GOLUB CAPITAL BDC, Inc. - FORM 10-Q - August 3, 2016

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EX-32.1 - EXHIBIT 32.1 - GOLUB CAPITAL BDC, Inc.v445698_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - GOLUB CAPITAL BDC, Inc.v445698_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - GOLUB CAPITAL BDC, Inc.v445698_ex31-1.htm
EX-10.1 - EXHIBIT 10.1 - GOLUB CAPITAL BDC, Inc.v445698_ex10-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

 

FORM 10-Q

 

þ                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2016

 

OR

 

o         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 814-00794

 

Golub Capital BDC, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   27-2326940
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)

 

150 South Wacker Drive, Suite 800

Chicago, IL 60606

(Address of principal executive offices)

 

(312) 205-5050

(Registrant's telephone number, including area code)

 

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 þ   No o

 

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

 

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

Large accelerated filer   þ Accelerated filer o
Non-accelerated filer  o  (Do not check if a smaller reporting company) Smaller reporting company o

 

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

 

As of August 3, 2016, the Registrant had 53,056,811 shares of common stock, $0.001 par value, outstanding.

 

 

 

 

 

  

Part I. Financial Information    
         
Item 1. Financial Statements   3
         
    Consolidated Statements of Financial Condition as of June 30, 2016 (unaudited) and September 30, 2015   3
         
    Consolidated Statements of Operations for the three and nine months ended June 30, 2016 (unaudited) and 2015 (unaudited)   4
         
    Consolidated Statements of Changes in Net Assets for the nine months ended June 30, 2016 (unaudited) and 2015 (unaudited)   5
         
    Consolidated Statements of Cash Flows for the nine months ended June 30, 2016 (unaudited) and 2015 (unaudited)   6
         
    Consolidated Schedules of Investments as of June 30, 2016 (unaudited) and September 30, 2015   7
         
    Notes to Consolidated Financial Statements (unaudited)   26
         
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   60
         
Item 3.   Quantitative And Qualitative Disclosures About Market Risk   90
         
Item 4.   Controls and Procedures   91
         
Part II.  Other Information    
         
Item 1. Legal Proceedings   92
         
Item 1A. Risk Factors   92
         
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   92
         
Item 3.   Defaults Upon Senior Securities   92
         
Item 4.   Mine Safety Disclosures   92
         
Item 5.   Other Information   92
         
Item 6.   Exhibits   93

 

2

 

  

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except share and per share data)

 

   June 30, 2016   September 30, 2015 
  (unaudited)     
Assets        
Investments, at fair value          
Non-controlled/non-affiliate company investments  $1,507,898   $1,425,325 
Non-controlled affiliate company investments   9,547    5,523 
Controlled affiliate company investments   111,064    98,936 
Total investments, at fair value (amortized cost of $1,610,427 and $1,517,314, respectively)   1,628,509    1,529,784 
Cash and cash equivalents   3,167    5,468 
Restricted cash and cash equivalents   58,727    92,016 
Interest receivable   5,707    5,700 
Other assets   586    458 
Total Assets  $1,696,696   $1,633,426 
           
Liabilities          
Debt  $862,050   $813,250 
Less unamortized debt issuance costs   6,051    7,624 
Debt less unamortized debt issuance costs   855,999    805,626 
Secured borrowings, at fair value (proceeds of $323 and $351, respectively)   326    355 
Interest payable   5,300    2,722 
Management and incentive fees payable   11,335    11,754 
Payable for open trades   1,949    - 
Accounts payable and accrued expenses   1,750    2,042 
Accrued trustee fees   56    57 
Total Liabilities   876,715    822,556 
Commitments and contingencies (Note 8)          
           
Net Assets          
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized,  
zero shares issued and outstanding as of June 30, 2016 and September 30, 2015		   -    - 
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 51,623,325
and 51,300,193 shares issued and outstanding as of June 30, 2016 and September 30, 2015,
respectively		   52    51 
Paid in capital in excess of par   796,060    790,713 
Undistributed net investment income   2,640    4,230 
Net unrealized appreciation (depreciation) on investments and secured borrowings   20,747    15,134 
Net realized gain (loss) on investments   482    742 
Total Net Assets   819,981    810,870 
Total Liabilities and Total Net Assets  $1,696,696   $1,633,426 
           
Number of common shares outstanding   51,623,325    51,300,193 
Net asset value per common share  $15.88   $15.80 

 

 

  

See Notes to Consolidated Financial Statements.

 

3

 

  

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

(In thousands, except share and per share data)

 

   Three months ended June 30,   Nine months ended June 30, 
   2016   2015   2016   2015 
Investment income                    
From non-controlled/non-affiliate company investments:                    
Interest income  $28,752   $28,782   $83,641   $82,388 
Dividend income   111    74    393    155 
Fee income   60    80    834    883 
Total investment income from non-controlled/non-affiliate company investments   28,923    28,936    84,868    83,426 
                     
From non-controlled affiliate company investments:                    
Interest income   316    -    337    - 
Total investment income from non-controlled affiliate company investments   316    -    337    - 
                     
From controlled affiliate company investments:                    
Interest income   1,799    1,056    5,192    2,258 
Dividend income   1,068    418    2,971    732 
Total investment income from controlled affiliate company investments   2,867    1,474    8,163    2,990 
                     
Total investment income   32,106    30,410    93,368    86,416 
                     
Expenses                    
Interest and other debt financing expenses   7,019    6,142    20,583    17,853 
Base management fee   5,567    5,226    16,286    14,902 
Incentive fee   2,311    2,383    4,262    5,712 
Professional fees   692    741    2,123    2,210 
Administrative service fee   531    575    1,643    1,766 
General and administrative expenses   101    138    386    457 
                     
Total expenses   16,221    15,205    45,283    42,900 
                     
Net investment income - before excise tax   15,885    15,205    48,085    43,516 
                     
Excise tax   -    -    333    - 
                     
Net investment income - after excise tax   15,885    15,205    47,752    43,516 
                     
Net gain (loss) on investments and secured borrowings                    
Net realized gain (loss) on investments:                    
Non-controlled/non-affiliate company investments   (5,416)   (1,746)   (2,982)   4,503 
Non-controlled affiliate company investments   -    -    2,722    - 
Net realized gain (loss) on investments   (5,416)   (1,746)   (260)   4,503 
                     
Net change in unrealized appreciation (depreciation) on investments:                    
Non-controlled/non-affiliate company investments   7,254    4,792    10,203    2,371 
Non-controlled affiliate company investments   (253)   56    (3,052)   727 
Controlled affiliate company investments   818    (19)   (1,539)   203 
Net change in unrealized appreciation (depreciation) on investments   7,819    4,829    5,612    3,301 
                     
Net change in unrealized depreciation (appreciation) on secured borrowings   1    -    1    1 
                     
Net gain (loss) on investments and secured borrowings   2,404    3,083    5,353    7,805 
                     
Net increase in net assets resulting from operations  $18,289   $18,288   $53,105   $51,321 
                     
Per Common Share Data                    
Basic and diluted earnings per common share  $0.35   $0.36   $1.03   $1.06 
Dividends and distributions declared per common share  $0.32   $0.32   $0.96   $0.96 
Basic and diluted weighted average common shares outstanding   51,513,685    50,491,035    51,399,363    48,262,048 

 

See Notes to Consolidated Financial Statements.

 

4

 

  

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

(In thousands, except share data)

 

                   Net Unrealized         
                   Appreciation         
   Common Stock   Paid in Capital       (Depreciation) on         
       Par   in Excess   Undistributed Net   Investments and   Net Realized Gain   Total 
   Shares   Amount   of Par   Investment Income   Secured Borrowings   (Loss) on Investments   Net Assets 
Balance at September 30, 2014   47,119,498   $47   $720,479   $3,627   $12,694   $(4,108)  $732,739 
Issuance of common stock, net of offering and underwriting costs   4,002,292    4    67,248    -    -    -    67,252 
Net increase in net assets resulting from operations   -    -    -    43,516    3,302    4,503    51,321 
Distributions to stockholders:                                   
Stock issued in connection with dividend
reinvestment plan		   137,644    -    2,298    -    -    -    2,298 
Distributions from net investment income   -    -    -    (46,566)   -    -    (46,566)
Total increase (decrease) for the period ended June 30, 2015   4,139,936    4    69,546    (3,050)   3,302    4,503    74,305 
Balance at June 30, 2015   51,259,434   $51   $790,025   $577   $15,996   $395   $807,044 
Balance at September 30, 2015   51,300,193   $51   $790,713   $4,230   $15,134   $742   $810,870 
Net increase in net assets resulting from operations   -    -    -    47,752    5,613    (260)   53,105 
Distributions to stockholders:                                   
Stock issued in connection with dividend
reinvestment plan		   323,132    1    5,347    -    -    -    5,348 
Distributions from net investment income   -    -    -    (49,342)   -    -    (49,342)
Total increase (decrease) for the period ended June 30, 2016   323,132    1    5,347    (1,590)   5,613    (260)   9,111 
Balance at June 30, 2016   51,623,325   $52   $796,060   $2,640   $20,747   $482   $819,981 

 

See Notes to Consolidated Financial Statements.

 

5

 

  

Golub Capital BDC, Inc. and Subsidiaries    
Consolidated Statements of Cash Flows (unaudited)    
(In thousands)    

 

  Nine months ended June 30, 
   2016   2015 
Cash flows from operating activities          
Net increase in net assets resulting from operations  $53,105   $51,321 
Adjustments to reconcile net increase in net assets resulting from operations
to net cash (used in) provided by operating activities:		          
Amortization of debt issuance costs   3,227    3,252 
Accretion of discounts and amortization of premiums   (5,895)   (6,076)
Net realized (gain) loss on investments   260    (4,503)
Net change in unrealized (appreciation) depreciation on investments   (5,612)   (3,301)
Net change in unrealized appreciation (depreciation) on secured borrowings   (1)   (1)
Proceeds from (fundings of) revolving loans, net   (2,624)   (2,865)
Fundings of investments   (471,480)   (667,096)
Proceeds from principal payments and sales of portfolio investments   387,316    461,515 
PIK interest   (689)   (748)
Changes in operating assets and liabilities:          
Interest receivable   (7)   323 
Receivable from investments sold   -    (4,626)
Other assets   (128)   (39)
Interest payable   2,578    1,406 
Management and incentive fees payable   (419)   231 
Payable for open trades   1,949    - 
Accounts payable and accrued expenses   (292)   545 
Accrued trustee fees   (1)   7 
Net cash (used in) provided by operating activities   (38,713)   (170,655)
           
Cash flows from investing activities          
Net change in restricted cash and cash equivalents   33,289    24,608 
Net cash (used in) provided by investing activities   33,289    24,608 
           
Cash flows from financing activities          
Borrowings on debt   288,050    347,350 
Repayments of debt   (239,250)   (221,400)
Capitalized debt issuance costs   (1,654)   (1,509)
Repayments on secured borrowings   (29)   (26)
Proceeds from shares sold, net of underwriting costs   -    67,602 
Offering costs paid   -    (350)
Dividends and distributions paid   (43,994)   (44,268)
Net cash (used in) provided by financing activities   3,123    147,399 
           
Net change in cash and cash equivalents   (2,301)   1,352 
           
Cash and cash equivalents, beginning of period   5,468    5,135 
           
Cash and cash equivalents, end of period  $3,167   $6,487 
           
Supplemental information:          
Cash paid during the period for interest  $14,766   $13,184 
Dividends and distributions declared during the period   49,342    46,566 

 

See Notes to Consolidated Financial Statements.

 

6

 

  

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited)

June 30, 2016

(In thousands)

 

      Spread                    Percentage     
   Investment  Above  Interest  Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Shares/Units(3)   Cost   Net Assets   Value 
                             
