software LLC

High tech industries

9% (LIBOR + 8%)

06/19/2015

06/23/2022

1,000

986

970

RentPath, Inc.

Media

10% (LIBOR + 9%)

12/11/2014

12/17/2022

1,000

921

813

Royal Adhesives and Sealants LLC

Chemicals, plastics
& rubber

8.5% (LIBOR + 7.5%)

06/12/2015

06/19/2023

1,000

993

985

TWCC Holding Corp.

Media

7% (LIBOR + 6%)

05/28/2015

06/26/2020

2,000

1,879

1,997

Wash Multifamily Laundry Systems, LLC.

Services

8% (LIBOR + 7%)

05/04/2015

05/12/2023

Wash Multifamily Laundry Systems, LLC.

Services

8% (LIBOR + 7%)

05/04/2015

05/15/2023

425

423

403

Total Second Lien Term Loans

21,263

20,397

Total Investments

167,729

161,911

⁽¹⁾	Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.

⁽²⁾	Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.

⁽³⁾	Represents a delayed draw commitment of $209, which was unfunded as of December 31, 2015.

⁽⁴⁾	Represents a delayed draw commitment of $133, which was unfunded as of December 31, 2015.

152

Logan JV Loan Portfolio as of December 31, 2014

(dollar amounts in thousands)

Portfolio Company

Industry

Interest
Rate⁽¹⁾

Initial
Acquisition
Date

Maturity
Date

Principal

Amortized
Cost

Fair
Value⁽²⁾

Senior Secured First Lien Term Loans

Albertson’s Holdings LLC

Retail

5.5% (LIBOR
+ 4.5%)

12/05/14

08/25/2021

2,000

2,004

2,003

American Pacific Corporation

Chemicals, Plastics & Rubber

7% (LIBOR
+ 6%)

12/10/14

02/27/2019

997

996

AP NMT Acquisition B.V.

Media: Broadcasting &
Subscription

6.75% (LIBOR
+ 5.75%)

12/18/14

08/13/2021

1,496

1,474

Avaya Inc.

Telecommunications

6.5% (LIBOR
+ 5.5%)

12/18/14

03/31/2018

1,496

1,481

1,476

BioScrip, Inc.

Healthcare & Pharmaceuticals

6.5% (LIBOR
+ 5.25%)

12/22/14

07/31/2020

1,500

1,504

1,496

Birch Communications, Inc.

Telecommunications

7.75% (LIBOR
+ 6.75%)

12/05/14

07/17/2020

972

950

957

Cengage Learning Acquisitions, Inc.

Media: Advertising, Printing
& Publishing

7% (LIBOR
+ 6%)

12/15/14

03/31/2020

2,494

2,470

2,473

Compuware Corp

Services: Business

6.25% (LIBOR
+ 5.25%)

12/11/14

12/15/2021

1,500

1,426

1,427

CWGS Group, LLC

Automotive

5.75% (LIBOR
+ 4.75%)

12/22/14

02/20/2020

1,490

1,494

Delta 2 Lux Sarl

Telecommunications

4.75% (LIBOR
+ 3.75%)

12/18/14

07/30/2021

1,500

1,466

1,468

FR Utility Services LLC

Construction & Building

6.75% (LIBOR
+ 5.75%)

12/18/14

10/18/2019

1,496

1,493

1,491

GTCR Valor Companies, Inc.

Services: Business

6% (LIBOR
+ 5%)

12/05/14

05/30/2021

995

975

972

IMG LLC/William Morris Endeavor Entertainment, LLC

Media: Diversified &
Production

5.25% (LIBOR
+ 4.25%)

12/31/14

05/06/2021

1,496

1,463

1,451

Mood Media Corporation

Media: Broadcasting &
Subscription

7% (LIBOR
+ 6%)

12/05/14

05/01/2019

997

983

979

Novitex Acquisition, LLC

Consumer goods: Non-
Durable

7.5% (LIBOR
+ 6.25%)

12/05/14

07/07/2020

998

980

958

Parq Holdings L.P.⁽³⁾

Hotel, Gaming & Leisure

8.5% (LIBOR
+ 7.5%)

12/05/14

12/17/2020

—

)

—

Parq Holdings L.P.

Hotel, Gaming & Leisure

8.5% (LIBOR
+ 7.5%)

12/05/14

12/17/2020

830

814

818

Radio One, Inc.

Media: Broadcasting &
Subscription

7.5% (LIBOR
+ 6%)

12/22/14

03/31/2016

1,496

1,492

1,491

RentPath, Inc.

Media: Diversified &
Production

6.25% (LIBOR
+ 5.25%)

12/11/14

12/17/2021

1,500

1,470

1,476

Sirva Worldwide, Inc.

Transportation: Cargo

7.5% (LIBOR
+ 6.25%)

12/18/14

03/27/2019

1,496

1,489

1,492

TOMS Shoes LLC

Retail

6.5% (LIBOR
+ 5.5%)

12/18/14

10/31/2020

1,500

1,388

Varsity Brands

Consumer goods: Durable

6% (LIBOR
+ 5%)

12/10/14

12/11/2021

1,000

990

1,001

Verdesian Life Sciences LLC

Chemicals, Plastics & Rubber

6% (LIBOR
+ 5%)

12/09/14

07/01/2020

987

986

982

Total Senior Secured First Lien Term Loans

29,786

29,763

Second Lien Term Loans

RentPath, Inc.

Media: Diversified &
Production

10% (LIBOR
+ 9%)

12/11/14

12/17/22

1,000

911

915

Total Second Lien Term Loans

911

915

30,697

30,678

⁽¹⁾	Variable interest rates indexed to 30-day, 60-day, 90-day or 180-day LIBOR rates, at the borrower’s option. LIBOR rates are subject to interest rate floors.

⁽²⁾	Represents fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of director’s valuation process described elsewhere herein.

⁽³⁾	Represents a delayed draw commitment of $0.2 million, which was unfunded as of December 31, 2014.

153

Below is certain summarized financial information for Logan JV as of December 31, 2015 and December 31, 2014 and for the year ended December 31, 2015 and period from December 3, 2014 to December 31, 2014:

Selected Balance Sheet Information


	As of December 31,		As of December 31,
	2015		2014
	(Dollars in thousands)		(Dollars in thousands)
Investments at fair value (cost of $167,729 and $30,697, respectively)	$	161,911	$	30,678
Capital contributions receivable		—		13,000
Cash		7,671		3,898
Other assets		2,091		898

Total assets	$	171,673	$	48,474

Loans payable	$	108,137	$	—
Payable for investments purchased		4,367		26,732
Distribution payable		2,375		—
Other liabilities		816		813

Total liabilities	$	115,695	$	27,545

Members’ Equity	$	55,978	$	20,929

Total liabilities and Member’s Equity	$	171,673	$	48,474

Selected Statement of Operations Information


	For the year ended December 31, 2015			For the period from December 3, 2014 to December 31, 2014
	(Dollars in thousands)			(Dollars in thousands)
Interest income	$	7,310		$	27
Fee income		88			—

Total revenues		7,398			27
Credit facility expenses		2,358			79
Other expenses		208			—

Total expenses		2,566			79

Net investment income (loss)		4,832			(52	)
Net realized gains		45			—
Net change in unrealized appreciation (depreciation) on investments		(5,799	)		(19	)

Net decrease in net assets from operations	$	(922	)	$	(71	)

Investment in Tax Receivable Agreement Payment Rights

In June 2012, the Company invested in a TRA that entitles it to certain payment rights, or TRA Payment Rights, from Duff & Phelps Corporation, or Duff & Phelps. The TRA transfers the economic value of certain tax deductions, or tax benefits, taken by Duff & Phelps to the Company and entitles the Company to a stream of payments to be received. The TRA payment right is, in effect, a subordinated claim on the

154

issuing company which can be valued based on the credit risk of the issuer, which includes projected future earnings, the liquidity of the underlying payment right, risk of tax law changes, the effective tax rate and any other factors which might impact the value of the payment right.

Through the TRA, the Company is entitled to receive an annual tax benefit payment based upon 85% of the savings from certain deductions along with interest. The payments that the Company is entitled to receive result from cash savings, if any, in U.S. federal, state or local income tax that Duff & Phelps realizes (i) from the tax savings derived from the goodwill and other intangibles created in connection with the Duff & Phelps initial public offering and (ii) from other income tax deductions. These tax benefit payments will continue until the relevant deductions are fully utilized, which is projected to be 16 years. Pursuant to the TRA, the Company maintains the right to enforce Duff & Phelps payment obligations as a transferee of the TRA contract. If Duff & Phelps chooses to pre-pay and terminate the TRA, the Company will be entitled to the present value of the expected future TRA payments. If Duff & Phelps breaches any material obligation than all obligations are accelerated and calculated as if an early termination occurred. Failure to make a payment is a breach of a material obligation if the failure occurs for more than three months.

The projected annual tax benefit payment will be accrued on a quarterly basis and paid annually. The payment will be allocated between a reduction in the cost basis of the investment and interest income based upon an amortization schedule. Based upon the characteristics of the investment, the Company has chosen to categorize the investment in the TRA payment rights as investment in payment rights in the fair value hierarchy. The amortized cost basis and fair value of the TRA as of December 31, 2015 was $11,482 and $13,307, respectively. The amortized cost basis and fair value of the TRA as of December 31, 2014 was $11,877 and $13,488, respectively. For the years ended December 31, 2015, 2014, and 2013, the Company recognized interest income totaling $2,017, $2,069, and $1,974, respectively, related to the TRA.

Managed Funds

The Advisor and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Advisor may serve as investment adviser to one or more private funds or registered closed-end funds, and presently serves as an investment adviser to collateralized loan obligations (CLO), THL Credit Wind River 2013-2 CLO, Ltd., THL Credit Wind River 2014-1 CLO, Ltd., THL Credit Wind River 2014-2 CLO, Ltd., and a subadviser to a closed-end fund, THL Credit Senior Loan Fund (NYSE: TSLF). In addition, the Company’s officers may serve in similar capacities for one or more private funds or registered closed-end funds. The Advisor and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Advisor or its affiliates may determine that the Company should invest side- by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Advisor’s allocation procedures.

The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with affiliates absent an order from the SEC permitting the BDC to do so. The SEC staff has granted the Company relief pursuant to the Order. Pursuant to the Order, the Company is permitted to co-invest with Affiliated Funds if a “required majority” (as defined in Section 57(o) of the 1940 Act) or the Company’s independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching by the Company or its stockholders on the part of any person concerned (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with its investment objective and strategies.

155

Greenway

On January 14, 2011, THL Credit Greenway Fund LLC, or Greenway, was formed as a Delaware limited liability company. Greenway is a portfolio company of the Company. Greenway is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway operates under a limited liability agreement dated January 19, 2011, or the Agreement. Greenway will continue in existence until January 14, 2021, subject to earlier termination pursuant to certain terms of the Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Agreement. Greenway had a two year investment period.

Greenway has $150,000 of capital committed by affiliates of a single institutional investor and is managed by the Company. The Company’s capital commitment to Greenway is $15. The Company’s nominal investment in Greenway is reflected in the December 31, 2015 and December 31, 2014 Consolidated Schedules of Investments. As of December 31, 2015, Greenway’s committed capital had been fully called.

The Company acts as the investment adviser to Greenway and is entitled to receive certain fees relating to its investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway is classified as an affiliate of the Company. For the years ended December 31, 2015, 2014 and 2013, the Company earned $587, $940 and $1,692 , respectively, in fees related to Greenway, which are included in other income from non-controlled, affiliated investments in the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, $145 and $277 of fees related to Greenway, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Greenway invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway and the Company. However, the Company has the discretion to invest in other securities.

Greenway II

On January 31, 2013, THL Credit Greenway Fund II, LLC, or Greenway II LLC, was formed as a Delaware limited liability company and is a portfolio company of the Company. Greenway II LLC is a closed-end investment fund which provides for no liquidity or redemption options and is not readily marketable. Greenway II LLC operates under a limited liability agreement dated February 11, 2013, as amended, or the Greenway II LLC Agreement. Greenway II LLC will continue in existence for eight years from the final closing date, subject to earlier termination pursuant to certain terms of the Greenway II LLC Agreement. The term may also be extended for up to three additional one-year periods pursuant to certain terms of the Greenway II LLC Agreement. Greenway II LLC has a two year investment period.

As contemplated in the Greenway II LLC Agreement, the Company has established a related investment vehicle and entered into an investment management agreement with an account set up by an unaffiliated third party investor to invest alongside Greenway II LLC pursuant to similar economic terms. The account is also managed by the Company. References to “Greenway II” herein include Greenway II LLC and the account of the related investment vehicle. The Company’s capital commitment to Greenway II is $5. The Company’s nominal investment in Greenway II LLC is reflected in the December 31, 2015 and December 31, 2014 Consolidated Schedules of Investments. Greenway II LLC is managed by the Company. As of December 31, 2015, Greenway II’s committed capital had been fully called.

The Company acts as the investment adviser to Greenway II and is entitled to receive certain fees relating to its investment management services provided, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction. As a result, Greenway II is classified as an affiliate of the Company. For the years ended December 31, 2015, 2014 and 2013, the Company earned $1,641, $2,057 and $1,307, respectively, in fees related to Greenway II, which are included in other income

156

from non-controlled, affiliated investments in the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, $448 and $748, respectively, of fees related to Greenway II were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

Other deferred costs consist of placement agent expenses incurred in connection with the offer and sale of partnership interests in Greenway II. These costs are capitalized when the partner signs the Greenway II subscription agreement and are recognized as an expense over the period when the Company expects to collect management fees from Greenway II. For the years ended December 31, 2015, 2014 and 2013, the Company recognized $225, $225 and $75, respectively, in expenses related to placement agent expenses, which are included in other general and administrative expenses in the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, $375 and $600, respectively, was included in other deferred costs on the Consolidated Statements of Assets and Liabilities.

Greenway II invests in securities similar to those of the Company pursuant to investment and allocation guidelines which address, among other things, the size of the borrowers, the types of transactions and the concentration and investment ratio amongst Greenway II and the Company. However, the Company has the discretion to invest in other securities.

Investment in Funds

LCP Capital Fund LLC

The Company had invested in a membership interest of LCP Capital Fund LLC, or LCP, a private investment company that was organized to participate in investment opportunities that arose when a special purpose entity, or SPE, or sponsor thereof, needed to raise capital to achieve ratings, regulatory, accounting, tax, or other objectives. LCP was a closed investment vehicle which provided for no liquidity or redemption options and was not readily marketable. LCP was managed by an unaffiliated third party. The Company had originally contributed $12,000 of capital in the form of membership interests in LCP, which was invested in an underlying SPE referred to as Series 2005-01.