Investments                                 
Non-controlled/non-affiliate company investments                                 
Debt investments                                 
Aerospace and Defense                                 
ILC Dover, LP  One stop  P + 6.00%   9.50%  03/2019  $781   $772    0.1%  $630 
ILC Dover, LP*^#  One stop  P + 6.00%   9.50%  03/2020   17,771    17,623    1.8    15,105 
NTS Technical Systems(4)  One stop  L + 6.25%   N/A (5)  06/2021   -    (87)   -    (35)
NTS Technical Systems(4)  One stop  L + 6.25%   N/A (5)  06/2021   -    (41)   -    (28)
NTS Technical Systems*^#  One stop  L + 6.25%   7.25%  06/2021   26,242    25,864    3.2    25,980 
Tresys Technology Holdings, Inc.  One stop  L + 6.75%   8.00%  12/2017   525    522    0.1    525 
Tresys Technology Holdings, Inc.(6)  One stop  L + 6.75%   8.00%  12/2017   3,899    3,845    0.1    1,170 
Whitcraft LLC(4)  One stop  L + 6.50%   N/A (5)  05/2020   -    (1)   -    - 
Whitcraft LLC*^  One stop  L + 6.50%   7.50%  05/2020   13,538    13,431    1.7    13,538 
                 62,756    61,928    7.0   56,885 
Automobile                                 
American Driveline Systems, Inc.  Senior loan  P + 4.75%   8.25%  03/2020   114    107    -    104 
American Driveline Systems, Inc.*  Senior loan  L + 5.75%   6.75%  03/2020   1,803    1,759    0.2    1,713 
American Driveline Systems, Inc.^  Senior loan  L + 5.75%   6.75%  03/2020   233    229    -    233 
CH Hold Corp. (Caliber Collision)*#  Senior loan  L + 5.25%   6.25%  11/2019   5,157    5,118    0.6    5,157 
Dent Wizard International Corporation*  Senior loan  L + 4.75%   5.75%  04/2020   2,476    2,465    0.3    2,476 
K&N Engineering, Inc.(4)  Senior loan  L + 4.25%   N/A (5)  07/2019   -    (3)   -    - 
K&N Engineering, Inc.^  Senior loan  L + 4.25%   5.25%  07/2019   2,828    2,800    0.4    2,828 
K&N Engineering, Inc.^  Senior loan  L + 4.25%   5.25%  07/2019   133    122    -    133 
OEConnection LLC(4)  Senior loan  L + 5.00%   N/A (5)  06/2021   -    (1)   -    (1)
OEConnection LLC*  Senior loan  L + 5.00%   6.00%  06/2022   4,895    4,769    0.6    4,822 
Polk Acquisition Corp.  Senior loan  P + 4.00%   7.50%  06/2022   13    11    -    12 
Polk Acquisition Corp.  Senior loan  L + 5.00%   N/A (5)  06/2022   -    -    -    - 
Polk Acquisition Corp.(4)  Senior loan  L + 5.00%   N/A (5)  06/2022   -    (2)   -    - 
Polk Acquisition Corp.*  Senior loan  L + 5.00%   6.00%  06/2022   4,746    4,670    0.6    4,722 
T5 Merger Corporation(4)  One stop  L + 6.25%   N/A (5)  03/2022   -    (2)   -    - 
T5 Merger Corporation^  One stop  L + 6.25%   7.25%  03/2022   2,400    2,360    0.3    2,400 
                 24,798    24,402    3.0   24,599 
Banking                                 
HedgeServ Holding L.P.(4)  One stop  L + 8.00%   N/A (5)  02/2019   -    (5)   -    - 
HedgeServ Holding L.P.*^#  One stop  L + 8.00%   7.00% cash/2.00% PIK   02/2019   17,440    17,352    2.1    17,440 
                 17,440    17,347    2.1   17,440 
Beverage, Food and Tobacco                                 
Abita Brewing Co., L.L.C.(4)  One stop  L + 5.75%   6.75%  04/2021   4    3    -    (11)
Abita Brewing Co., L.L.C.  One stop  L + 5.75%   6.75%  04/2021   8,013    7,884    0.9    7,212 
ABP Corporation  Senior loan  P + 3.50%   7.25%  09/2018   209    205    -    204 
ABP Corporation*  Senior loan  L + 4.75%   6.00%  09/2018   4,709    4,675    0.6    4,662 
Atkins Nutritionals, Inc*^#  One stop  L + 5.00%   6.25%  01/2019   16,873    16,738    2.1    16,873 
Atkins Nutritionals, Inc*^  One stop  L + 8.50%   9.75%  04/2019   21,636    21,447    2.6    21,636 
Benihana, Inc.  One stop  P + 4.25%   7.75%  07/2018   760    727    0.1    760 
Benihana, Inc.*^  One stop  L + 5.50%   6.75%  01/2019   15,318    15,079    1.9    15,318 
C. J. Foods, Inc.(4)  One stop  L + 5.50%   N/A (5)  05/2019   -    (6)   -    - 
C. J. Foods, Inc.  One stop  L + 5.50%   6.50%  05/2019   664    657    0.1    664 
C. J. Foods, Inc.*  One stop  L + 5.50%   6.50%  05/2019   3,150    3,122    0.4    3,150 
Firebirds International, LLC(4)  One stop  L + 5.75%   N/A (5)  05/2018   -    (1)   -    - 
Firebirds International, LLC*  One stop  L + 5.75%   7.00%  05/2018   1,076    1,069    0.1    1,076 
Firebirds International, LLC*  One stop  L + 5.75%   7.00%  05/2018   302    300    -    302 
Firebirds International, LLC(4)  One stop  L + 5.75%   N/A (5)  05/2018   -    (2)   -    - 
First Watch Restaurants, Inc.  One stop  L + 6.00%   7.00%  12/2020   1,240    1,232    0.2    1,240 
First Watch Restaurants, Inc.*^#  One stop  L + 6.00%   7.00%  12/2020   25,660    25,438    3.1    25,660 
First Watch Restaurants, Inc.  One stop  L + 6.00%   7.00%  12/2020   1,078    1,068    0.1    1,078 
First Watch Restaurants, Inc.(4)  One stop  L + 6.00%   N/A (5)  12/2020   -    (10)   -    - 
First Watch Restaurants, Inc.(4)  One stop  L + 6.00%   N/A (5)  12/2020   -    (9)   -    - 
Hopdoddy Holdings, LLC  One stop  L + 8.00%   N/A (5)  08/2020   -    -    -    - 
Hopdoddy Holdings, LLC  One stop  L + 8.00%   9.00%  08/2020   661    650    0.1    661 
Hopdoddy Holdings, LLC(4)  One stop  L + 8.00%   N/A (5)  08/2020   -    (3)   -    - 
IT'SUGAR LLC  Subordinated debt  N/A   5.00%  10/2017   1,707    1,707    0.2    1,924 
Northern Brewer, LLC  One stop  L + 6.50%   8.00%  02/2018   700    693    0.1    664 
Northern Brewer, LLC  One stop  L + 6.50%   8.01%  02/2018   5,964    5,906    0.7    5,666 
The Original Cakerie Ltd.(7)(8)  Senior loan  L + 5.00%   N/A (5)  12/2020   -    -    -    - 
The Original Cakerie Ltd.#(7)(8)  Senior loan  L + 5.00%   6.00%  12/2020   1,648    1,633    0.2    1,648 
Purfoods, LLC(4)  One stop  L + 6.25%   N/A (5)  05/2021   -    (1)   -    (1)
Purfoods, LLC  One stop  L + 6.25%   7.25%  05/2021   8,669    8,459    1.0    8,582 
Purfoods, LLC(4)  One stop  L + 6.25%   N/A (5)  05/2021   -    (1)   -    (1)
Purfoods, LLC  One stop  N/A   7.00% PIK  05/2026   101    101    -    101 
Restaurant Holding Company, LLC #  Senior loan  L + 7.75%   8.75%  02/2019   4,737    4,710    0.6    4,642 
Rubio's Restaurants, Inc*^  Senior loan  L + 4.75%   6.00%  11/2018   8,941    8,896    1.1    8,941 
Smashburger Finance LLC(4)  Senior loan  L + 5.00%   N/A (5)  05/2018   -    (2)   -    - 
Smashburger Finance LLC  Senior loan  L + 5.00%   6.25%  05/2018   87    86    -    87 
Surfside Coffee Company LLC  One stop  L + 5.25%   6.25%  06/2020   21    20    -    21 
Surfside Coffee Company LLC^  One stop  L + 5.25%   6.25%  06/2020   4,481    4,445    0.5    4,481 
Surfside Coffee Company LLC  One stop  L + 5.25%   6.25%  06/2020   242    234    -    242 
                                   

 

See Notes to Consolidated Financial Statements

 

7

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
Tate's Bake Shop, Inc.#  Senior loan  L + 5.00%   6.00%  08/2019   599    594    0.1    599 
Uinta Brewing Company  One stop  L + 7.00%   8.00%  08/2019   308    305    -    291 
Uinta Brewing Company^  One stop  L + 7.00%   8.00%  08/2019   3,734    3,711    0.5    3,586 
United Craft Brews LLC  One stop  L + 6.25%   7.25%  03/2020   813    800    0.1    813 
United Craft Brews LLC  One stop  L + 6.25%   7.25%  03/2020   1,215    1,203    0.1    1,215 
United Craft Brews LLC  One stop  L + 6.25%   7.25%  03/2020   12,066    11,867    1.5    12,066 
                  157,386    155,629    19.0   156,052 
Broadcasting and Entertainment                                  
TouchTunes Interactive Networks, Inc.^  Senior loan  L + 4.75%   5.75%  05/2021   1,481    1,475    0.2    1,490 
                                   
Building and Real Estate                                  
Brooks Equipment Company, LLC (4)  One stop  L + 5.00%   N/A (5)  08/2020   -    (14)   -    - 
Brooks Equipment Company, LLC*^  One stop  L + 5.00%   6.00%  08/2020   23,780    23,535    2.9    23,780 
ITEL Laboratories, Inc.  Senior loan  L + 4.75%   N/A (5)  06/2018   -    -    -    - 
ITEL Laboratories, Inc.*  Senior loan  L + 4.75%   6.00%  06/2018   635    632    0.1    635 
                  24,415    24,153    3.0   24,415 
Containers, Packaging and Glass                                  
Fort Dearborn Company*^  Senior loan  L + 4.25%   5.25%  10/2017   523    522    0.1    523 
Fort Dearborn Company*^  Senior loan  L + 4.75%   5.95%  10/2018   2,981    2,969    0.4    2,981 
Packaging Coordinators, Inc.  Second lien  L + 8.00%   9.00%  08/2022   10,000    9,923    1.2    10,000 
Packaging Coordinators, Inc.*  Senior loan  P + 3.25%   6.75%  08/2021   2,828    2,808    0.3    2,828 
                  16,332    16,222    2.0   16,332 
Diversified Conglomerate Manufacturing                                  
Chase Industries, Inc.#  One stop  L + 5.75%   6.75%  09/2020   3,368    3,334    0.4    3,368 
Chase Industries, Inc.(4)  One stop  L + 5.75%   N/A (5)  09/2020   -    (15)   -    - 
Chase Industries, Inc.*^#  One stop  L + 5.75%   6.75%  09/2020   20,723    20,577    2.5    20,723 
Harvey Tool Company, LLC  Senior loan  L + 5.00%   N/A (5)  03/2019   -    -    -    - 
Harvey Tool Company, LLC*  Senior loan  L + 5.00%   6.01%  03/2020   3,115    3,090    0.4    3,115 
Inventus Power, Inc(4)  One stop  L + 5.50%   N/A (5)  04/2020   -    (3)   -    (31)
Inventus Power, Inc*^  One stop  L + 5.50%   6.50%  04/2020   8,409    8,366    1.0    7,904 
Onicon Incorporated(4)  One stop  L + 6.00%   N/A (5)  04/2020   -    (6)   -    - 
Onicon Incorporated*#  One stop  L + 6.00%   7.00%  04/2020   10,403    10,306    1.2    10,403 
Pasternack Enterprises, Inc. #  Senior loan  L + 5.00%   6.00%  05/2022   1,644    1,628    0.2    1,627 
PetroChoice Holdings, Inc.^  Senior loan  L + 5.00%   6.00%  08/2022   1,772    1,721    0.2    1,737 
Plex Systems, Inc.(4)  One stop  L + 7.50%   N/A (5)  06/2018   -    (26)   -    - 
Plex Systems, Inc.*^  One stop  L + 7.50%   8.75%  06/2018   18,797    18,447    2.3    18,797 
Sunless Merger Sub, Inc.  Senior loan  P + 4.00%   7.50%  07/2019   151    150    -    149 
Sunless Merger Sub, Inc.  Senior loan  L + 5.25%   6.50%  07/2019   1,518    1,523    0.2    1,488 
                  69,900    69,092    8.4   69,280 
Diversified Conglomerate Service                                  
Accellos, Inc.(4)  One stop  L + 5.75%   N/A (5)  07/2020   -    (14)   -    - 
Accellos, Inc.*^#  One stop  L + 5.75%   6.75%  07/2020   31,051    30,790    3.8    31,051 
Actiance, Inc.  One stop  L + 9.00%   N/A (5)  04/2018   -    -    -    - 
Actiance, Inc.*^  One stop  L + 9.00%   10.00%  04/2018   2,900    2,820    0.3    2,900 
Agility Recovery Solutions Inc.(4)  One stop  L + 6.50%   N/A (5)  03/2020   -    (7)   -    - 
Agility Recovery Solutions Inc.*^  One stop  L + 6.50%   7.50%  03/2020   14,128    13,975    1.7    14,128 
Bomgar Corporation(4)  One stop  L + 7.50%   N/A (5)  06/2022   -    (2)   -    (1)
Bomgar Corporation^  One stop  L + 7.50%   8.50%  06/2022   4,900    4,802    0.6    4,851 
CIBT Holdings, Inc^  Senior loan  L + 5.25%   6.25%  06/2022   1,978    1,958    0.2    1,958 
CIBT Holdings, Inc  Senior loan  L + 5.25%   N/A (5)  06/2022   -    -    -    - 
Daxko, LLC(4)  One stop  L + 5.00%   N/A (5)  03/2020   -    (21)   -    - 
Daxko, LLC*^#  One stop  L + 5.00%   6.00%  03/2020   28,870    28,580    3.5    28,870 
DTI Holdco, Inc.#  Senior loan  L + 5.00%   6.00%  08/2020   8,281    8,219    1.0    8,281 
EGD Security Systems, LLC(4)  One stop  L + 6.25%   N/A (5)  06/2022   -    (2)   -    (2)
EGD Security Systems, LLC  One stop  L + 6.25%   7.25%  06/2022   11,114    10,866    1.3    11,002 
EGD Security Systems, LLC(4)  One stop  L + 6.25%   N/A (5)  06/2022   -    (2)   -    (2)
HealthcareSource HR, Inc.(4)  One stop  L + 6.75%   N/A (5)  05/2020   -    (1)   -    - 
HealthcareSource HR, Inc.#  One stop  L + 6.75%   7.75%  05/2020   17,769    17,439    2.2    17,769 
Host Analytics, Inc.  One stop  N/A   8.50% cash/2.25% PIK   02/2020   734    730    0.1    734 
Host Analytics, Inc.  One stop  N/A   8.50% cash/2.25% PIK   02/2020   3,011    2,973    0.4    3,011 
Integration Appliance, Inc.(4)  One stop  L + 8.25%   N/A (5)  09/2018   -    (9)   -    - 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  09/2020   5,396    5,302    0.7    5,396 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  09/2020   7,914    7,762    1.0    7,914 
Integration Appliance, Inc.*  One stop  L + 8.25%   9.50%  09/2020   719    709    0.1    719 
Integration Appliance, Inc.*^  One stop  L + 8.25%   9.50%  09/2020   16,123    15,977    2.0    16,123 
Jensen Hughes, Inc.#  Senior loan  L + 5.00%   6.00%  12/2021   157    155    -    157 
Mediaocean LLC#  Senior loan  L + 4.75%   5.75%  08/2022   167    164    -    167 
Netsmart Technologies, Inc.#  Senior loan  L + 4.75%   5.75%  04/2023   1,777    1,759    0.2    1,774 
Netsmart Technologies, Inc.(4)  Senior loan  L + 4.75%   N/A (5)  04/2023   -    (9)   -    (1)
PT Intermediate Holdings III, LLC  One stop  L + 6.50%   7.50%  06/2022   7    3    -    3 
PT Intermediate Holdings III, LLC  One stop  L + 6.50%   7.50%  06/2022   22,250    21,696    2.7    21,916 
Secure-24, LLC(4)  One stop  L + 6.00%   N/A (5)  08/2017   -    (2)   -    - 
Secure-24, LLC*  One stop  L + 6.00%   7.25%  08/2017   9,802    9,733    1.2    9,802 
Secure-24, LLC^  One stop  L + 6.00%   7.25%  08/2017   1,434    1,426    0.2    1,434 
Severin Acquisition, LLC^  Senior loan  L + 5.00%   6.00%  07/2021   796    789    0.1    796 
Severin Acquisition, LLC^  Senior loan  L + 5.38%   6.38%  07/2021   895    886    0.1    909 

 

See Notes to Consolidated Financial Statements

 