The Company expected that Series 2005-01 would terminate on February 15, 2015; however, on February 3, 2014, LCP was liquidated and the Company received proceeds of $8,354. On December 31, 2015, the Company received proceeds of $100, which represented a final distribution of the remaining operating income retained by LCP for expenses.

The Company’s contributed capital in LCP was maintained in a collateral account held by a third-party custodian, who was neither affiliated with the Company nor with LCP, nor acted as collateral on certain credit default swaps for the Series 2005-01 for which LCP received fixed premium payments throughout the year, adjusted for expenses incurred by LCP. The SPE purchased assets on a non-recourse basis and LCP agreed to reimburse the SPE up to a specified amount for potential losses. LCP held the contributed cash invested for an SPE transaction in a segregated account that secured the payment obligation of LCP.

CLO Residual Interests

As of December 31, 2015 and 2014, the Company had investments in the CLO residual interests, or subordinated notes, which can also be structured as income notes. The subordinated notes are subordinated to the secured notes issued in connection with each CLO. The secured notes in each structure are collateralized by portfolios consisting primarily of broadly syndicated senior secured bank loans.

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The following table shows a summary of the Company investments in CLO residual interests:


						As of December 31, 2015				As of December 31, 2014
Issuer	Ownership Interest			Total CLO Amount at initial par		THL Credit Residual Amount at Amortized Cost		THL Credit Residual Amount at Fair Value		THL Credit Residual Amount at Amortized Cost		THL Credit Residual Amount at Fair Value
Adirondack Park CLO Ltd.		18.7	%	$	517,000	$	—	$	—	$	8,172	$	8,216
Dryden CLO, Ltd.		23.1	%		516,400		6,845		6,205		8,040		8,244
Flagship VII, Ltd.		12.6	%		441,810		3,517		3,110		4,105		4,305
Flagship VIII, Ltd.		25.1	%		470,895		6,743		5,687		8,450		8,450
Sheridan Square CLO, Ltd		10.4	%		724,534		—		—		5,446		5,720

		Total CLO residual interests				$	17,105	$	15,002	$	34,213	$	34,935

For the years ended December 2015, 2014 and 2013, the Company recognized interest income totaling $3,690, $4,661, and $3,536, respectively, related to CLO residual interests.

Revolving and Unfunded Delayed Draw Loans

For the Company’s investments in revolving and delayed draw loans, the cost basis of the investments purchased is adjusted for the cash received for the discount on the total balance committed. The fair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative value until it is offset by the future amounts called and funded.

4. Related Party Transactions

Investment Management Agreement

On March 8, 2016, the Company’s investment management agreement was re-approved by its board of directors, including a majority of our directors who are not interested persons of the Company. Under the investment management agreement, the Advisor, subject to the overall supervision of the Company’s board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company.

The Advisor receives a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.

The base management fee is calculated at an annual rate of 1.5% of the Company’s gross assets payable quarterly in arrears on a calendar quarter basis. For purposes of calculating the base management fee, “gross assets” is determined as the value of the Company’s assets without deduction for any liabilities. The base management fee is calculated based on the value of the Company’s gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

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For the years ended December 31, 2015, 2014 and 2013, the Company incurred base management fees of $11,825, $11,142 and $7,521, respectively. As of December 31, 2015 and December 31, 2014, $2,944 and $2,810, respectively, was payable to the Advisor.

The incentive fee has two components, ordinary income and capital gains, as follows:

The ordinary income component is calculated, and payable, quarterly in arrears based on the Company’s preincentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The preincentive fee net investment income, which is expressed as a rate of return on the value of the Company’s net assets attributable to the Company’s common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as “minimum income level”). Preincentive fee net investment income means interest income, amortization of original issue discount, commitment and origination fees, dividend income and any other income (including any other fees, such as, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Company’s administration agreement (discussed below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest. Preincentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which the Company’s preincentive fee net investment income does not exceed the minimum income level. Subject to the cumulative total return requirement described below, the Advisor receives 100% of the Company’s preincentive fee net investment income for any calendar quarter with respect to that portion of the preincentive net investment income for such quarter, if any, that exceeds the minimum income level but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the “catch-up” provision) and 20.0% of the Company’s preincentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the Company’s preincentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which the Company’s preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch- up” provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of the Company’s preincentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest (sometimes referred to as payment-in-kind interest, or PIK, or original issue discount, or OID) will be paid to THL Credit Advisors, together with interest thereon from the date of deferral to the date of payment, only if and to the extent we actually receive such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

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For the years ended December 31, 2015, 2014 and 2013, the Company incurred $11,894, $11,868 and $10,414, respectively, of incentive fees related to ordinary income. As of December 31, 2015 and 2014, $2,903 and $3,119, respectively, of such incentive fees are currently payable to the Advisor. As of December 31, 2015 and 2014, $1,340 and $1,056, respectively of incentive fees incurred by the Company were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received in cash.

The second component of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement, as of the termination date). This component is equal to 20.0% of the cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid capital gains incentive fees is subtracted from such capital gains incentive fee calculated. There was no capital gains incentive fee payable to our Advisor under the investment management agreement as of December 31, 2015 and December 31, 2014.

Administration Agreement

The Company has also entered into an administration agreement with the Advisor under which the Advisor will provide administrative services to the Company. Under the administration agreement, the Advisor performs, or oversees the performance of administrative services necessary for the operation of the Company, which include, among other things, being responsible for the financial records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC. In addition, the Advisor assists in determining and publishing the Company’s net asset value, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company will reimburse the Advisor for its allocable portion of the costs and expenses incurred by the Advisor for overhead in performance by the Advisor of its duties under the administration agreement and the investment management agreement, including facilities, office equipment and our allocable portion of cost of compensation and related expenses of our chief financial officer and chief compliance officer and their respective staffs, as well as any costs and expenses incurred by the Advisor relating to any administrative or operating services provided by the Advisor to the Company. Such costs are reflected as administrator expenses in the accompanying Consolidated Statements of Operations. Under the administration agreement, the Advisor provides, on behalf of the Company, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. To the extent that our Advisor outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without profit to the Advisor.

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For the years ended December 31, 2015, 2014 and 2013, the Company incurred administrator expenses of $3,677, $3,780 and $3,608, respectively. As of December 31, 2015 and December 31, 2014, $36 and $0, respectively, was payable to the Advisor.

License Agreement

The Company and the Advisor have entered into a license agreement with THL Partners, L.P., or THL Partners, under which THL Partners has granted to the Company and the Advisor a non-exclusive, personal, revocable, worldwide, non-transferable license to use the trade name and service mark THL, which is a proprietary mark of THL Partners, for specified purposes in connection with the Company’s and the Advisor’s respective businesses. This license agreement is royalty-free, which means the Company is not charged a fee for its use of the trade name and service mark THL. The license agreement is terminable either in its entirety or with respect to the Company or the Advisor by THL Partners at any time in its sole discretion upon 60 days prior written notice, and is also terminable with respect to either the Company or the Advisor by THL Partners in the case of certain events of non-compliance. After the expiration of its first one year term, the entire license agreement is terminable by either the Company or the Advisor at the Company or its sole discretion upon 60 days prior written notice. Upon termination of the license agreement, the Company and the Advisor must cease to use the name and mark THL, including any use in the Company’s respective legal names, filings, listings and other uses that may require the Company to withdraw or replace the Company’s names and marks. Other than with respect to the limited rights contained in the license agreement, the Company and the Advisor have no right to use, or other rights in respect of, the THL name and mark. The Company is an entity operated independently from THL Partners, and third parties who deal with the Company have no recourse against THL Partners.