8

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
Source Medical Solutions, Inc.  Second lien  L + 11.00%   9.00% cash/3.00% PIK  03/2018   9,403    9,244    1.1    9,026 
Steelwedge Software, Inc.  One stop  L + 10.00%   N/A (5)  09/2020   -    -    -    - 
Steelwedge Software, Inc.^  One stop  L + 10.00%   9.00% cash/2.00% PIK  09/2020   2,185    2,092    0.3    2,185 
TA MHI Buyer, Inc.  One stop  L + 6.50%   N/A (5)  09/2021   -    -    -    - 
TA MHI Buyer, Inc.^  One stop  L + 6.50%   7.50%  09/2021   8,253    8,190    1.0    8,253 
TA MHI Buyer, Inc.^  One stop  L + 6.50%   7.50%  09/2021   238    236    -    238 
TA MHI Buyer, Inc. ^  One stop  L + 6.50%   7.50%  09/2021   667    661    0.1    667 
Transaction Data Systems, Inc.#  Senior loan  L + 5.25%   6.25%  06/2021   763    755    0.1    763 
Trintech, Inc.(4)  One stop  L + 6.00%   N/A (5)  10/2021   -    (1)   -    - 
Trintech, Inc. *^#  One stop  L + 6.00%   7.00%  10/2021   10,972    10,848    1.3    10,863 
Vendavo, Inc.(4)  One stop  L + 8.50%   N/A (5)  10/2019   -    (10)   -    - 
Vendavo, Inc.  One stop  L + 8.50%   9.50%  10/2019   15,501    15,272    1.9    15,501 
Vendor Credentialing Service LLC(4)  One stop  L + 6.00%   N/A (5)  11/2021   -    (1)   -    - 
Vendor Credentialing Service LLC  One stop  L + 6.00%   7.00%  11/2021   10,220    9,984    1.2    10,220 
Vitalyst, LLC  Senior loan  P + 4.25%   7.75%  09/2017   11    10    -    4 
Vitalyst, LLC  Senior loan  L + 5.25%   6.50%  09/2017   1,461    1,455    0.2    1,417 
Workforce Software, LLC  One stop  L + 10.50%   N/A (5)  06/2021   -    -    -    - 
Workforce Software, LLC^  One stop  L + 10.50%   4.50% cash/7.00% PIK  06/2021   4,950    4,913    0.6    4,913 
                  256,797    253,092    31.2   255,709 
Electronics                                  
Appriss Holdings, Inc.  Senior loan  L + 4.75%   5.75%  11/2020   1,484    1,452    0.2    1,484 
Appriss Holdings, Inc.*#  Senior loan  L + 4.75%   5.75%  11/2020   20,789    20,556    2.5    20,789 
Compusearch Software Holdings, Inc.^  Senior loan  L + 4.50%   5.50%  05/2021   1,311    1,309    0.2    1,311 
Diligent Corporation(4)  One stop  L + 6.75%   N/A (5)  04/2022   -    (2)   -    (2)
Diligent Corporation*  One stop  L + 6.75%   7.75%  04/2022   4,900    4,794    0.6    4,827 
ECI Acquisition Holdings, Inc.(4)  One stop  L + 6.25%   N/A (5)  03/2019   -    (10)   -    - 
ECI Acquisition Holdings, Inc.*^#  One stop  L + 6.25%   7.25%  03/2019   21,723    21,503    2.6    21,723 
ECI Acquisition Holdings, Inc.*  One stop  L + 6.25%   7.25%  03/2019   1,406    1,392    0.2    1,406 
Gamma Technologies, LLC(4)  One stop  L + 5.50%   N/A (5)  06/2021   -    (1)   -    - 
Gamma Technologies, LLC^#  One stop  L + 5.50%   6.50%  06/2021   18,047    17,897    2.2    18,047 
Park Place Technologies LLC(4)  One stop  L + 5.25%   N/A (5)  06/2022   -    (2)   -    - 
Park Place Technologies LLC*#  One stop  L + 5.25%   6.25%  06/2022   12,497    12,325    1.5    12,497 
Sloan Company, Inc., The(4)  One stop  L + 8.50%   N/A (5)  04/2020   -    (1)   -    (4)
Sloan Company, Inc., The#  One stop  L + 8.50%   9.25% cash/0.25% PIK  04/2020   7,532    7,423    0.9    7,005 
Sovos Compliance (4)  One stop  L + 6.75%   N/A (5)  03/2022   -    (1)   -    - 
Sovos Compliance*  One stop  L + 6.75%   7.75%  03/2022   4,918    4,836    0.6    4,918 
Sparta Holding Corporation(4)  One stop  L + 5.50%   N/A (5)  07/2020   -    (26)   -    - 
Sparta Holding Corporation*^#  One stop  L + 5.50%   6.50%  07/2020   22,309    22,118    2.7    22,309 
Syncsort Incorporated(4)  One stop  L + 5.50%   N/A (5)  11/2021   -    (2)   -    - 
Syncsort Incorporated*^#  One stop  L + 5.50%   6.50%  11/2021   16,651    16,351    2.0    16,651 
Systems Maintenance Services Holding, Inc.^  Senior loan  L + 4.00%   5.00%  10/2019   2,603    2,596    0.3    2,603 
Watchfire Enterprises, Inc.  Second lien  L + 8.00%   9.00%  10/2021   9,435    9,266    1.2    9,435 
                  145,605    143,773    17.7   144,999 
Grocery                                  
AG Kings Holdings Inc.^  One stop  L + 6.25%   7.25%  04/2020   689    679    0.1    689 
MyWebGrocer, Inc.^  One stop  L + 8.75%   10.00%  05/2017   14,271    14,163    1.7    14,271 
Teasdale Quality Foods, Inc.#  Senior loan  L + 4.75%   5.75%  10/2020   545    539    0.1    534 
Teasdale Quality Foods, Inc.#  Senior loan  P + 3.75%   7.25%  10/2020   735    720    0.1    720 
                  16,240    16,101    2.0   16,214 
Healthcare, Education and Childcare                                  
Active Day, Inc.(4)  One stop  L + 6.00%   N/A (5)  12/2021   -    (2)   -    - 
Active Day, Inc.  One stop  L + 6.00%   7.00%  12/2021   13,572    13,234    1.7    13,572 
Active Day, Inc.(4)  One stop  L + 6.00%   N/A (5)  12/2021   -    (38)   -    - 
ADCS Clinics Intermediate Holdings, LLC(4)  One stop  L + 5.75%   N/A (5)  05/2022   -    (2)   -    (1)
ADCS Clinics Intermediate Holdings, LLC  One stop  L + 5.75%   6.75%  05/2022   21,550    20,917    2.6    21,335 
ADCS Clinics Intermediate Holdings, LLC(4)  One stop  L + 5.75%   N/A (5)  05/2022   -    (5)   -    (2)
ADCS Clinics Intermediate Holdings, LLC  One stop  L + 5.75%   6.75%  05/2022   110    108    -    109 
Agilitas USA, Inc.^  Senior loan  L + 4.00%   5.00%  10/2020   2,125    2,110    0.3    2,103 
Aris Teleradiology Company, LLC  Senior loan  L + 4.75%   N/A (5)  03/2021   -    -    -    - 
Aris Teleradiology Company, LLC*  Senior loan  L + 4.75%   5.75%  03/2021   943    934    0.1    943 
Avalign Technologies, Inc.^  Senior loan  L + 4.50%   5.50%  07/2021   1,136    1,131    0.1    1,136 
BIORECLAMATIONIVT, LLC (4)  One stop  L + 6.25%   N/A (5)  01/2021   -    (2)   -    - 
BIORECLAMATIONIVT, LLC *^#  One stop  L + 6.25%   7.25%  01/2021   14,428    14,200    1.8    14,428 
California Cryobank, LLC  One stop  P + 4.25%   7.75%  08/2019   22    20    -    22 
California Cryobank, LLC^  One stop  L + 5.50%   6.50%  08/2019   1,550    1,541    0.2    1,550 
California Cryobank, LLC  One stop  L + 5.50%   6.50%  08/2019   43    42    -    43 
Certara L.P.(4)  One stop  L + 6.25%   N/A (5)  12/2018   -    (11)   -    - 
Certara L.P.*^#  One stop  L + 6.25%   7.25%  12/2018   29,137    28,921    3.6    29,137 
CLP Healthcare Services, Inc.^  Senior loan  L + 5.25%   6.25%  12/2020   3,974    3,936    0.5    3,974 
CPI Buyer, LLC (Cole-Parmer)*^  Senior loan  L + 4.50%   5.50%  08/2021   7,760    7,532    0.9    7,606 
Curo Health Services LLC#  Senior loan  L + 5.50%   6.50%  02/2022   1,975    1,959    0.2    1,968 
DCA Investment Holding, LLC  One stop  P + 4.25%   7.75%  07/2021   797    782    0.1    797 
DCA Investment Holding, LLC*^#  One stop  L + 5.25%   6.25%  07/2021   19,015    18,663    2.3    19,015 
DCA Investment Holding, LLC*^#  One stop  L + 5.25%   6.25%  07/2021   13,638    13,487    1.7    13,638 
Deca Dental Management LLC  One stop  L + 6.25%   7.25%  07/2020   37    36    -    37 
Deca Dental Management LLC  One stop  L + 6.25%   7.25%  07/2020   506    496    0.1    506 

 

See Notes to Consolidated Financial Statements

 

9

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
Deca Dental Management LLC*^  One stop  L + 6.25%   7.25%  07/2020   4,158    4,106    0.5    4,158 
Delta Educational Systems*(6)  Senior loan  P + 4.75%   8.25%  12/2016   1,438    1,433    -    216 
Delta Educational Systems(4)(6)  Senior loan  L + 6.00%   N/A (5)  12/2016   -    -    -    (60)
Dental Holdings Corporation  One stop  P + 4.25%   7.75%  02/2020   213    203    -    213 
Dental Holdings Corporation  One stop  L + 5.50%   6.50%  02/2020   7,618    7,490    0.9    7,618 
Dental Holdings Corporation  One stop  L + 5.50%   6.50%  02/2020   731    718    0.1    731 
Encore GC Acquisition, LLC  Senior loan  P + 4.25%   7.75%  01/2020   165    158    -    165 
Encore GC Acquisition, LLC*^  Senior loan  L + 5.25%   6.25%  01/2020   4,785    4,723    0.6    4,785 
eSolutions, Inc.(4)  One stop  L + 6.50%   N/A (5)  03/2022   -    (1)   -    - 
eSolutions, Inc.  One stop  L + 6.50%   7.50%  03/2022   13,108    12,829    1.6    13,108 
G & H Wire Company, Inc.  One stop  P + 4.50%   8.00%  12/2017   375    372    0.1    375 
G & H Wire Company, Inc.*^  One stop  L + 5.75%   6.75%  12/2017   13,190    13,133    1.6    13,190 
Joerns Healthcare, LLC*^  One stop  L + 5.00%   6.00%  05/2020   3,849    3,809    0.5    3,743 
Katena Holdings, Inc.(4)  One stop  L + 6.25%   N/A (5)  06/2021   -    (1)   -    - 
Katena Holdings, Inc.^  One stop  L + 6.25%   7.25%  06/2021   8,721    8,645    1.1    8,721 
Katena Holdings, Inc.(4)  One stop  L + 6.25%   N/A (5)  06/2021   -    (7)   -    - 
Lombart Brothers, Inc.  One stop  L + 6.50%   7.50%  04/2022   16    15    -    16 
Lombart Brothers, Inc.  One stop  L + 6.50%   7.50%  04/2022   3,517    3,420    0.4    3,464 
Maverick Healthcare Group, LLC*  Senior loan  L + 9.50%    9.25% cash/2.00% PIK  04/2017   1,921    1,912    0.2    1,921 
Oliver Street Dermatology Holdings, LLC(4)  One stop  L + 6.50%   N/A (5)  05/2022   -    (1)   -    (1)
Oliver Street Dermatology Holdings, LLC  One stop  L + 6.50%   7.50%  05/2022   8,626    8,380    1.0    8,497 
Oliver Street Dermatology Holdings, LLC(4)  One stop  L + 6.50%   N/A (5)  05/2022   -    (3)   -    (2)
PPT Management, LLC  One stop  L + 5.00%   6.00%  04/2020   703    695    0.1    703 
PPT Management, LLC#  One stop  L + 5.00%   6.00%  04/2020   2,451    2,429    0.3    2,451 
PPT Management, LLC  One stop  L + 5.00%   6.00%  04/2020   933    924    0.1    933 
Premise Health Holding Corp.(4)  One stop  L + 4.50%   N/A (5)  06/2020   -    (17)   -    - 
Premise Health Holding Corp.#  One stop  L + 4.50%   5.50%  06/2020   15,000    14,913    1.8    15,000 
Pyramid Healthcare, Inc.#  One stop  L + 5.75%   6.75%  08/2019   1,488    1,474    0.2    1,488 
Radiology Partners, Inc.(4)  One stop  L + 5.00%   N/A (5)  09/2020   -    (3)   -    - 
Radiology Partners, Inc.  One stop  L + 5.00%   6.00%  09/2020   9,825    9,686    1.2    9,825 
Radiology Partners, Inc.  One stop  L + 5.00%   6.00%  09/2020   1,112    1,093    0.1    1,112 
Reliant Pro ReHab, LLC  Senior loan  P + 4.00%   7.50%  12/2017   97    91    -    97 
Reliant Pro ReHab, LLC*  Senior loan  L + 5.00%   6.00%  12/2017   2,564    2,546    0.3    2,564 
RXH Buyer Corporation  One stop  P + 4.75%   8.25%  09/2021   20    17    -    12 
RXH Buyer Corporation(4)  One stop  L + 5.75%   N/A (5)  09/2021   -    (49)   -    (113)
RXH Buyer Corporation*^  One stop  L + 5.75%   6.75%  09/2021   17,480    17,177    2.1    16,780 
Southern Anesthesia and Surgical  One stop  L + 5.50%   6.50%  11/2017   631    627    0.1    631 
Southern Anesthesia and Surgical  One stop  L + 5.50%   6.50%  11/2017   5,551    5,508    0.7    5,551 
Southern Anesthesia and Surgical^  One stop  L + 5.50%   6.50%  11/2017   2,722    2,704    0.3    2,722 
Spear Education, LLC(4)  One stop  L + 6.00%   N/A (5)  08/2019   -    -    -    (1)
Spear Education, LLC#  One stop  L + 6.00%   7.00%  08/2019   4,744    4,706    0.6    4,697 
Spear Education, LLC  One stop  L + 6.00%   7.00%  08/2019   76    76    -    75 
Summit Behavioral Holdings I, LLC(4)  One stop  L + 5.00%   N/A (5)  06/2021   -    (1)   -    - 
Summit Behavioral Holdings I, LLC*  One stop  L + 5.00%   6.00%  06/2021   4,393    4,338    0.5    4,349 
Summit Behavioral Holdings I, LLC(4)  One stop  L + 5.00%   N/A (5)  06/2021   -    (2)   -    (1)
Surgical Information Systems, LLC^  Senior loan  L + 3.00%   4.00%  09/2018   1,728    1,726    0.2    1,728 
U.S. Anesthesia Partners, Inc.#  One stop  L + 5.00%   6.00%  12/2019   5,897    5,878    0.7    5,897 
Young Innovations, Inc.*#  Senior loan  L + 4.25%   5.25%  01/2019   1,737    1,730    0.2    1,737 
Young Innovations, Inc.  Senior loan  P + 3.25%   6.75%  01/2018   75    75    -    74 
                  283,976    279,663    34.3   281,085 
Home and Office Furnishings, Housewares, and Durable Consumer                                  
1A Smart Start LLC*  Senior loan  L + 4.75%   5.75%  02/2022   2,121    2,103    0.3    2,116 
Floor & Decor Outlets of America, Inc.*^  One stop  L + 6.50%   7.75%  05/2019   11,044    10,979    1.3    11,044 
Plano Molding Company, LLC*^#  One stop  L + 6.00%   7.00%   05/2021   17,979    17,832    2.1    16,901 
                  31,144    30,914    3.7   30,061 
Hotels, Motels, Inns, and Gaming                                  
Aimbridge Hospitality, LLC^  Senior loan  L + 4.50%   5.75%  10/2018   820    806    0.1    820 
                                   