Due To and From Affiliates

The Advisor paid certain other general and administrative expenses on behalf of the Company. There was $36 due to affiliate, which appears on the Consolidated Statements of Assets and Liabilities, as of December 31, 2015. As of December 31, 2014, there were no amounts due to affiliate.

As of December 31, 2015, the Company owed $45 of Administrator expense to the Advisor, which was included in accrued expenses and other payables on the Consolidated Statements of Assets and Liabilities. As of December 31, 2014, there were no amounts due to affiliate.

As of December 31, 2015 and 2014, the Company incurred $93 and $145, respectively, of other general and administrative expense on behalf of the Advisor, which was included in due from affiliates on the Consolidated Statement of Assets and Liabilities.

The Company acts as the investment adviser to Greenway and Greenway II and is entitled to receive certain fees. As a result, Greenway and Greenway II are classified as affiliates of the Company. As of December 31, 2015 and December 31, 2014, $593 and $1,026 of total fees and expenses related to Greenway and Greenway II, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

The Company paid certain fees related to organizing Logan JV, on behalf of Logan JV. As of December 31, 2015 and December 31, 2014 $0 and $45 of expenses, respectively, were included in due from affiliate on the Consolidated Statements of Assets and Liabilities.

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5. Realized Gains and Losses on Investments, net of income tax provision

The following shows the breakdown of realized gains and losses for the years ended December 31, 2015, 2014 and 2013:


	For the years ended December 31,
	2015			2014			2013
Escrow receivable settlement^(a)	$	—		$	(1,030	)	$	—
BBB Industries, Inc.		18			135			—
Blue Coat Systems, Inc.		—			563			—
Expert Global Solutions, Inc.		(99	)		(250	)		—
C&K Market, Inc.^(b)		—			(1,000	)		—
Jefferson Management Holdings, LLC		—			(455	)		—
Octagon Income Note XIV, Ltd.		—			191			—
Surgery Center Holdings, Inc.		237			716			688
YP Equity Investors, LLC^(c)		—			—			2,027
Wingspan Portfolio Holdings, Inc.^(d)		—			(11,878	)		—
Other		34			153			(111	)

Net realized (losses)/gains	$	190		$	(12,855	)	$	2,604

^(a)

Escrow receivable settlement in connection with arbitration proceedings. Escrow related to the sale of IMDS Corporation in a prior period. In addition to the realized loss, the Company reversed $270 of previously accelerated amortization income against interest income recognized for the year ended December 31, 2014.

^(b)

On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14,272 were converted to common and preferred equity. In connection with the extinguishment and conversion to equity, the Company recognized a loss in the amount of $1,000.

^(c)

For the year ended December 31, 2014, an offsetting tax provision of $249 was recorded in the Consolidated Statements of Operations. For the year ending December 31, 2013 there was no tax provision. These amounts reflect a revision to previously recognized estimate realized gains and dividend income as a result of adjusted tax estimates from the portfolio company.

^(d)

On October 20, 2014, the cost basis of the subordinated note totaling $18,447 was converted to common equity as part of a restructuring of the business. In connection with the extinguishment and conversion to equity of an affiliate, Dimont & Associates, Inc., the Company recognized a realized loss in the amount of $11,878, which was offset by a corresponding change in unrealized appreciation.

For the year ended December 31, 2015, a tax provision of $8 was recorded in the Consolidated Statements of Operations and reflected a revision to previously recognized estimated realized gains as a result of adjusted tax estimates from the portfolio company. For the year ended December 31, 2014, a tax provision of $249 was recorded in the Consolidated Statements of Operations and reflected a revision to previously recognized estimated realized gains and dividend income as a result of adjusted tax estimates from the portfolio company. For the year ended December 31, 2013, there was no tax provision recorded for realized gains.

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6. Net Increase in Net Assets Per Share Resulting from Operations

The following information sets forth the computation of basic and diluted net increase in net assets per share resulting from operations:


	For the years ended December 31,
	2015		2014		2013
Numerator—net increase in net assets resulting from operations:	$	28,217	$	36,791	$	42,678
Denominator—basic and diluted weighted average common shares:		33,637		33,905		30,287
Basic and diluted net increase in net assets per common share resulting from operations:	$	0.84	$	1.08	$	1.41

Diluted net increase in net assets per share resulting from operations equals basic net increase in net assets per share resulting from operations for each period because there were no common stock equivalents outstanding during the above periods.

7. Borrowings

The following shows a summary of the Company’s borrowings as of December 31, 2015 and December 31, 2014:


	As of
	December 31, 2015							December 31, 2014
Facility	Commitments		Borrowings Outstanding		Weighted Average Interest Rate			Commitments		Borrowings Outstanding		Weighted Average Interest Rate
Revolving Facility	$	303,500	$	152,151		2.94	%	$	303,500	$	188,351		2.69	%
Term Loan Facility		106,500		106,500		3.19	%		106,500		106,500		3.44	%
2021 Notes		50,000		50,000		6.75	%		50,000		50,000		6.75	%
2022 Notes		35,000		35,000		6.75	%		—		—		—

Total	$	495,000	$	343,651		3.96	%	$	460,000	$	344,851		3.51	%

Credit Facility

The Revolving Loan Amendment revised the Facility dated April 30, 2014 to, among other things, extend the maturity date from April 2018 to August 2020 (with a one year term out period beginning in August 2019). The one year term out period is the one year anniversary between the revolver termination date, or the end of the availability period, and the maturity date. During this time, the Company is required to make mandatory prepayments on its loans from the proceeds it receives from the sale of assets, extraordinary receipts, returns of capital or the issuances of equity or debt. The Revolving Facility has an interest rate of LIBOR plus 2.5% (with no LIBOR floor). The non-use fee is 1.0% annually if the Company uses 35% or less of the Revolving Facility and 0.50% annually if the Company uses more than 35% of the Revolving Facility. The Company elects the LIBOR rate on the loans outstanding on its Revolving Facility, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on the borrowings outstanding on its Revolving Facility currently has a one month maturity.

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elects the LIBOR rate on its Term Loan, which can have a maturity date that is one, two, three or nine months. The LIBOR rate on its Term Loan currently has a one month maturity.

Each of the Facilities includes an accordion feature permitting the Company to expand the Facilities if certain conditions are satisfied; provided, however, that the aggregate amount of the Facilities, collectively, is capped at $600,000.

Borrowings under the Facilities are subject to, among other things, a minimum borrowing/collateral base. The Facilities have certain collateral requirements and/or covenants, including, but not limited to 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) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and its subsidiaries, and (e) compliance with certain financial maintenance standards including (i) minimum stockholders’ equity, (ii) a ratio of total assets (less total liabilities not represented by senior securities) to the aggregate amount of senior securities representing indebtedness, of the Company and its subsidiaries, of not less than 2.00, (iii) minimum liquidity, (iv) minimum net worth, and (v) a consolidated interest coverage ratio. In addition to the financial maintenance standards, described in the preceding sentence, borrowings under the Facilities (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio.

The Facilities’ documents also include default provisions such as the failure to make timely payments under the Facilities, the occurrence of a change in control, and the failure by the Company to materially perform under the operative agreements governing the Facilities, which, if not complied with, could, at the option of the lenders under the Facilities, accelerate repayment under the Facilities, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations. Each loan originated under the Revolving Facility is subject to the satisfaction of certain conditions. The Company cannot be assured that it will be able to borrow funds under the Revolving Facility at any particular time or at all. The Company is currently in compliance with all financial covenants under the Facilities.

For the year ended December 31, 2015, the Company borrowed $166,250 and repaid $202,450 under the Facilities. For the year ended December 31, 2014, the Company borrowed $334,800 and repaid $244,249 under the Facilities. For the year ended December 31, 2013, the Company borrowed $453,700 and repaid $299,400 under the Facilities.

As of December 31, 2015 and December 31, 2014, the carrying amount of the Company’s outstanding Facilities approximated fair value. The fair values of the Company’s Facilities are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s Facilities is estimated based upon market interest rates and entities with similar credit risk. As of December 31, 2015 and December 31, 2014, the Facilities would be deemed to be Level 3 of the fair value hierarchy.

Interest expense and related fees, excluding amortization of deferred financing costs, of $12,566, $9,781 and $5,623 were incurred in connection with the Facilities during the years ended December 31, 2015, 2014 and 2013, respectively.

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Notes

In December 2014, we completed a public offering of $50,000 in aggregate principal amount of 6.75% notes due 2021, or the 2021 Notes. The 2021 Notes mature on November 15, 2021, and may be redeemed in whole or in part at any time or from time to time at our option on or after November 15, 2017. The 2021 Notes bear interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning December 30, 2014 and trade on the New York Stock Exchange under the trading symbol “TCRX”.

In December 2015, we completed a public offering of $35,000 in aggregate principal amount of 6.75% notes due 2022, or the 2022 Notes. The 2022 Notes mature on December 30, 2022, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 30, 2018. The 2022 Notes bear interest at a rate of 6.75% per year payable quarterly on March 30, June 30, September 30 and December 30, of each year, beginning March 30, 2016 and trade on the New York Stock Exchange under the trading symbol “TCRZ”.

We refer to the 2021 Notes and the 2022 Notes collectively as the Notes.

As of December 31, 2015, the carrying amount and fair value of our Notes was $85,000 and $84,716, respectively. As of December 31, 2014, the carrying amount and fair value of Company’s Notes was $50,000 and $51,620, respectively. The fair value of our Notes are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Notes is based on the closing price of the security, which is a Level 2 input under ASC 820 due to the trading volume.

In connection with the issuance of the Notes, for the years ended December 31, 2015 and 2014 we incurred $1,415 and 2,109 of fees and expenses, respectively. These amounts were capitalized and are being amortized using the effective yield method over the term of the Notes. For the years ended December 31, 2015 and December 31, 2014, the Company amortized approximately $314 and $36 of deferred financing costs, respectively, which is listed under amortization of deferred financing costs on the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, the Company had $3,190 and $2,073, respectively, of remaining deferred financing costs on the Notes, which is listed under Deferred Financing Costs on the Company’s Consolidated Statements of Assets and Liabilities.

For the year ending December 31, 2015 and 2014, the Company incurred interest expense on the Notes of $3,493 and $394.

The indenture and supplements relating to the Notes contain certain covenants, including but not limited to (i) an inability to incur additional borrowings, including through the issuance of additional debt or the sale of additional debt securities unless the Company’s asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing and (ii) if we are not subject to the reporting requirements under the Securities and Exchange Act of 1934 to file periodic reports with the SEC we will provide interim and consolidated financial information to the holders of the Notes and the trustee.

8. Interest Rate Derivative

On May 10, 2012, the Company entered into a five-year interest rate swap agreement, or swap agreement, with ING Capital Markets, LLC. Under the swap agreement, with a notional value of $50,000, the Company pays a fixed rate of 1.1425% and receives a floating rate based upon the current three-month LIBOR rate. The Company entered into the swap agreement to manage interest rate risk and not for speculative purposes.

The Company records the change in valuation of the swap agreement in unrealized appreciation (depreciation) as of each measurement period. When the quarterly interest rate swap amounts are paid or received under the swap agreement, the amounts are recorded as a realized gain (loss) through interest rate derivative periodic interest payments, net on the Consolidated Statement of Operations.

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The Company recognized a realized loss for years ended December 31, 2015, 2014 and 2013 of $443, $458 and $433, respectively, which is reflected as interest rate derivative periodic interest payments, net on the Consolidated Statements of Operations.

For the years ended December 31, 2015 and 2014 and 2013, the Company recognized $7, $71 and $769, respectively, of net change in unrealized depreciation from the swap agreement, which is listed under net change in unrealized appreciation (depreciation) on interest rate derivative in the Consolidated Statements of Operations. As of December 31, 2015 and December 31, 2014, the Company’s fair value of its swap agreement is $(206) and ($213), respectively, which is listed as an interest rate derivative liability on the Consolidated Statements of Assets and Liabilities.

9. Contractual Obligations and Off-Balance Sheet Arrangements

From time to time, the Company, or the Advisor, may become party to legal proceedings in the ordinary course of business, including proceedings related to the enforcement of the Company’s rights under contracts with its portfolio companies. Neither the Company, nor the Advisor, is currently subject to any material legal proceedings.

Unfunded commitments to provide funds to portfolio companies are not reflected on the Company’s Consolidated Statements of Assets and Liabilities. The Company’s unfunded commitments may be significant from time to time. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that the Company holds. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company intends to use cash flow from normal and early principal repayments and proceeds from borrowings and offerings to fund these commitments.

As of December 31, 2015 and 2014, the Company has the following unfunded commitments to portfolio companies:


	As of
	December 31, 2015		December 31, 2014
Unfunded delayed draw facilities	$	3,371	$	29,826
Unfunded revolving commitments		4,478		4,478
Unfunded commitments to investments in funds		1,036		1,854

Total unfunded commitments	$	8,885	$	36,158

10. Distributable Taxable Income

The following reconciles net increase in net assets resulting from operations to taxable income:


	For the years ended December 31,
	2015			2014
Net increase in net assets resulting from operations	$	28,217		$	36,791
Net change in unrealized depreciation on investments		17,875			(2,243	)
Provision for taxes on unrealized gain on investments		1,226			151
Net change in unrealized (appreciation) depreciation on interest rate derivative		(7	)		(71	)
Expenses not currently deductible and income and realized losses not currently includable		623			13,767
Non-deductible expenses and income not includable		(305	)		1,316

Taxable income before deductions for dividends paid	$	47,629		$	49,711

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The above amount of 2015 taxable income before deductions for dividends is an estimate. Taxable income will be finalized before the Company files its Federal tax return by September 2016.

The tax character of distributions declared and paid in 2015 represented $45,649 from ordinary income, $0 from capital gains and $0 from tax return of capital. The tax character of distributions declared and paid in 2014 represented $44,191 from ordinary income, $1,921 from capital gains and $0 from tax return of capital. Generally accepted accounting principles require adjustments to certain components of net assets to reflect permanent differences between financial and tax reporting. These adjustments have no effect on net asset value per share.

For the years ended December 31, 2015 and 2014, the Company recorded the following adjustments for permanent book to tax differences to reflect their tax characteristics. The adjustments only change the classification in net assets in the Consolidated Statements of Assets and Liabilities.