Insurance                                  
Captive Resources Midco, LLC (4)  One stop  L + 5.75%   N/A (5)  06/2020   -    (19)   -    - 
Captive Resources Midco, LLC (4)  One stop  L + 5.75%   N/A (5)  06/2020   -    (17)   -    - 
Captive Resources Midco, LLC*^#  One stop  L + 5.75%   6.75%  06/2020   26,193    25,928    3.2    26,193 
Higginbotham Insurance Agency, Inc.*  Senior loan  L + 5.25%   6.25%  11/2021   1,304    1,292    0.1    1,304 
Internet Pipeline, Inc.(4)  One stop  L + 7.25%   N/A (5)  08/2021   -    (1)   -    - 
Internet Pipeline, Inc.  One stop  L + 7.25%   8.25%  08/2022   4,923    4,804    0.6    4,923 
RSC Acquisition, Inc.#  Senior loan  L + 5.25%   6.25%  11/2022   631    625    0.1    631 
                  33,051    32,612    4.0   33,051 
Leisure, Amusement, Motion Pictures and Entertainment                                  
NFD Operating, LLC  One stop  L + 7.00%   N/A (5)  06/2021   -    -    -    - 
NFD Operating, LLC*  One stop  L + 7.00%   8.25%  06/2021   2,349    2,314    0.3    2,325 
NFD Operating, LLC(4)  One stop  L + 7.00%   N/A (5)  06/2021   -    (2)   -    (1)
Self Esteem Brands, LLC(4)  Senior loan  L + 4.00%   N/A (5)  02/2020   -    (3)   -    - 
Self Esteem Brands, LLC^  Senior loan  L + 4.00%   5.00%  02/2020   3,287    3,275    0.4    3,287 
Teaching Company, The(4)  One stop  L + 6.25%   N/A (5)  08/2020   -    (1)   -    - 
Teaching Company, The  One stop  L + 6.25%   7.25%  08/2020   18,974    18,738    2.3    18,974 

 

See Notes to Consolidated Financial Statements

 

10

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
Titan Fitness, LLC  One stop  L + 7.00%   8.25%  09/2019   1,747    1,732    0.2    1,747 
Titan Fitness, LLC  One stop  L + 7.00%   8.25%  09/2019   582    543    0.1    582 
Titan Fitness, LLC  One stop  P + 5.75%   9.25%  09/2019   419    405    -    419 
Titan Fitness, LLC*  One stop  L + 7.00%   8.25%  09/2019   13,257    13,091    1.6    13,257 
                  40,615    40,092    4.9   40,590 
Mining, Steel, Iron and Non-Precious Metals                                  
Benetech, Inc.  One stop  P + 7.75%   11.25%  10/2017   152    149    -    20 
Benetech, Inc.*  One stop  L + 9.00%   10.25%  10/2017   4,493    4,478    0.5    3,954 
                  4,645    4,627    0.5   3,974 
Oil and Gas                                  
Drilling Info, Inc.(9)  One stop  L + 5.00%   N/A (5)  06/2018   -    -    -    - 
Drilling Info, Inc.(9)  One stop  L + 5.00%   6.00%  06/2018   326    324    -    326 
Drilling Info, Inc.^  One stop  L + 5.00%   6.00%  06/2018   872    867    0.1    872 
Drilling Info, Inc.(4)(9)  One stop  L + 5.00%   N/A (5)  06/2018   -    (7)   -    - 
                  1,198    1,184    0.1   1,198 
Personal and Non-Durable Consumer Products                                  
Georgica Pine Clothiers, LLC(4)  One stop  L + 5.50%   N/A (5)  11/2021   -    (1)   -    - 
Georgica Pine Clothiers, LLC  One stop  L + 5.50%   6.50%  11/2021   5,750    5,647    0.7    5,750 
The Hygenic Corporation(4)  Senior loan  L + 5.00%   N/A (5)  10/2019   -    (4)   -    - 
The Hygenic Corporation*  Senior loan  P + 4.00%   7.50%  10/2020   3,251    3,214    0.4    3,251 
Massage Envy, LLC(4)  One stop  L + 7.25%   N/A (5)  09/2018   -    (7)   -    - 
Massage Envy, LLC*  One stop  L + 7.25%   8.50%  09/2018   15,151    15,009    1.8    15,151 
Orthotics Holdings, Inc(4)(7)  One stop  L + 5.00%   N/A (5)  02/2020   -    (1)   -    (7)
Orthotics Holdings, Inc*#(7)  One stop  L + 5.00%   6.00%  02/2020   1,377    1,364    0.2    1,308 
Orthotics Holdings, Inc(4)  One stop  L + 5.00%   N/A (5)  02/2020   -    (13)   -    (70)
Orthotics Holdings, Inc  One stop  L + 5.00%   6.00%  02/2020   139    128    -    77 
Orthotics Holdings, Inc*#  One stop  L + 5.00%   6.00%  02/2020   8,396    8,319    1.0    7,976 
Team Technologies Acquisition Company(4)  Senior loan  L + 5.00%   N/A (5)  12/2017   -    (1)   -    (3)
Team Technologies Acquisition Company^  Senior loan  L + 5.00%   6.25%  12/2017   4,745    4,727    0.6    4,698 
Team Technologies Acquisition Company#  Senior loan  L + 5.50%   6.75%  12/2017   874    868    0.1    872 
                  39,683    39,249    4.8   39,003 
Personal, Food and Miscellaneous Services                                  
Focus Brands Inc.*^  Second lien  L + 9.00%   10.25%  08/2018   9,000    8,961    1.1    9,000 
Ignite Restaurant Group, Inc (Joe's Crab Shack)^  One stop  L + 7.00%   8.00%  02/2019   4,577    4,535    0.6    4,577 
PetVet Care Centers LLC(4)  Senior loan  L + 4.75%   N/A (5)  12/2019   -    (9)   -    - 
PetVet Care Centers LLC^  Senior loan  L + 4.75%   5.75%  12/2020   1,222    1,205    0.2    1,222 
PetVet Care Centers LLC^  Senior loan  L + 4.75%   5.75%  12/2020   5,851    5,763    0.7    5,851 
Vetcor Professional Practices LLC  One stop  L + 6.25%   7.25%  04/2021   63    58    -    60 
Vetcor Professional Practices LLC*^#  One stop  L + 6.25%   7.25%  04/2021   29,117    28,569    3.5    28,825 
Vetcor Professional Practices LLC(4)  One stop  L + 6.25%   N/A (5)  04/2021   -    (2)   -    (2)
Vetcor Professional Practices LLC*  One stop  L + 6.25%   7.25%  04/2021   969    958    0.1    959 
Vetcor Professional Practices LLC(4)  One stop  L + 6.25%   N/A (5)  04/2021   -    (52)   -    (24)
Vetcor Professional Practices LLC#  One stop  L + 6.25%   7.25%  04/2021   289    286    -    286 
Vetcor Professional Practices LLC(4)  One stop  L + 6.25%   N/A (5)  04/2021   -    (17)   -    (9)
Veterinary Specialists of North America, LLC(4)  One stop  L + 5.00%   N/A (5)  11/2020   -    (1)   -    - 
Veterinary Specialists of North America, LLC  One stop  L + 5.00%   6.00%  11/2020   64    55    -    64 
Veterinary Specialists of North America, LLC*  One stop  L + 5.00%   6.00%  11/2020   2,702    2,685    0.3    2,702 
                  53,854    52,994    6.5   53,511 
Printing and Publishing                                  
Market Track, LLC*  One stop  L + 7.00%   8.00%  10/2019   2,180    2,160    0.3    2,180 
Market Track, LLC  One stop  L + 7.00%   8.00%  10/2019   1,288    1,281    0.1    1,288 
Market Track, LLC#  One stop  L + 7.00%   8.00%  10/2019   2,146    2,131    0.3    2,146 
Market Track, LLC  One stop  L + 7.00%   8.00%  10/2019   983    963    0.1    983 
Market Track, LLC*^#  One stop  L + 7.00%   8.00%  10/2019   28,677    28,407    3.5    28,677 
                  35,274    34,942    4.3   35,274 
Retail Stores                                  
CVS Holdings I, LP  One stop  P + 5.25%   8.75%  08/2020   23    19    -    23 
CVS Holdings I, LP*^#  One stop  L + 6.25%   7.25%  08/2021   20,421    20,071    2.5    20,421 
CVS Holdings I, LP^  One stop  L + 6.25%   7.25%  08/2021   1,918    1,886    0.2    1,918 
Cycle Gear, Inc.(4)  One stop  L + 6.50%   N/A (5)  01/2020   -    (19)   -    - 
Cycle Gear, Inc.^  One stop  L + 6.50%   7.50%  01/2020   10,559    10,393    1.3    10,559 
Cycle Gear, Inc.(4)  One stop  L + 6.50%   N/A (5)  01/2020   -    (9)   -    - 
DTLR, Inc.*^  One stop  L + 6.50%   7.50%  10/2020   11,423    11,325    1.4    11,423 
Elite Sportswear, L.P.  Senior loan  P + 3.75%   7.25%  03/2020   176    171    -    165 
Elite Sportswear, L.P.  Senior loan  L + 5.00%   6.00%  03/2020   2,828    2,786    0.3    2,785 
Elite Sportswear, L.P.  Senior loan  L + 5.25%   6.25%  03/2020   1,455    1,434    0.2    1,440 
Express Oil Change, LLC^  Senior loan  L + 5.00%   6.00%  12/2017   480    475    0.1    475 
Express Oil Change, LLC  Senior loan  L + 5.00%   6.02%  12/2017   868    852    0.1    851 
Feeders Supply Company, LLC(4)  One stop  L + 5.75%   N/A (5)  04/2021   -    (1)   -    - 
Feeders Supply Company, LLC  One stop  L + 5.75%   6.75%  04/2021   4,418    4,323    0.5    4,374 
Feeders Supply Company, LLC  Subordinated debt  N/A    12.50% cash/7.00% PIK  04/2021   42    42    -    42 
Marshall Retail Group, LLC, The  One stop  L + 6.00%   7.00%  08/2019   1,068    1,049    0.1    892 
Marshall Retail Group, LLC, The(4)  One stop  L + 6.00%   N/A (5)  08/2020   -    (8)   -    (71)
Marshall Retail Group, LLC, The^#  One stop  L + 6.00%   7.00%  08/2020   12,238    12,131    1.4    11,259 
Mills Fleet Farm Group LLC*  One stop  L + 5.50%   6.50%  02/2022   4,776    4,635    0.6    4,776 
Paper Source, Inc.  One stop  P + 5.00%   8.50%  09/2018   203    195    -    203 
Paper Source, Inc.*^#  One stop  L + 6.25%   7.25%  09/2018   12,789    12,702    1.6    12,789 

 

See Notes to Consolidated Financial Statements

 

11

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
Paper Source, Inc.(4)  One stop  L + 6.25%   N/A (5)  09/2018   -    (16)   -    - 
RCPSI Corporation  One stop  L + 5.75%   7.17%  04/2020   30    27    -    30 
RCPSI Corporation*^#  One stop  L + 5.75%   6.75%  04/2021   21,500    21,147    2.6    21,500 
Sneaker Villa, Inc.*^  One stop  L + 7.75%   8.75%  12/2020   12,499    12,386    1.5    12,499 
Specialty Commerce Corp.(4)  One stop  L + 6.00%   N/A (5)  07/2017   -    (2)   -    - 
Specialty Commerce Corp.  One stop  L + 6.00%   7.50%  07/2017   3,765    3,754    0.5    3,765 
                  123,479    121,748    14.9   122,118 
Telecommunications                                  
Arise Virtual Solutions, Inc.(4)  One stop  L + 6.00%   N/A (5)  12/2018   -    (1)   -    (5)
Arise Virtual Solutions, Inc.^  One stop  L + 6.00%   7.25%  12/2018   1,401    1,391    0.1    1,317 
Hosting.com Inc.  Senior loan  L + 4.50%   5.75%  12/2017   85    84    -    85 
Hosting.com Inc.*  Senior loan  L + 4.50%   5.75%  12/2017   737    734    0.1    737 
                  2,223    2,208    0.2   2,134 
Textile and Leather                                  
5.11, Inc.*^  Senior loan  L + 5.00%   6.00%  02/2020   984    978    0.1    984 
SHO Holding I Corporation(4)  Senior loan  L + 4.00%   N/A (5)  10/2021   -    (1)   -    - 
SHO Holding I Corporation*  Senior loan  L + 5.00%   6.00%  10/2022   2,068    2,019    0.3    2,068 
                  3,052    2,996    0.4   3,052 
Utilities                                  
Arcos, LLC  One stop  L + 6.50%   N/A (5)  02/2021   -    -    -    - 
Arcos, LLC  One stop  L + 6.50%   7.50%  02/2021   4,025    3,950    0.5    4,025 
PowerPlan Consultants, Inc.(4)  Senior loan  L + 5.25%   N/A (5)  02/2021   -    (6)   -    - 
PowerPlan Consultants, Inc.*#  Senior loan  L + 5.25%   6.25%  02/2022   6,791    6,697    0.8    6,791 
                  10,816    10,641    1.3   10,816 
                                   