	For the years ended December 31,
	2015			2014
Accumulated undistributed net realized losses	$	(1,171	)	$	(358	)
Accumulated undistributed net investment income		423			1,216
Interest rate derivative periodic interest payments, net		443			458
Paid-in capital in excess of par		305			(1,316	)

As of December 31, 2015 and 2014, the cost of investments for tax purposes was $784,504 and $796,456, respectively, resulting in net unrealized (depreciation) appreciation of $(30,342) and ($12,236) , respectively. As of December 31, 2015 and 2014, the Company had estimated net operating losses of $2,401 and $533, respectively, which can be carried back to the two preceding tax years or carried forward twenty years before expiration. As of December 31, 2015 and 2014, the Company had estimated capital loss carryforwards of $159 and $179, respectively, which can be carried back to the three preceding years or carried forward five years before expiration. As of December 31, 2015 and 2014, the Company had estimated long-term net capital loss carryforwards not subject to expiration of $1,166 and $584, respectively. Under current tax regulations, capital gains or losses on transactions realized after October 31^st for a given fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year. As of December 31, 2015, the Company had elected to defer post-October short-term capital losses of $251 and post-October long-term capital losses of $88.

11. Dividends

The Company has elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, it is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid a 4% excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year (ii) 98.2% of its net capital gains for the one-year period ending October 31 of that calendar year (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no federal income tax. The Company intends to make distributions to stockholders on a quarterly basis of substantially all of its net investment income. In addition, although the Company intends to make distributions of net realized capital gains, if any, at least annually, out of assets legally available for such distributions, it may in the future decide to retain such capital gains for investment.

167

In addition, the Company may be limited in its ability to make distributions due to the BDC asset coverage test for borrowings applicable to the Company as a BDC under the 1940 Act.

The following table summarizes the Company’s dividends declared and paid or to be paid on all shares, including dividends reinvested, if any:


Date Declared	Record Date	Payment Date	Amount Per Share
August 5, 2010	September 2, 2010	September 30, 2010	$0.05
November 4, 2010	November 30, 2010	December 28, 2010	$0.10
December 14, 2010	December 31, 2010	January 28, 2011	$0.15
March 10, 2011	March 25, 2011	March 31, 2011	$0.23
May 5, 2011	June 15, 2011	June 30, 2011	$0.25
July 28, 2011	September 15, 2011	September 30, 2011	$0.26
October 27, 2011	December 15, 2011	December 30, 2011	$0.28
March 6, 2012	March 20, 2012	March 30, 2012	$0.29
March 6, 2012	March 20, 2012	March 30, 2012	$0.05
May 2, 2012	June 15, 2012	June 29, 2012	$0.30
July 26, 2012	September 14, 2012	September 28, 2012	$0.32
November 2, 2012	December 14, 2012	December 28, 2012	$0.33
December 20, 2012	December 31, 2012	January 28, 2013	$0.05
February 27, 2013	March 15, 2013	March 29, 2013	$0.33
May 2, 2013	June 14, 2013	June 28, 2013	$0.34
August 2, 2013	September 16, 2013	September 30, 2013	$0.34
August 2, 2013	September 16, 2013	September 30, 2013	$0.08
October 30, 2013	December 16, 2013	December 31, 2013	$0.34
March 4, 2014	March 17, 2014	March 31, 2014	$0.34
May 7, 2014	June 16, 2014	June 30, 2014	$0.34
August 7, 2014	September 15, 2014	September 30, 2014	$0.34
November 4, 2014	December 15, 2014	December 31, 2014	$0.34
March 6, 2015	March 20, 2015	March 31, 2015	$0.34
May 5, 2015	June 15, 2015	June 30, 2015	$0.34
August 4, 2015	September 15, 2015	September 30, 2015	$0.34
November 3, 2015	December 15, 2015	December 31, 2015	$0.34
March 8, 2016	March 21, 2016	March 31, 2016	$0.34

The Company may not be able to achieve operating results that will allow it to make distributions at a specific level or to increase the amount of these distributions from time to time. If the Company does not distribute a certain percentage of its income annually, it will suffer adverse tax consequences, including possible loss of its status as a regulated investment company. The Company cannot assure stockholders that they will receive any distributions at a particular level.

The Company maintains an “opt in” dividend reinvestment plan for our common stockholders. As a result, unless stockholders specifically elect to have their dividends automatically reinvested in additional shares of common stock, stockholders will receive all such dividends in cash. There were no dividends reinvested for the years ended December 31, 2015, 2014, and 2013 under the dividend reinvestment plan.

Under the terms of our dividend reinvestment plan, dividends will primarily be paid in newly issued shares of common stock. However, the Company reserves the right to purchase shares in the open market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, the Company may issue shares of our common stock at a price below net asset value per share, which could cause our stockholders to experience dilution.

168

of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year. Each year, a statement on Form 1099-DIV identifying the source of the distribution will be mailed to the Company’s stockholders.

12. Financial Highlights


	For the years ended December 31,
	2015			2014			2013			2012			2011
Per Share Data:
Net asset value, beginning of period	$	13.08		$	13.36		$	13.20		$	13.24		$	13.06
Net investment income, after taxes⁽¹⁾		1.41			1.42			1.37			1.38			1.04
Net realized gains (loss) on investments⁽¹⁾⁽²⁾		0.01			(0.38	)		0.09			0.01			0.05
Income tax provision, realized gain⁽¹⁾		—			(0.01	)		—			—			—
Net change in unrealized appreciation on investments⁽¹⁾⁽²⁾		(0.53	)		0.06			0.01			(0.06	)		0.11
Provision for taxes on unrealized gain on investments⁽¹⁾		(0.04	)		—			(0.07	)		(0.02	)		—
Net change in unrealized appreciation (depreciation) of interest rate derivative⁽¹⁾⁽²⁾		—						0.02			(0.06	)		—
Interest derivative payments		(0.01	)		(0.01	)		(0.01	)		—			—

Net increase in net assets resulting from operations		0.84			1.08			1.41			1.25			1.20
Accretive effect of repurchase of common stock⁽²⁾		0.02			—			—			—			—
Accretive effect of share issuance		—			—			0.18			0.05			—
Distributions to stockholders from net investment income		(1.36	)		(1.30	)		(1.42	)		(1.29	)		(1.02	)
Distributions to stockholders from net realized gains		—			(0.06	)		(0.01	)		(0.05	)		—

Net asset value, end of period	$	12.58		$	13.08		$	13.36		$	13.20		$	13.24

Per share market value at end of period	$	10.70		$	11.76		$	16.49		$	14.79		$	12.21
Total return⁽³⁾⁽⁴⁾		2.41	%		(20.96	%)		22.10	%		33.43	%		1.87	%
Shares outstanding at end of period		33,311			33,905			33,905			26,315			20,220
Ratio/Supplemental Data:
Net assets at end of period	$	418,899		$	443,621		$	452,942		$	347,484		$	267,617
Ratio of total expenses to average net assets⁽⁵⁾⁽⁶⁾		10.87	%		9.79	%		8.73	%		8.14	%		6.18	%
Ratio of net investment income to average net assets		10.81	%		10.70	%		10.25	%		10.39	%		7.94	%
Portfolio turnover		22.85	%		28.98	%		33.09	%		53.95	%		15.43	%

⁽¹⁾	Calculated based on weighted average common shares outstanding.

⁽²⁾	Includes the cumulative effect of rounding.

⁽³⁾	Total return is based on the change in market price per share during the period. Total return takes into account dividends and distributions, if any, reinvested in accordance with the Company’s dividend reinvestment plan.

⁽⁴⁾	Not annualized

⁽⁵⁾	Annualized, except for dividend income, the reversal of previously accrued interest income, taxes and the related impact of incentive fees.