Total non-controlled/non-affiliate company debt investments                $1,456,980   $1,437,890    175.6%  $1,440,102 
                                   
                                   
Equity Investments (10)(11)                                  
Aerospace and Defense                                  
NTS Technical Systems  Common stock  N/A   N/A   N/A   2   $1,506    0.2%  $1,475 
Tresys Technology Holdings, Inc.  Common stock  N/A   N/A   N/A   295    295    -    - 
Whitcraft LLC  Preferred stock B  N/A   N/A   N/A   1    670    0.1    1,149 
Whitcraft LLC  Warrant  N/A   N/A   N/A   -    -    -    224 
                       2,471    0.3   2,848 
Automobile                                  
K&N Engineering, Inc.  Preferred stock A  N/A   N/A   N/A   -    -    -    13 
K&N Engineering, Inc.  Preferred stock B  N/A   N/A   N/A   -    -    -    13 
K&N Engineering, Inc.  Common stock  N/A   N/A   N/A   -    -    -    104 
Polk Acquisition Corp.  LP interest  N/A   N/A   N/A        144    -    144 
                       144    -   274 
Beverage, Food and Tobacco                                  
Atkins Nutritionals, Inc  LLC interest  N/A   N/A   N/A   57    746    0.3    2,632 
Benihana, Inc.  LLC units  N/A   N/A   N/A   43    699    0.1    541 
C. J. Foods, Inc.  Preferred stock  N/A   N/A   N/A   -    157    -    242 
First Watch Restaurants, Inc.  Common stock  N/A   N/A   N/A   9    964    0.2    1,694 
Hopdoddy Holdings, LLC  LLC interest  N/A   N/A   N/A   27    130    -    53 
Hopdoddy Holdings, LLC  LLC interest  N/A   N/A   N/A   12    36    -    15 
Julio & Sons Company  LLC interest  N/A   N/A   N/A   521    521    0.1    739 
Northern Brewer, LLC  LLC interest  N/A   N/A   N/A   438    362    -    60 
Purfoods, LLC  LLC interest  N/A   N/A   N/A   381    381    -    381 
Richelieu Foods, Inc.  LP interest  N/A   N/A   N/A   220    220    0.1    486 
Rubio's Restaurants, Inc.  Preferred stock A  N/A   N/A   N/A   2    945    0.3    2,626 
Tate's Bake Shop, Inc.  LP interest  N/A   N/A   N/A   462    428    0.1    499 
Uinta Brewing Company  LP interest  N/A   N/A   N/A   462    462    -    14 
United Craft Brews LLC  LP interest  N/A   N/A   N/A   1    657    0.1    657 
                       6,708    1.3   10,639 
                                   
Buildings and Real Estate                                  
Brooks Equipment Company, LLC  Common stock  N/A   N/A   N/A   10    1,020    0.1    1,229 
                                   
Chemicals, Plastics and Rubber                                  
Flexan, LLC  Preferred stock  N/A   N/A   N/A   -    73    -    80 
Flexan, LLC  Common stock  N/A   N/A   N/A   1    -    -    4 
                       73    -   84 
Containers, Packaging and Glass                                  
Packaging Coordinators, Inc.(7)  Common stock  N/A   N/A   N/A   25    2,065    0.4    3,198 
Packaging Coordinators, Inc.  Common stock  N/A   N/A   N/A   48    1,563    0.8    6,168 
                       3,628    1.2   9,366 
                                   
Diversified Conglomerate Manufacturing                                  
Chase Industries, Inc.  LLC units  N/A   N/A   N/A   1    1,186    0.2    1,387 
Inventus Power, Inc  Preferred stock  N/A   N/A   N/A   -    370    -    153 
Inventus Power, Inc  Common stock  N/A   N/A   N/A   -    -    -    - 
Sunless Merger Sub, Inc.  LP interest  N/A   N/A   N/A   -    160    -    - 
                       1,716    0.2   1,540 
                                   
Diversified Conglomerate Service                                  
Actiance, Inc.  Warrant  N/A   N/A   N/A   398    95    -    98 
Agility Recovery Solutions Inc.  Preferred stock  N/A   N/A   N/A   67    341    0.1    513 
Bomgar Corporation  Common stock  N/A   N/A   N/A   -    108    -    108 
Bomgar Corporation  Common stock  N/A   N/A   N/A   72    1    -    1 
Daxko, LLC  LLC units  N/A   N/A   N/A   219    219    0.1    510 
DISA Holdings Acquisition Subsidiary Corp.  Common stock  N/A   N/A   N/A   -    154    -    41 

 

See Notes to Consolidated Financial Statements

 

12

 

  

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)   Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
HealthcareSource HR, Inc.  LLC interest  N/A   N/A   N/A   -    348    -    339 
Host Analytics, Inc.  Warrant  N/A   N/A   N/A   180    -    -    77 
Marathon Data Operating Co., LLC  LLC units  N/A   N/A   N/A   1    264    -    - 
Marathon Data Operating Co., LLC  LLC units  N/A   N/A   N/A   1    264    0.1    418 
Secure-24, LLC  LLC units  N/A   N/A   N/A   263    263    0.1    432 
Steelwedge Software, Inc.  Warrant  N/A   N/A   N/A   36,575    76    -    84 
TA MHI Buyer, Inc.  Preferred stock  N/A   N/A   N/A   -    202    -    230 
Vendavo, Inc.  Preferred stock A  N/A   N/A   N/A   827    827    0.1    951 
Vitalyst, LLC  Common stock  N/A   N/A   N/A   1    7    -    - 
Vitalyst, LLC  Preferred stock A  N/A   N/A   N/A   -    61    -    45 
                       308    -    308 
                       3,538    0.5   4,155 
Electronics                                  
Diligent Corporation  Preferred stock  N/A   N/A   N/A        83    -    83 
ECI Acquisition Holdings, Inc.  Common stock  N/A   N/A   N/A   9    872    0.1    1,147 
Gamma Technologies, LLC  LLC units  N/A   N/A   N/A   1    134    -    130 
SEI, Inc.  LLC units  N/A   N/A   N/A   340    340    0.1    381 
Sloan Company, Inc., The  LLC units  N/A   N/A   N/A   1    14    -    - 
Sloan Company, Inc., The  LLC units  N/A   N/A   N/A   -    122    -    - 
Sparta Holding Corporation  Common stock  N/A   N/A   N/A   1    567    0.1    673 
Sparta Holding Corporation  Common stock  N/A   N/A   N/A   235    6    -    115 
Syncsort Incorporated  Preferred stock  N/A   N/A   N/A   90    226    -    263 
                       2,364    0.3   2,792 
                                   
Grocery                                  
MyWebGrocer, Inc.  LLC units  N/A   N/A   N/A   1,418    1,446    0.3    1,957 
MyWebGrocer, Inc.  Preferred stock  N/A   N/A   N/A   71    165    -    262 
                       1,611    0.3   2,219 
                                   
Healthcare, Education and Childcare                                  
Active Day, Inc.  LLC interest  N/A   N/A   N/A   1    614    0.1    588 
ADCS Clinics Intermediate Holdings, LLC  Preferred stock  N/A   N/A   N/A   1    579    0.1    579 
ADCS Clinics Intermediate Holdings, LLC  Common stock  N/A   N/A   N/A   -    6    -    6 
Advanced Pain Management Holdings, Inc.  Common stock  N/A   N/A   N/A   67    67    -    - 
Advanced Pain Management Holdings, Inc.  Preferred stock  N/A   N/A   N/A   8    829    0.1    590 
Advanced Pain Management Holdings, Inc.  Preferred stock  N/A   N/A   N/A   1    64    -    197 
BIORECLAMATIONIVT, LLC  LLC interest  N/A   N/A   N/A   -    365    -    365 
California Cryobank, LLC  LLC units  N/A   N/A   N/A   -    28    -    31 
California Cryobank, LLC  LLC units  N/A   N/A   N/A   -    -    -    - 
Certara L.P.  LP interest  N/A   N/A   N/A   -    635    0.1    1,168 
DCA Investment Holding, LLC  LLC units  N/A   N/A   N/A   8,637    864    0.1    924 
DCA Investment Holding, LLC  LLC units  N/A   N/A   N/A   87    9    -    87 
Deca Dental Management LLC  LLC units  N/A   N/A   N/A   357    357    -    375 
Dental Holdings Corporation  LLC units  N/A   N/A   N/A   775    775    0.1    1,046 
Encore GC Acquisition, LLC  LLC units  N/A   N/A   N/A   18    182    -    200 
Encore GC Acquisition, LLC  LLC units  N/A   N/A   N/A   18    -    -    36 
G & H Wire Company, Inc  LP interest  N/A   N/A   N/A   102    102    -    112 
Global Healthcare Exchange, LLC  Common stock  N/A   N/A   N/A   -    5    0.1    364 
Global Healthcare Exchange, LLC  Common stock  N/A   N/A   N/A   -    481    0.1    582 
IntegraMed America, Inc.  LLC interest  N/A   N/A   N/A   -    417    0.1    505 
IntegraMed America, Inc.  LLC interest  N/A   N/A   N/A   -    458    -    33 
Katena Holdings, Inc.  LLC units  N/A   N/A   N/A   -    387    0.1    381 
Lombart Brothers, Inc.  Common stock  N/A   N/A   N/A   -    106    -    106 
Northwestern Management Services, LLC  LLC units  N/A   N/A   N/A   3    3    -    274 
Northwestern Management Services, LLC  LLC units  N/A   N/A   N/A   -    249    0.1    329 
Oliver Street Dermatology Holdings, LLC  LLC units  N/A   N/A   N/A   234    234    -    234 
Pentec Acquisition Sub, Inc.  Preferred stock  N/A   N/A   N/A   1    116    -    254 
Radiology Partners, Inc.  LLC units  N/A   N/A   N/A   43    85    -    129 
Reliant Pro ReHab, LLC  Preferred stock A  N/A   N/A   N/A   2    183    0.1    1,034 
RXH Buyer Corporation  LP interest  N/A   N/A   N/A   7    683    0.1    531 
Southern Anesthesia and Surgical  LLC units  N/A   N/A   N/A   487    487    0.1    570 
Spear Education, LLC  LLC units  N/A   N/A   N/A   -    62    -    64 
Spear Education, LLC  LLC units  N/A   N/A   N/A   1    1    -    36 
SSH Corporation  Common stock  N/A   N/A   N/A   -    40    -    141 
Surgical Information Systems, LLC  Common stock  N/A   N/A   N/A   4    414    0.1    496 
U.S. Renal Care, Inc.  LP interest  N/A   N/A   N/A   1    2,665    0.4    3,406 
Young Innovations, Inc.  LLC units  N/A   N/A   N/A   -    236    0.1    620 
                       12,788    2.0   16,393 
                                   
Insurance                                  
Captive Resources Midco, LLC  LLC units  N/A   N/A   N/A   1    -    -    175 
Internet Pipeline, Inc.  Common stock  N/A   N/A   N/A   43    1    -    33 
Internet Pipeline, Inc.  Preferred stock  N/A   N/A   N/A   -    98    0.1    110 
                       99    0.1   318 
                                   
Leisure, Amusement, Motion Pictures and Entertainment                                  
LMP TR Holdings, LLC  LLC units  N/A   N/A   N/A   712    712    0.1    578 
Titan Fitness, LLC  LLC units  N/A   N/A   N/A   7    712    0.1    740 
                       1,424    0.2   1,318 
Personal and Non-Durable Consumer Products                                  
C.B. Fleet Company, Incorporated  LLC units  N/A   N/A   N/A   2    134    -    237 
Georgica Pine Clothiers, LLC  LLC interest  N/A   N/A   N/A   11    106    -    116 
Hygenic Corporation, The  LP interest  N/A   N/A   N/A   1    61    -    166 
Massage Envy, LLC  LLC interest  N/A   N/A   N/A   749    749    0.1    1,131 
Team Technologies Acquisition Company  Common stock  N/A   N/A   N/A   -    114    0.1    289 
                       1,164    0.2   1,939 

 

See Notes to Consolidated Financial Statements

 

13

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par ($),   Amortized   of   Fair 
   Type  Index (1)  Rate(2)   Date  Shares/Units(3)   Cost   Net Assets   Value 
                              
Personal, Food and Miscellaneous Services                                  
Community Veterinary Partners, LLC  Common stock  N/A   N/A   N/A   1    114    -    135 
R.G. Barry Corporation  Preferred stock  N/A   N/A   N/A   -    161    -    181 
Vetcor Professional Practices LLC  LLC units  N/A   N/A   N/A   85    85    0.1    452 
Vetcor Professional Practices LLC  LLC units  N/A   N/A   N/A   766    525    0.1    526 
                       885    0.2   1,294 
Printing and Publishing                                  
Brandmuscle, Inc.  LLC interest  N/A   N/A   N/A   -    240    0.1    257 
Market Track, LLC  Preferred stock  N/A   N/A   N/A   -    145    -    210 
Market Track, LLC  Common stock  N/A   N/A   N/A   1    145    -    266 
                       530    0.1   733 
Retail Stores                                  
Barcelona Restaurants, LLC  LP interest  N/A   N/A   N/A   1,996    -    0.6    5,228 
Cycle Gear, Inc.  LLC interest  N/A   N/A   N/A   19    248    -    346 
DentMall MSO, LLC  LLC units  N/A   N/A   N/A   2    -    -    - 
DentMall MSO, LLC  LLC units  N/A   N/A   N/A   2    97    -    - 
Elite Sportswear, L.P.  LLC interest  N/A   N/A   N/A   -    83    -    103 
Express Oil Change, LLC  LLC interest  N/A   N/A   N/A   81    81    -    232 
Feeders Supply Company, LLC  Preferred stock  N/A   N/A   N/A   2    155    -    155 
Feeders Supply Company, LLC  Common stock  N/A   N/A   N/A   -    -    -    - 
Marshall Retail Group LLC, The  LLC units  N/A   N/A   N/A   15    154    -    39 
Paper Source, Inc.  Common stock  N/A   N/A   N/A   8    1,387    0.2    1,514 
RCP PetPeople LP  LP interest  N/A   N/A   N/A   889    889    0.2    1,556 
RCPSI Corporation  LLC interest  N/A   N/A   N/A   455    455    0.1    419 
Sneaker Villa, Inc.  LLC interest  N/A   N/A   N/A   4    411    0.1    581 
                       3,960    1.2   10,173 
                                   
Utilities                                  
PowerPlan Holdings, Inc.  Common stock  N/A   N/A   N/A   -    303    0.1    342 
PowerPlan Holdings, Inc.  Common stock  N/A   N/A   N/A   151    3    -    140 
                       306    0.1   482 
                                   
Total non-controlled/non-affiliate company equity investments                     $44,429    8.3%  $67,796 
                                   
Total non-controlled/non-affiliate company investments                $1,456,980   $1,482,319    183.9%  $1,507,898 
                                   
                                   
Non-controlled affiliate company investments (12)                                  
Debt investments                                  
Leisure, Amusement, Motion Pictures and Entertainment                                  
Competitor Group, Inc. (7)  One stop  L + 9.25%   5.00% cash/5.50% PIK   11/2018  $1,080   $1,044    0.1%  $999 
Competitor Group, Inc.*#(7)  One stop  L + 9.25%   5.00% cash/5.50% PIK   11/2018   9,113    8,671    1.1    8,430 
                  10,193    9,715    1.2   9,429 
                                   
Total non-controlled affiliate company debt investments                $10,193   $9,715    1.2%  $9,429 
                                   
Equity Investments (10)(11)                                  
Leisure, Amusement, Motion Pictures and Entertainment                                  
Competitor Group, Inc. (7)  LLC interest  N/A   N/A   N/A   1   $714    -%  $- 
Competitor Group, Inc.*#(7)  Preferred stock  N/A   N/A   N/A   4    4,226    -    118 
Competitor Group, Inc.*#(7)  Common stock  N/A   N/A   N/A   27    -    -    - 
                       4,940    -    118 
                                   
Total non-controlled affiliate company equity investments                     $4,940    -%  $118 
                                   
Total non-controlled affiliate company investments                $10,193   $14,655    1.2%  $9,547 
                                   
                                   
Controlled affiliate company investments(13)                                  
Debt investments                                  
Investment Funds and Vehicles                                  
Senior Loan Fund LLC (7)  Subordinated debt  L + 8.00%   8.44%   05/2020  $82,114   $82,114    9.9%  $81,292 
                                   
Total controlled affiliate company debt investments                $82,114   $82,114    9.9%  $81,292 
                                   
Equity investments                                  
Investment Funds and Vehicles                                  
Senior Loan Fund LLC (7)  LLC interest  N/A   N/A   N/A   31,339   $31,339    3.6%  $29,772 
                                   
Total controlled affiliate company equity investments                     $31,339    3.6%  $29,772 
                                   
Total controlled affiliate company investments                $82,114   $113,453    13.5%  $111,064 
                                   
Total investments                $1,549,287   $1,610,427    198.6%  $1,628,509 
                                   
Cash, Restricted Cash and Cash Equivalents                                  
Cash and Restricted Cash                     $12,793    1.6%  $12,793 
BlackRock Liquidity Funds T-Fund Institutional Shares (CUSIP 09248U718)                      2,698    0.3    2,698 
BNY Mellon US Dollar Liquidity Fund Institutional Shares (CUSIP G1206E235)                      21,935    2.7    21,935 
US Bank Money Market Account (CUSIP 8AMMF0176)                      3,027    0.4    3,027 
US Bank Money Market Account (CUSIP 9AMMF05B2)                      21,441    2.6    21,441 
Total Cash, Restricted Cash and Cash Equivalents                     $61,894    7.6%  $61,894 
                                   
Total Investments and Cash, Restricted Cash and Cash Equivalents                     $1,672,321    206.2%  $1,690,403 

 

See Notes to Consolidated Financial Statements

 

14

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (unaudited) - (continued)

June 30, 2016

(In thousands)

 

 

 

*   Denotes that all or a portion of the loan secures the notes offered in the 2010 Debt Securitization (as defined in Note 7).
^   Denotes that all or a portion of the loan secures the notes offered in the 2014 Debt Securitization (as defined in Note 7).
#   Denotes that all or a portion of the loan collateralizes the Credit Facility (as defined in Note 7).
(1)   The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, quarterly or semiannually.  For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect at June 30, 2016. Certain investments are subject to a LIBOR or Prime interest rate floor.  For fixed rate loans, a spread above a reference rate is not applicable.
(2)   For portfolio companies with multiple interest rate contracts, the interest rate shown is a weighted average current interest rate in effect at June 30, 2016.
(3)   The total principal amount is presented for debt investments while the number of shares or units owned is presented for equity investments.
(4)   The negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par.  The negative amortized cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(5)   The entire commitment was unfunded at June 30, 2016.  As such, no interest is being earned on this investment.
(6)   Loan was on non-accrual status as of June 30, 2016, meaning that the Company has ceased recognizing interest income on the loan.
(7)   The investment is treated as a non-qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”).  Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets.
(8)   The headquarters of this portfolio company is located in Canada.
(9)   The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 - Transfers and Servicing, and therefore, the entire one stop loan asset remains in the Consolidated Schedule of Investments.  (See Note 7 in the accompanying notes to the consolidated financial statements.)
(10)   Non-income producing securities.
(11)   Ownership of certain equity investments may occur through a holding company or partnership.
(12)   As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the company as the Company along with affiliated entities owns five percent or more of the portfolio company's securities.
(13)   As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Note 5 in the accompanying notes to the consolidated financial statements for transactions during the three months ended June 30, 2016 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.

 

See Notes to Consolidated Financial Statements

 

15

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments

September 30, 2015

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Amount   Cost   Net Assets   Value 
                              
Investments                                  
United States                                  
Debt investments                                  
Aerospace and Defense                                  
ILC Dover, LP  One stop  P + 6.00%   9.25%  03/2019  $781   $769    0.1%  $697 
ILC Dover, LP*^  One stop  L + 7.00%   8.00%  03/2020   18,124    17,941    2.1    16,855 
ILC Industries, Inc.(3)  One stop  L + 6.00%   N/A (5)  07/2020   -    (22)   -    (94)
ILC Industries, Inc.*^  One stop  L + 6.00%   7.00%  07/2020   22,670    22,527    2.7    22,386 
NTS Technical Systems(3)  One stop  L + 6.00%   N/A (5)  06/2021   -    (47)   -    - 
NTS Technical Systems(3)  One stop  L + 6.00%   N/A (5)  06/2021   -    (100)   -    - 
NTS Technical Systems*^  One stop  L + 6.00%   7.00%  06/2021   26,441    26,001    3.3    26,441 
Tresys Technology Holdings, Inc.  One stop  L + 6.75%   8.00%  12/2017   349    345    -    349 
Tresys Technology Holdings, Inc.(6)  One stop  L + 6.75%   8.00%  12/2017   3,899    3,845    0.1    1,170 
Whitcraft LLC  One stop  P + 5.25%   8.50%  05/2020   3    2    -    2 
Whitcraft LLC^  One stop  L + 6.50%   7.50%  05/2020   13,640    13,513    1.7    13,505 
                  85,907    84,774    10.0   81,311 
Automobile                                  
American Driveline Systems, Inc.  Senior loan  P + 4.50%   7.75%  03/2020   57    50    -    57 
American Driveline Systems, Inc.*  Senior loan  L + 5.50%   6.50%  03/2020   1,817    1,763    0.2    1,817 
CH Hold Corp. (Caliber Collision)  Senior loan  L + 4.75%   5.75%  11/2019   333    330    0.1    333 
CH Hold Corp. (Caliber Collision)  Senior loan  L + 4.75%   5.75%  11/2019   1,862    1,846    0.2    1,862 
Dent Wizard International Corporation*  Senior loan  L + 4.75%   5.75%  04/2020   2,585    2,572    0.3    2,566 
Integrated Supply Network, LLC  Senior loan  P + 4.00%   6.87%  02/2020   347    338    0.1    347 
Integrated Supply Network, LLC*  Senior loan  L + 5.25%   6.25%  02/2020   5,662    5,590    0.7    5,662 
K&N Engineering, Inc.^  Senior loan  L + 4.25%   5.25%  07/2019   136    122    -    132 
K&N Engineering, Inc.(3)  Senior loan  L + 4.25%   N/A (5)  07/2019   -    (4)   -    (5)
K&N Engineering, Inc.^  Senior loan  L + 4.25%   5.25%  07/2019   2,883    2,844    0.3    2,797 
                  15,682    15,451    1.9   15,568 
                                   
Banking                                  
HedgeServ Holding L.P.(3)  One stop  L + 6.00%   N/A (5)  02/2019   -    (6)   -    - 
HedgeServ Holding L.P.^  One stop  L + 8.00%    7.00% cash/2.00% PIK  02/2019   17,177    17,065    2.2    17,177 
                  17,177    17,059    2.2   17,177 
Beverage, Food and Tobacco                                  
Abita Brewing Co., L.L.C.(3)  One stop  L + 5.75%   N/A (5)  04/2021   -    (1)   -    - 
Abita Brewing Co., L.L.C.  One stop  L + 5.75%   6.75%  04/2021   8,074    7,924    1.0    8,074 
ABP Corporation  Senior loan  P + 3.50%   7.25%  09/2018   167    162    -    167 
ABP Corporation*  Senior loan  L + 4.75%   6.00%  09/2018   4,746    4,697    0.6    4,746 
American Seafoods Group LLC  Senior loan  L + 5.00%   6.00%  08/2021   5,001    4,952    0.6    4,976 
Atkins Nutritionals, Inc*^  One stop  L + 5.00%   6.25%  01/2019   17,490    17,314    2.2    17,512 
Atkins Nutritionals, Inc*^  One stop  L + 8.50%   9.75%  04/2019   21,636    21,396    2.7    21,733 
C. J. Foods, Inc.(3)  One stop  L + 5.50%   N/A (5)  05/2019   -    (9)   -    - 
C. J. Foods, Inc.(3)  One stop  L + 5.50%   N/A (5)  05/2019   -    (7)   -    - 
C. J. Foods, Inc.  One stop  L + 5.50%   6.50%  05/2019   3,192    3,157    0.4    3,192 
Candy Intermediate Holdings, Inc. (Ferrara Candy)^  Senior loan  L + 6.25%   7.50%  06/2018   4,838    4,761    0.6    4,801 
Firebirds International, LLC  One stop  L + 5.75%   7.00%  05/2018   304    300    -    304 
Firebirds International, LLC(3)  One stop  L + 5.75%   N/A (5)  05/2018   -    (3)   -    - 
Firebirds International, LLC(3)  One stop  L + 5.75%   N/A (5)  05/2018   -    (1)   -    - 
Firebirds International, LLC*  One stop  L + 5.75%   7.00%  05/2018   1,085    1,074    0.1    1,085 
First Watch Restaurants, Inc.(3)  One stop  L + 6.00%   N/A (5)  12/2020   -    (12)   -    - 
First Watch Restaurants, Inc.(3)  One stop  L + 6.00%   N/A (5)  12/2020   -    (12)   -    - 
First Watch Restaurants, Inc.(3)  One stop  L + 6.00%   N/A (5)  12/2020   -    (10)   -    - 
First Watch Restaurants, Inc.(3)  One stop  L + 6.00%   N/A (5)  12/2020   -    (9)   -    - 
First Watch Restaurants, Inc.*^  One stop  L + 6.00%   7.00%  12/2020   25,860    25,598    3.2    25,860 
Hopdoddy Holdings, LLC(3)  One stop  L + 8.00%   N/A (5)  08/2020   -    (3)   -    (3)
Hopdoddy Holdings, LLC  One stop  L + 8.00%   N/A (5)  08/2020   -    -    -    - 
Hopdoddy Holdings, LLC  One stop  L + 8.00%   9.00%  08/2020   666    653    0.1    660 
IT'SUGAR LLC  Senior loan  L + 8.50%   10.00%  04/2018   7,489    7,393    0.9    7,489 
IT'SUGAR LLC  Subordinated debt  N/A   5.00%  10/2017   1,707    1,707    0.2    1,715 
Northern Brewer, LLC  One stop  P + 7.25%    8.50% cash/2.00% PIK  02/2018   697    688    0.1    558 
Northern Brewer, LLC  One stop  P + 7.25%    8.50% cash/2.00% PIK  02/2018   6,394    6,305    0.6    5,116 
Surfside Coffee Company LLC  One stop  L + 5.25%   6.25%  06/2020   132    122    -    122 
Surfside Coffee Company LLC  One stop  L + 5.25%   6.25%  06/2020   10    10    -    10 
Surfside Coffee Company LLC^  One stop  L + 5.25%   6.25%  06/2020   4,515    4,472    0.6    4,470 
Uinta Brewing Company  One stop  L + 6.00%   7.00%  08/2019   385    379    -    362 
Uinta Brewing Company^  One stop  L + 6.00%   7.00%  08/2019   3,203    3,178    0.4    3,107 
United Craft Brews LLC  One stop  L + 6.25%   7.25%  03/2020   542    527    0.1    542 
United Craft Brews LLC  One stop  L + 6.25%   7.25%  03/2020   68    53    -    68 

 

See Notes to Consolidated Financial Statements

 

16

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Amount   Cost   Net Assets   Value 
                              
United Craft Brews LLC  One stop  L + 6.25%   7.25%  03/2020   12,158    11,916    1.5    12,158 
                  130,359    128,671    15.9   128,824 
Broadcasting and Entertainment                                  
TouchTunes Interactive Networks, Inc.^  Senior loan  L + 4.75%   5.75%  05/2021   1,492    1,485    0.2    1,496 
                                   
Building and Real Estate                                  
Accruent, LLC*  One stop  L + 6.25%   7.27%  11/2019   4,721    4,682    0.6    4,721 
Brooks Equipment Company, LLC (3)  One stop  L + 5.75%   N/A (5)  08/2020   -    (16)   -    - 
Brooks Equipment Company, LLC*^  One stop  L + 5.75%   6.75%  08/2020   24,967    24,661    3.1    24,967 
ITEL Laboratories, Inc.(3)  Senior loan  L + 4.75%   N/A (5)  06/2018   -    (1)   -    - 
ITEL Laboratories, Inc.*  Senior loan  L + 4.75%   6.00%  06/2018   697    692    0.1    697 
                  30,385    30,018    3.8   30,385 
                                   