⁽⁶⁾

For the years ended December 31, 2015, 2014, 2013, 2012 and 2011, the ratio components included 2.69%, 2.47%, 1.86%, 1.72% and 1.51% of base management fee, 2.70%, 2.48%, 2.64%, 2.43% and 1.80% of incentive fee, 3.29%, 2.47%, 1.76%, 1.43% and 0.65% of the cost of borrowing, 1.95%, 2.05%, 1.85%, 2.19% and 2.20% of other operating expenses, and 0.22%, 0.09%, 0.49%, 0.16% and 0.00% of the impact of all taxes, respectively.

169

13. Stock Repurchase Program

On March 6, 2015, the Company’s board of directors authorized a $25,000 stock repurchase program that was put into effect in May 2015. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. This stock repurchase program terminated on March 6, 2016. On March 8, 2016, the Company’s board of directors authorized a new $25,000 stock repurchase program. Unless extended by the Company’s board of directors, the stock purchase program will terminate on March 8, 2017 and may be modified or terminated at any time for any reason without prior notice. The Company has provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. The Company will retire immediately all such shares of common stock that the Company purchases in connection with the stock repurchase program.

The following table summarizes our share repurchases under our stock repurchase program for the years ended December 31, 2015, 2014, and 2013:


	For the year ended December 31,
	2015			2014		2013
Dollar amount repurchased	$	7,290			—		—
Shares repurchased		594			—		—
Average price per share (including commission)	$	12.27			—		—
Weighted average discount to net asset value		7.38	%		—		—

14. Subsequent Events

From January 1, 2016 through March 10, 2016, the Company closed two follow-on debt investments totaling $5,245 in the consumer products and retail and grocery industries. One of the follow-on investments is a fixed rate subordinated debt investment and another is a floating rate first lien debt investment. The follow-on debt investments have a combined weighted average yield based upon cost at the time of the investments of 13.4%. The Company also made a $4,000 investment in the Logan JV.

On February 16, 2016, the Company received proceeds of $7,333 from the repayment of its second lien investment in Allen Edmonds Corporation at par.

On February 19, 2016, the Company received proceeds of $29,036 from the repayment of its senior secured first lien investment in 20-20 Technologies Inc. at par.

On March 8, 2016, the Company’s board of directors authorized a new $25,000 stock repurchase program that replaced the program that expired on March 6, 2016. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any particular amount will be purchased. Unless extended by its board of directors, the stock repurchase program will terminate on March 8, 2017 and may be modified or terminated at any time for any reason without prior notice. The Company has provided its stockholders with notice of its intention to repurchase shares of its common stock in accordance with 1940 Act requirements. The Company will retire immediately all such shares of common stock that it purchases in connection with the stock repurchase program.

On March 8, 2016, the Company’s board of directors declared a dividend of $0.34 per share payable on March 31, 2016 to stockholders of record at the close of business on March 21, 2016.

On March 8, 2016, the Company’s investment management agreement was re-approved by the Company’s board of directors.

170

Schedule 12-14

THL Credit, Inc. and Subsidiaries

Schedule of Investments in and Advances to Affiliates

(dollar amounts in thousands)


Type of Investment/Portfolio company⁽¹⁾	Amount of interest or fees credited in income⁽²⁾		Fair Value at December 31, 2014		Gross Additions⁽³⁾		Gross Reductions⁽⁴⁾			Fair Value at December 31, 2015
Control Investments
C&K Market, Inc.⁽⁵⁾
1,992,365 shares of common stock	$	836	$	6,036	$	8,132	$	—		$	14,168
1,992,365 shares of preferred stock		—		9,837		125		—			9,962
Dimont & Associates, Inc.⁽⁶⁾
Subordinated term loan 11.0% PIK due 4/16/2018		—		4,556		—		(4,291	)		265
50,004 shares of common stock		—		2,000		—		(2,000	)		—
Thibaut, Inc
Senior secured term loan 14.0% cash due 6/19/19		893		6,520		16		(81	)		6,455
4,747 shares of series A preferred stock		57		4,874		353		—			5,227
20,639 shares of common stock		—		785		179		—			964
THL Credit Logan JV LLC⁽⁷⁾
80% economic interest		3,804		16,741		32,600		(4,559	)		44,782

Total Control Investments	$	5,590	$	51,349	$	41,405	$	(10,931	)	$	81,823

Affiliate Investments
THL Credit Greenway Fund LLC⁽⁸⁾
Investment in fund		587		4		—		(1	)		3
THL Credit Greenway Fund II LLC⁽⁸⁾
Investment in fund		1,641		5		—		(1	)		4

Total Affiliate Investments	$	2,228	$	9	$	—	$	(2	)	$	7

Total Control and Affiliate Investments	$	7,818	$	51,358	$	41,405	$	(10,933	)	$	81,830

⁽¹⁾	The principal amount and ownership detail as shown in the Consolidated Schedule of Investments as of December 31, 2015 and 2014. Common stock and preferred stock, in some cases, are generally non-income producing.

⁽²⁾	Represents the total amount of interest and fees credited to income for the portion of the year an investment was included in the Control and Affiliate categories

⁽³⁾

Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments, accrued PIK interest and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation.

⁽⁴⁾	Gross reductions include decreases in the cost basis of investments resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation.

⁽⁵⁾	C&K Market, Inc., or C&K, filed for bankruptcy in November 2013. On August 12, 2014, the date C&K emerged from bankruptcy, the cost basis of the senior subordinated note, certain interest due and warrants totaling $14,272 were converted to common and preferred equity.

⁽⁶⁾

171

⁽⁷⁾

Together with Perspecta Trident LLC, or Perspecta, an affiliate of Perspecta Trust LLC, the Company invests in THL Credit Logan JV LLC, of Logan JV. Logan JV is capitalized through equity contributions from its members and investment decisions must be unanimously approved by the Logan JV investment committee consisting of one representative from each of the Company and Perspecta.

⁽⁸⁾	Income includes certain fees relating to investment management services provided by the Company, including a base management fee, a performance fee and a portion of the closing fees on each investment transaction.

172

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

(a) Disclosure Controls and Procedures

Our Co-Chief Executive Officers and Chief Financial Officer, under the supervision and with the participation of our management, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of the end of the period covered by this annual report on Form 10-K, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Report on Internal Control Over Financial Reporting

The management of THL Credit, Inc. and its Subsidiaries (except where the context suggests otherwise, the terms “we,” “us,” “our,” and “THL Credit” refer to THL Credit, Inc. and its Subsidiaries) is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2015. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015 based upon the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that our internal control over financial reporting was effective as of December 31, 2015.

(c) Report of the Independent Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

173

(d) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934 that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

None

174

PART III

We will file a definitive Proxy Statement for our 2016 Annual Meeting of Stockholders with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 11.

Executive Compensation

The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

Item 14.

Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year.

175

PART IV

Item 15.

Exhibits and Financial Statement Schedules

The following documents are filed or incorporated by reference as part of this Annual Report:

1. Consolidated Financial Statements


	Page
Reports of Independent Registered Public Accounting Firm		113
Consolidated Statements of Assets and Liabilities as of December 31, 2015 and December 31, 2014		114
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013		115
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2015, 2014 and 2013		116
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013		117
Consolidated Schedules of Investments as of December 31, 2015 and December 31, 2014		118
Notes to Consolidated Financial Statements		132

2. Financial Statement Schedule

Schedule 12-14 – Page 171

3. Exhibits required to be filed by Item 601 of Regulation S-K

Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:



3.1		Amended and Restated Certificate of Incorporation (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

3.2		Amended and Restated Certificate of Incorporation (Incorporated by reference from Exhibit A to the Registrant’s Proxy Statement, filed on April 24, 2012)

3.3		Bylaws (Incorporated by reference from the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on July 15, 2009)

3.4		Amendment to Bylaws (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on June 15, 2015).

4.1		Form of Specimen Certificate (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

4.2		Form of Indenture and related exhibits. (Incorporated by reference from the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on August 25, 2011).