Chemicals, Plastics and Rubber                                  
Flexan, LLC(3)  One stop  L + 5.25%   N/A (5)  02/2020   -    (6)   -    - 
Flexan, LLC  One stop  L + 5.25%   6.25%  02/2020   6,152    6,099    0.8    6,152 
Flexan, LLC  One stop  L + 5.25%   N/A (5)  02/2020   -    -    -    - 
                  6,152    6,093    0.8   6,152 
Containers, Packaging and Glass                                  
Fort Dearborn Company*^  Senior loan  L + 4.25%   5.25%  10/2017   567    565    0.1    567 
Fort Dearborn Company*^  Senior loan  L + 4.75%   5.77%  10/2018   2,612    2,599    0.3    2,612 
Packaging Coordinators, Inc.*^  Senior loan  L + 4.25%   5.25%  08/2021   14,850    14,724    1.8    14,786 
Packaging Coordinators, Inc.  Second lien  L + 8.00%   9.00%  08/2022   10,000    9,913    1.2    9,850 
                  28,029    27,801    3.4   27,815 
Diversified Conglomerate Manufacturing                                  
Chase Industries, Inc.  One stop  L + 5.75%   6.83%  09/2020   3,393    3,353    0.4    3,393 
Chase Industries, Inc.  One stop  P + 4.50%   7.75%  09/2020   234    216    -    234 
Chase Industries, Inc.*^  One stop  L + 5.75%   6.75%  09/2020   20,880    20,706    2.6    20,880 
Harvey Tool Company, LLC  Senior loan  L + 5.00%   N/A (5)  03/2019   -    -    -    - 
Harvey Tool Company, LLC*  Senior loan  L + 5.00%   6.00%  03/2020   3,131    3,100    0.4    3,100 
ICC-Nexergy, Inc(3)  One stop  L + 5.50%   N/A (5)  04/2020   -    (3)   -    - 
ICC-Nexergy, Inc^  One stop  L + 5.50%   6.50%  04/2020   8,590    8,535    1.1    8,590 
Onicon Incorporated(3)  One stop  L + 6.00%   N/A (5)  04/2020   -    (6)   -    - 
Onicon Incorporated*  One stop  L + 6.00%   7.00%  04/2020   9,286    9,212    1.2    9,286 
Plex Systems, Inc.(3)  One stop  L + 7.50%   N/A (5)  06/2018   -    (26)   -    - 
Plex Systems, Inc.*^  One stop  L + 7.50%   8.75%  06/2018   18,797    18,431    2.3    18,797 
Sunless Merger Sub, Inc.  Senior loan  P + 4.00%   7.25%  07/2016   59    58    -    32 
Sunless Merger Sub, Inc.*  Senior loan  L + 5.25%   6.50%  07/2016   1,651    1,647    0.1    1,156 
                  66,021    65,223    8.1   65,468 
Diversified Conglomerate Service                                  
Accellos, Inc.(3)  One stop  L + 5.75%   N/A (5)  07/2020   -    (17)   -    - 
Accellos, Inc.*^  One stop  L + 5.75%   6.75%  07/2020   32,121    31,804    3.9    32,121 
Actiance, Inc.  One stop  L + 9.00%   N/A (5)  04/2018   -    -    -    - 
Actiance, Inc. *^  One stop  L + 9.00%   10.00%  04/2018   2,502    2,410    0.3    2,502 
Aderant North America, Inc.^  Senior loan  L + 4.25%   5.25%  12/2018   446    442    0.1    446 
Agility Recovery Solutions Inc.(3)  One stop  L + 6.50%   N/A (5)  03/2020   -    (6)   -    - 
Agility Recovery Solutions Inc.*^  One stop  L + 6.50%   7.50%  03/2020   10,352    10,260    1.3    10,352 
Bomgar Corporation(3)  One stop  L + 6.00%   N/A (5)  09/2020   -    (20)   -    (15)
Bomgar Corporation*  One stop  L + 6.00%   7.00%  09/2020   29,638    29,158    3.6    29,416 
Daxko, LLC(3)  One stop  L + 5.00%   N/A (5)  03/2019   -    (18)   -    - 
Daxko, LLC*  One stop  L + 5.00%   6.00%  03/2019   15,528    15,327    1.9    15,528 
DTI Holdco, Inc.  Senior loan  L + 5.00%   6.00%  08/2020   8,527    8,447    1.0    8,271 
HealthcareSource HR, Inc.(3)  One stop  L + 6.75%   N/A (5)  05/2020   -    (2)   -    - 
HealthcareSource HR, Inc.  One stop  L + 6.75%   7.75%  05/2020   17,903    17,508    2.2    17,903 
Host Analytics, Inc.(3)  One stop  N/A   N/A (5)  02/2020   -    (6)   -    - 
Host Analytics, Inc.  One stop  N/A    8.50% cash/2.25% PIK  02/2020   2,960    2,914    0.4    2,960 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  09/2018   899    890    0.1    899 
Integration Appliance, Inc.*  One stop  L + 8.25%   9.50%  09/2020   719    709    0.1    719 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  06/2019   7,914    7,766    1.0    7,914 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  09/2018   5,396    5,315    0.7    5,396 
Mediaocean LLC(3)  Senior loan  L + 4.50%   N/A (5)  08/2020   -    (1)   -    - 
Mediaocean LLC  Senior loan  L + 4.75%   5.75%  08/2022   3,000    2,934    0.4    2,970 
NetSmart Technologies, Inc.  One stop  P + 4.25%   7.50%  02/2019   340    323    -    340 
NetSmart Technologies, Inc.*^  One stop  L + 5.25%   6.25%  02/2019   14,816    14,690    1.8    14,816 
PC Helps Support, LLC  Senior loan  P + 4.25%   7.50%  09/2017   66    65    -    62 
PC Helps Support, LLC  Senior loan  L + 5.25%   6.51%  09/2017   1,522    1,513    0.2    1,492 
Saldon Holdings, Inc.  Senior loan  L + 4.50%   N/A (5)  09/2021   -    -    -    - 
Saldon Holdings, Inc.  Senior loan  L + 4.50%   5.50%  09/2021   2,990    2,960    0.4    2,960 

 

See Notes to Consolidated Financial Statements

 

17

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Amount   Cost   Net Assets   Value 
                              
Secure-24, LLC(3)  One stop  L + 6.00%   N/A (5)  08/2017   -    (3)   -    - 
Secure-24, LLC*  One stop  L + 6.00%   7.25%  08/2017   10,028    9,911    1.2    10,028 
Secure-24, LLC^  One stop  L + 6.00%   7.25%  08/2017   1,467    1,454    0.2    1,467 
Severin Acquisition, LLC(3)  Senior loan  L + 4.50%   N/A (5)  07/2021   -    (1)   -    (1)
Severin Acquisition, LLC  Senior loan  L + 4.50%   5.50%  07/2021   4,931    4,859    0.6    4,882 
Source Medical Solutions, Inc.  Second lien  L + 8.00%   9.00%  03/2018   9,294    9,189    1.1    9,294 
Steelwedge Software, Inc.  One stop  L + 10.00%   N/A (5)  09/2020   -    -    -    - 
Steelwedge Software, Inc.^  One stop  P + 10.75%    12.00% cash/2.00% PIK  09/2020   2,153    2,055    0.3    2,055 
TA MHI Buyer, Inc.  One stop  L + 6.50%   N/A (5)  09/2021   -    -    -    - 
TA MHI Buyer, Inc.^  One stop  L + 6.50%   7.50%  09/2021   8,294    8,222    1.0    8,222 
Vendavo, Inc.(3)  One stop  L + 8.50%   N/A (5)  10/2019   -    (13)   -    - 
Vendavo, Inc.  One stop  L + 8.50%   9.50%  10/2019   15,501    15,219    1.9    15,501 
                  209,307    206,257    25.7   208,500 
                                   
Electronics                                  
Appriss Holdings, Inc.  Senior loan  L + 4.75%   5.07%  11/2020   902    865    0.1    873 
Appriss Holdings, Inc.*  Senior loan  L + 4.75%   5.75%  11/2020   20,948    20,673    2.5    20,738 
Compusearch Software Holdings, Inc.^  Senior loan  L + 4.50%   5.50%  05/2021   1,321    1,318    0.2    1,321 
ECI Acquisition Holdings, Inc.  One stop  L + 6.25%   7.25%  03/2019   1,410    1,349    0.2    1,410 
ECI Acquisition Holdings, Inc.(3)  One stop  L + 6.25%   N/A (5)  03/2019   -    (13)   -    - 
ECI Acquisition Holdings, Inc.*^  One stop  L + 6.25%   7.25%  03/2019   21,779    21,495    2.7    21,779 
Gamma Technologies, LLC(3)  One stop  L + 5.50%   N/A (5)  06/2021   -    (1)   -    - 
Gamma Technologies, LLC^  One stop  L + 5.50%   6.50%  06/2021   18,183    18,010    2.2    18,183 
Park Place Technologies LLC  One stop  L + 5.50%   N/A (5)  07/2021   -    -    -    - 
Park Place Technologies LLC*^  One stop  L + 5.50%   6.50%  07/2021   4,950    4,914    0.6    4,926 
Sloan Company, Inc., The  One stop  L + 6.25%   7.25%  04/2020   30    30    -    29 
Sloan Company, Inc., The  One stop  L + 6.25%   7.25%  04/2020   7,589    7,503    0.9    7,362 
Sparta Holding Corporation(3)  One stop  L + 5.50%   N/A (5)  07/2020   -    (31)   -    - 
Sparta Holding Corporation*^  One stop  L + 5.50%   6.50%  07/2020   23,125    22,893    2.9    23,125 
Syncsort Incorporated(3)  Senior loan  L + 4.75%   N/A (5)  03/2019   -    (3)   -    - 
Syncsort Incorporated(3)  Senior loan  L + 4.75%   N/A (5)  03/2019   -    (1)   -    - 
Syncsort Incorporated*  Senior loan  L + 4.75%   5.75%  03/2019   1,984    1,970    0.2    1,984 
Systems Maintenance Services Holding, Inc.^  Senior loan  L + 4.00%   5.00%  10/2019   2,623    2,614    0.3    2,623 
Taxware, LLC(3)  One stop  L + 6.50%   N/A (5)  04/2022   -    (5)   -    - 
Taxware, LLC*^  One stop  L + 6.50%   7.50%  04/2022   19,899    19,609    2.5    19,899 
Watchfire Enterprises, Inc.  Second lien  L + 8.00%   9.00%  10/2021   9,435    9,242    1.2    9,435 
                  134,178    132,431    16.5   133,687 
                                   
Finance                                  
Ascensus, Inc.(3)  One stop  L + 4.00%   N/A (5)  11/2018   -    (12)   -    - 
Ascensus, Inc.^  One stop  L + 4.00%   5.00%  12/2019   3,953    3,895    0.5    3,953 
Ascensus, Inc.*^  One stop  L + 8.00%   9.00%  12/2020   6,337    6,173    0.8    6,337 
                  10,290    10,056    1.3   10,290 
Grocery                                  
AG Kings Holdings Inc.(3)  One stop  L + 5.50%   N/A (5)  04/2020   -    (7)   -    - 
AG Kings Holdings Inc.  One stop  L + 5.50%   6.50%  04/2020   6,183    6,127    0.8    6,183 
MyWebGrocer, Inc.(3)  One stop  L + 8.75%   N/A (5)  05/2018   -    (11)   -    - 
MyWebGrocer, Inc.^  One stop  L + 8.75%   10.00%  05/2018   14,271    14,115    1.7    14,271 
                  20,454    20,224    2.5   20,454 
Healthcare, Education and Childcare                                  
Agilitas USA, Inc.^  Senior loan  L + 4.00%   5.00%  10/2020   2,125    2,107    0.3    2,125 
Avalign Technologies, Inc.^  Senior loan  L + 4.50%   5.50%  07/2021   1,165    1,160    0.2    1,159 
Avatar International, LLC(6)  One stop  L + 7.89%    6.19% cash/2.95% PIK  09/2016   1,648    1,644    0.1    548 
Avatar International, LLC  One stop  L + 7.89%    6.19% cash/2.95% PIK  09/2016   573    571    0.1    573 
Avatar International, LLC(6)*  One stop  L + 7.89%    6.19% cash/2.95% PIK  09/2016   7,641    7,615    0.3    2,540 
California Cryobank, LLC^  One stop  L + 5.50%   6.50%  08/2019   1,550    1,538    0.2    1,550 
California Cryobank, LLC  One stop  L + 5.50%   6.50%  08/2019   43    42    -    43 
California Cryobank, LLC  One stop  P + 4.25%   7.50%  08/2019   43    41    -    43 
Certara L.P.(3)  One stop  L + 6.25%   N/A (5)  12/2018   -    (14)   -    - 
Certara L.P.*^  One stop  L + 6.25%   7.25%  12/2018   30,848    30,555    3.8    30,848 
CPI Buyer, LLC (Cole-Parmer)*^  Senior loan  L + 4.50%   5.50%  08/2021   7,940    7,674    1.0    7,900 
Curo Health Services LLC  Senior loan  L + 5.50%   6.50%  02/2022   1,990    1,972    0.3    1,997 
DCA Investment Holding, LLC(3)  One stop  L + 5.25%   N/A (5)  07/2021   -    (2)   -    (1)
DCA Investment Holding, LLC*  One stop  L + 5.25%   6.25%  07/2021   14,336    13,990    1.8    14,192 
Deca Dental Management LLC(3)  One stop  L + 6.25%   N/A (5)  07/2020   -    (11)   -    (8)
Deca Dental Management LLC  One stop  P + 5.25%   8.50%  07/2020   20    19    -    20 
Deca Dental Management LLC*^  One stop  L + 6.25%   7.25%  07/2020   4,188    4,128    0.5    4,146 

 

See Notes to Consolidated Financial Statements

 

18

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Amount   Cost   Net Assets   Value 
                              