176



4.3		First Supplemental Indenture, dated as of November 18, 2014, between the Registrant and U.S. Bank National Association. (Incorporated by reference from the Registrant’s Registration Statement on Form N-2 filed on November 18, 2014).

4.4		Form of 6.75% Note due 2021 (included as part of Exhibit 4.3).

4.5		Form of 6.75% Note due 2021 (Over-Allotment Note) (Incorporated by reference from the Registrant’s post-effective Amendment No. 2 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on December 11, 2014).

4.6		Second Supplemental Indenture, dated as of December 14, 2015, between the Registrant and U.S. Bank National Association. (Incorporated by reference from the Registrant’s Registration Statement on Form N-2 filed on December 14, 2015).

4.7		Form of 6.75% Note due 2022 (included as part of Exhibit 4.6).

10.1		Dividend Reinvestment Plan (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on August 9, 2010)

10.2		Investment Management Agreement (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

10.3		Purchase Agreement (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on August 9, 2010)

10.4		Custodian Agreement (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on August 9, 2010)

10.5		Administration Agreement (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

10.6		Sub-Administration Agreement (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on August 9, 2010)

10.7		Purchase and Sale Agreement (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

10.8		License Agreement (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

10.9		Subscription Agreement—THL Credit Opportunities, L.P. (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

10.10		Subscription Agreement—THL Credit Partners BDC Holdings, L.P. (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on August 9, 2010)

10.11		Senior Secured Revolving Credit Agreement between THL Credit and ING Capital LLC, dated March 11, 2011 (Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on March 15, 2011)

10.12		Amendment No. 1 to Senior Secured Revolving Credit Agreement between THL Credit and ING Capital LLC, dated May 10, 2012 (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on May 15, 2012)

10.13		Amendment No. 2 to Senior Secured Revolving Credit Agreement between THL Credit and ING Capital LLC, dated February 13, 2013 (Incorporated by reference from the Registrant’s Annual Report on Form 10-K, filed on March 7, 2014)

177



10.14		Amendment No. 3 to Senior Secured Revolving Credit Agreement between THL Credit and ING Capital LLC, dated March 15, 2013 (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on March 20, 2013)

10.15		Amendment No. 4 to Senior Secured Revolving Credit Agreement between THL Credit and ING Capital LLC, dated October 9, 2013 (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on November 4, 2013)

10.16		Amendment No. 5 to the Senior Secured Revolving Credit Agreement, dated as of April 30, 2014, by and among the Company as borrower, each of the subsidiary guarantors party thereto, the Lenders party thereto and ING Capital LLC, as Administrative Agent. (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on May 1, 2014)

10.17		Amendment No. 7 to the Senior Secured Revolving Credit Agreement, dated as of March 5, 2015, by and among the Company as borrower, each of the subsidiary guarantors party thereto, the Lenders party thereto and ING Capital LLC, as Administrative Agent. (Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed on March 10, 2015)

10.18		Senior Secured Term Loan Credit Agreement between THL Credit and ING Capital LLC, dated May 10, 2012 (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on May 15, 2012)

10.19		Amendment No. 1 to Senior Secured Term Loan Agreement between THL Credit and ING Capital LLC, dated February 13, 2013 (Incorporated by reference from the Registrant’s Annual Report on Form 10-K, filed on March 7, 2014)

10.20		Amendment No. 2 to Senior Secured Term Loan Agreement between THL Credit and ING Capital LLC, dated March 15, 2013 (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on March 20, 2013)

10.21		Amendment No. 3 to Senior Secured Term Loan Agreement between THL Credit and ING Capital LLC, dated October 9, 2013 (Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q, filed on November 4, 2013)

10.22		Amendment No. 4 to the Senior Secured Term Loan Credit Agreement dated as of April 30, 2014, by and among the Company as borrower, each of the subsidiary guarantors party thereto, the Lenders party thereto and ING Capital LLC, as Administrative Agent. (Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed on May 1, 2014)

10.23		Amendment No. 6 to the Senior Secured Term Loan Credit Agreement dated as of March 5, 2015, by and among the Company as borrower, each of the subsidiary guarantors party thereto, the Lenders party thereto and ING Capital LLC, as Administrative Agent. (Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed on March 10, 2015)

10.24		Amended and Restated Senior Secured Revolving Credit Agreement, dated as of August 19, 2015, by and among the Company as borrower, each of the subsidiary guarantors party thereto, the Lenders party thereto and ING Capital LLC, as Administrative Agent. (Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on August 20, 2015)

10.25		Amended and Restated Senior Secured Term Loan Credit Agreement dated as of August 19, 2015, by and among the Company as borrower, each of the subsidiary guarantors party thereto, the Lenders party thereto and ING Capital LLC, as Administrative Agent. (Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on August 20, 2015)

10.26		THL Credit Logan JV LLC Limited Liability Company Agreement dated December 3, 2014 between THL Credit, Inc. and Perspecta Trident LLC (Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on December 3, 2014)

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11		Computation of Per Share Earnings (included in the notes to the financial statements contained in this report)

14		Code of Ethics (Incorporated by reference from the Registrant’s pre-effective Amendment No. 4 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2, filed on April 20, 2010)

21		Subsidiaries of the Registrant THL Credit Holdings, Inc.—Delaware THL Corporate Finance, Inc.—Delaware THL Credit SBIC, L.P. —Delaware THL Credit SBIC GP, LLC—Delaware THL Credit AIM Media Holdings, Inc.—Delaware THL Credit YP Holdings, Inc.—Delaware

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934*

31.2		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934*

31.3		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934*

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

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

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

(*)	Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	THL CREDIT, INC.

Date: March 10, 2016	By:	/S/ SAM W. TILLINGHAST Sam W. Tillinghast Co-Chief Executive Officer

Date: March 10, 2016

By:

/s/ CHRISTOPHER J. FLYNN

Christopher J. Flynn

Co-Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Date: March 10, 2016	By:	/S/ SAM W. TILLINGHAST Sam W. Tillinghast Director and Co-Chief Executive Officer (Principal Executive Officer)

Date: March 10, 2016	By:	/S/ CHRISTOPHER J. FLYNN Christopher J. Flynn Director and Co-Chief Executive Officer (Principal Executive Officer)

Date: March 10, 2016	By:	/S/ TERRENCE W. OLSON Terrence W. Olson Chief Financial Officer (Principal Financial and Accounting Officer)

Date: March 10, 2016	By:	/S/ NANCY HAWTHORNE Nancy Hawthorne Chairman of the Board of Directors

Date: March 10, 2016	By:	/S/ DAVID K. DOWNES David K. Downes Director

Date: March 10, 2016	By:	/S/ KEITH W. HUGHES Keith W. Hughes Director

Date: March 10, 2016	By:	/S/ DEBORAH MCANENY Deborah McAneny Director

Date: March 10, 2016	By:	/S/ DAVID P. SOUTHWELL David P. Southwell Director

Date: March 10, 2016	By:	/S/ JAMES D. KERN James D. Kern Director

180

First Eagle Alternative Capital BDC, Inc. - FORM 10-K - March 10, 2016

Attached files