Delta Educational Systems*  Senior loan  P + 4.75%   8.00%  12/2016   1,435    1,424    0.2    1,220 
Delta Educational Systems(3)  Senior loan  L + 6.00%   N/A (5)  12/2016   -    -    -    (8)
Dental Holdings Corporation(3)  One stop  L + 5.50%   N/A (5)  02/2020   -    (16)   -    - 
Dental Holdings Corporation(3)  One stop  L + 5.50%   N/A (5)  02/2020   -    (12)   -    - 
Dental Holdings Corporation  One stop  L + 5.50%   6.50%  02/2020   6,575    6,444    0.8    6,575 
Encore GC Acquisition, LLC(3)  Senior loan  L + 4.50%   N/A (5)  01/2020   -    (9)   -    - 
Encore GC Acquisition, LLC*  Senior loan  L + 4.50%   5.50%  01/2020   3,484    3,439    0.4    3,484 
G & H Wire Company, Inc.  One stop  L + 5.75%   6.75%  12/2017   268    263    -    268 
G & H Wire Company, Inc.*^  One stop  L + 5.75%   6.75%  12/2017   13,291    13,197    1.6    13,291 
GSDM Holdings Corp.  Senior loan  L + 4.25%   5.25%  06/2019   870    867    0.1    870 
IntegraMed America, Inc.  One stop  L + 7.25%   8.50%  09/2017   406    402    -    398 
IntegraMed America, Inc.*^  One stop  L + 7.25%   8.50%  09/2017   14,975    14,839    1.8    14,676 
Joerns Healthcare, LLC*  One stop  L + 5.00%   6.17%  05/2020   3,318    3,286    0.4    3,301 
Katena Holdings, Inc.(3)  One stop  L + 6.25%   N/A (5)  06/2021   -    (8)   -    - 
Katena Holdings, Inc.(3)  One stop  L + 6.25%   N/A (5)  06/2021   -    (1)   -    - 
Katena Holdings, Inc.^  One stop  L + 6.25%   7.25%  06/2021   8,142    8,064    1.0    8,142 
Maverick Healthcare Group, LLC*  Senior loan  L + 5.50%   7.25%  12/2016   1,933    1,912    0.2    1,933 
Pentec Acquisition Sub, Inc.(3)  Senior loan  L + 5.00%   N/A (5)  05/2017   -    (1)   -    - 
Pentec Acquisition Sub, Inc.*  Senior loan  L + 5.00%   6.25%  05/2018   1,588    1,574    0.2    1,588 
PPT Management, LLC(3)  One stop  L + 5.00%   N/A (5)  04/2020   -    (1)   -    - 
PPT Management, LLC*^  One stop  L + 5.00%   6.00%  04/2020   13,158    13,037    1.6    13,158 
Premise Health Holding Corp.  One stop  L + 4.50%   5.50%  06/2020   394    374    -    394 
Premise Health Holding Corp.  One stop  L + 4.50%   5.50%  06/2020   15,000    14,896    1.9    15,000 
Pyramid Healthcare, Inc.  One stop  P + 4.50%   7.75%  08/2019   313    309    -    313 
Pyramid Healthcare, Inc.^  One stop  L + 5.75%   6.75%  08/2019   8,439    8,377    1.0    8,439 
Radiology Partners, Inc.(3)  One stop  L + 5.00%   N/A (5)  09/2020   -    (38)   -    - 
Radiology Partners, Inc.(3)  One stop  L + 5.00%   N/A (5)  09/2020   -    (6)   -    - 
Radiology Partners, Inc.*^  One stop  L + 5.00%   6.00%  09/2020   17,037    16,813    2.1    17,037 
Reliant Pro ReHab, LLC  Senior loan  P + 4.00%   7.25%  06/2017   424    419    0.1    424 
Reliant Pro ReHab, LLC*  Senior loan  L + 5.00%   6.00%  06/2017   3,226    3,206    0.4    3,226 
RXH Buyer Corporation(3)  One stop  L + 5.75%   N/A (5)  09/2021   -    (56)   -    (28)
RXH Buyer Corporation(3)  One stop  L + 5.75%   N/A (5)  09/2021   -    (4)   -    (2)
RXH Buyer Corporation*^  One stop  L + 5.75%   6.75%  09/2021   17,612    17,264    2.2    17,435 
Southern Anesthesia and Surgical(3)  One stop  L + 5.50%   N/A (5)  11/2017   -    (27)   -    - 
Southern Anesthesia and Surgical(3)  One stop  L + 5.50%   N/A (5)  11/2017   -    (7)   -    - 
Southern Anesthesia and Surgical  One stop  L + 5.50%   6.50%  11/2017   5,638    5,570    0.7    5,638 
Surgical Information Systems, LLC^  Senior loan  L + 3.00%   4.01%  09/2018   1,934    1,930    0.2    1,934 
U.S. Anesthesia Partners, Inc.  One stop  L + 5.00%   6.00%  12/2019   5,942    5,918    0.7    5,942 
WIL Research Company, Inc.*  Senior loan  L + 4.50%   5.75%  02/2018   756    751    0.1    737 
Young Innovations, Inc.  Senior loan  L + 3.25%   N/A (5)  01/2018   -    -    -    - 
Young Innovations, Inc.*  Senior loan  L + 4.25%   5.25%  01/2019   1,830    1,819    0.2    1,830 
                 222,098    219,237    26.5   214,890 
Home and Office Furnishings, Housewares, and Durable Consumer                                  
1A Smart Start LLC*  Senior loan  L + 4.75%   5.75%  02/2022   2,132    2,111    0.3    2,127 
Plano Molding Company, LLC*  One stop  L + 6.00%   7.00%  05/2021   18,115    17,946    2.2    18,115 
WII Components, Inc.  Senior loan  L + 4.50%   N/A (5)  07/2018   -    -    -    - 
WII Components, Inc.*  Senior loan  L + 4.25%   5.25%  07/2018   1,048    1,044    0.1    1,048 
Zenith Products Corporation(6)  One stop  P + 1.75%   5.00%  09/2013   81    48    -    41 
Zenith Products Corporation*(6)  One stop  P + 3.50%   6.75%  09/2013   4,376    3,926    0.3    2,188 
                  25,752    25,075    2.9   23,519 
Insurance                                  
Captive Resources Midco, LLC (3)  One stop  L + 5.75%   N/A (5)  06/2020   -    (22)   -    (19)
Captive Resources Midco, LLC (3)  One stop  L + 5.75%   N/A (5)  06/2020   -    (20)   -    (17)
Captive Resources Midco, LLC*^  One stop  L + 5.75%   6.75%  06/2020   26,845    26,525    3.3    26,575 
Internet Pipeline, Inc.(3)  One stop  L + 7.25%   N/A (5)  08/2021   -    (1)   -    - 
Internet Pipeline, Inc.  One stop  L + 7.25%   8.25%  08/2022   4,960    4,826    0.6    4,910 
                  31,805    31,308    3.9   31,449 
Investment Funds and Vehicles                                  
Senior Loan Fund LLC (7)(8)  Subordinated debt  L + 8.00%   8.19%  05/2020   76,563    76,563    9.5    76,563 

 

See Notes to Consolidated Financial Statements

 

19

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Amount   Cost   Net Assets   Value 
                              
Leisure, Amusement, Motion Pictures and Entertainment                                  
Competitor Group, Inc.  One stop  L + 7.75%   9.00%  11/2018   884    876    0.1    773 
Competitor Group, Inc.*  One stop  L + 9.25%    9.00% cash/1.50% PIK  11/2018   12,331    12,221    1.4    11,098 
Self Esteem Brands, LLC(3)  Senior loan  L + 4.00%   N/A (5)  02/2020   -    (4)   -    - 
Self Esteem Brands, LLC^  Senior loan  L + 4.00%   5.00%  02/2020   3,669    3,653    0.5    3,669 
Starplex Operating, L.L.C.(3)  One stop  L + 7.00%   N/A (5)  12/2017   -    (9)   -    - 
Starplex Operating, L.L.C.*^  One stop  L + 7.00%   8.00%  12/2017   9,979    9,863    1.2    9,979 
Teaching Company, The  One stop  L + 6.25%   7.25%  08/2020   30    29    -    29 
Teaching Company, The  One stop  L + 6.25%   7.25%  08/2020   19,069    18,789    2.3    18,878 
Titan Fitness, LLC(3)  One stop  L + 6.50%   N/A (5)  09/2019   -    (17)   -    - 
Titan Fitness, LLC*  One stop  L + 6.50%   7.75%  09/2019   13,326    13,120    1.6    13,326 
Titan Fitness, LLC (3)  One stop  L + 6.50%   N/A (5)  09/2019   -    (17)   -    - 
                  59,288    58,504    7.1   57,752 
Mining, Steel, Iron and Non-Precious Metals                                  
Benetech, Inc.  One stop  P + 7.75%   11.00%  10/2017   303    297    -    303 
Benetech, Inc.*  One stop  L + 9.00%   10.25%  10/2017   4,696    4,671    0.6    4,696 
                  4,999    4,968    0.6   4,999 
Oil and Gas                                  
Drilling Info, Inc.(3)(4)  One stop  L + 5.00%   N/A (5)  06/2018   -    (1)   -    - 
Drilling Info, Inc.(4)  One stop  L + 5.00%   6.00%  06/2018   355    353    -    355 
Drilling Info, Inc.^  One stop  L + 5.00%   6.00%  06/2018   901    894    0.1    901 
Drilling Info, Inc.(3)(4)  One stop  L + 5.00%   N/A (5)  06/2018   -    (5)   -    - 
                  1,256    1,241    0.1   1,256 
Personal and Non-Durable Consumer Products                                  
The Hygenic Corporation(3)  Senior loan  L + 5.00%   N/A (5)  10/2019   -    (5)   -    - 
The Hygenic Corporation*  Senior loan  L + 5.00%   6.00%  10/2020   3,275    3,231    0.4    3,275 
Massage Envy, LLC(3)  One stop  L + 7.25%   N/A (5)  09/2018   -    (9)   -    - 
Massage Envy, LLC*  One stop  L + 7.25%   8.50%  09/2018   15,570    15,375    1.9    15,570 
Orthotics Holdings, Inc(3)(8)  One stop  L + 5.00%   N/A (5)  02/2020   -    (2)   -    - 
Orthotics Holdings, Inc*(8)  One stop  L + 5.00%   6.00%  02/2020   1,387    1,372    0.2    1,387 
Orthotics Holdings, Inc(3)  One stop  L + 5.00%   N/A (5)  02/2020   -    (15)   -    - 
Orthotics Holdings, Inc(3)  One stop  L + 5.00%   N/A (5)  02/2020   -    (14)   -    - 
Orthotics Holdings, Inc*  One stop  L + 5.00%   6.00%  02/2020   8,460    8,367    1.0    8,460 
Team Technologies Acquisition Company(3)  Senior loan  L + 5.00%   N/A (5)  12/2017   -    (2)   -    - 
Team Technologies Acquisition Company^  Senior loan  L + 5.00%   6.25%  12/2017   4,782    4,754    0.6    4,782 
Team Technologies Acquisition Company  Senior loan  L + 5.50%   6.75%  12/2017   881    871    0.1    881 
                  34,355    33,923    4.2   34,355 
Personal, Food and Miscellaneous Services                                  
Focus Brands Inc.*^  Second lien  L + 9.00%   10.25%  08/2018   11,195    11,120    1.4    11,195 
Ignite Restaurant Group, Inc (Joe's Crab Shack)^  One stop  L + 7.00%   8.00%  02/2019   6,108    6,039    0.7    6,108 
PetVet Care Centers LLC  Senior loan  L + 4.50%   5.50%  12/2020   646    626    0.1    646 
PetVet Care Centers LLC(3)  Senior loan  L + 4.50%   N/A (5)  12/2019   -    (11)   -    - 
PetVet Care Centers LLC^  Senior loan  L + 4.50%   5.50%  12/2020   5,896    5,800    0.7    5,896 
Vetcor Merger Sub LLC(3)  One stop  L + 6.00%   N/A (5)  04/2021   -    (14)   -    - 
Vetcor Merger Sub LLC  One stop  L + 6.00%   7.00%  04/2021   8    4    -    8 
Vetcor Merger Sub LLC*^  One stop  L + 6.00%   7.00%  04/2021   25,181    24,715    3.1    25,181 
Veterinary Specialists of North America, LLC  One stop  L + 5.00%   N/A (5)  05/2020   -    -    -    - 
Veterinary Specialists of North America, LLC*  One stop  L + 5.00%   6.00%  05/2020   587    582    0.1    587 
                  49,621    48,861    6.1   49,621 
Printing and Publishing                                  
Market Track, LLC  One stop  P + 6.00%   9.25%  10/2019   369    345    -    347 
Market Track, LLC*^  One stop  L + 7.00%   8.00%  10/2019   28,976    28,643    3.5    28,686 
Market Track, LLC*  One stop  L + 7.00%   8.00%  10/2019   2,197    2,173    0.3    2,175 
Market Track, LLC  One stop  L + 7.00%   8.00%  10/2019   1,379    1,340    0.2    1,344 
                  32,921    32,501    4.0   32,552 
Retail Stores                                  
Benihana, Inc.  One stop  P + 4.75%   8.00%  07/2018   868    823    0.1    825 
Benihana, Inc.*^  One stop  L + 6.00%   7.25%  01/2019   15,436    15,124    1.9    15,127 
Boot Barn, Inc.*^  Senior loan  L + 4.50%   5.50%  06/2021   10,775    10,621    1.3    10,775 
CVS Holdings I, LP  One stop  L + 6.25%   7.25%  08/2021   366    329    -    347 
CVS Holdings I, LP(3)  One stop  L + 6.25%   N/A (5)  08/2020   -    (4)   -    (2)
CVS Holdings I, LP^  One stop  L + 6.25%   7.25%  08/2021   20,575    20,173    2.5    20,369 
Cycle Gear, Inc.(3)  One stop  L + 6.00%   N/A (5)  01/2020   -    (15)   -    - 
Cycle Gear, Inc.  One stop  L + 6.00%   7.00%  01/2020   6,486    6,362    0.8    6,486 
DTLR, Inc.*^  One stop  L + 8.00%   11.00%  12/2015   15,026    15,017    1.8    15,026 
Elite Sportswear, L.P.(3)  Senior loan  L + 5.00%   N/A (5)  03/2020   -    (7)   -    - 

 

See Notes to Consolidated Financial Statements

 

20

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest  Maturity  Principal / Par   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Amount   Cost   Net Assets   Value 
                              
Elite Sportswear, L.P.  Senior loan  L + 5.00%   6.00%  03/2020   2,849    2,798    0.4    2,849 
Express Oil Change, LLC*  Senior loan  L + 5.00%   6.00%  12/2017   104    103    -    104 
Express Oil Change, LLC*  Senior loan  L + 5.00%   6.00%  12/2017   1,371    1,366    0.2    1,371 
Express Oil Change, LLC(3)  Senior loan  L + 5.00%   N/A (5)  12/2017   -    (3)   -    - 
Express Oil Change, LLC*  Senior loan  L + 5.00%   6.00%  12/2017   3,672    3,647    0.5    3,672 
Floor & Decor Outlets of America, Inc.*^  One stop  L + 6.50%   7.75%  05/2019   11,130    11,047    1.4    11,130 
Marshall Retail Group, LLC, The(3)  One stop  L + 6.00%   N/A (5)  08/2020   -    (9)   -    (27)
Marshall Retail Group, LLC, The  One stop  L + 6.00%   7.00%  08/2019   146    124    -    80 
Marshall Retail Group, LLC, The^  One stop  L + 6.00%   7.00%  08/2020   12,331    12,205    1.5    11,960 
Paper Source, Inc.  One stop  P + 5.00%   7.75%  09/2018   677    670    0.1    677 
Paper Source, Inc.*^  One stop  L + 6.25%   7.25%  09/2018   12,888    12,810    1.6    12,888 
RCPSI Corporation(3)  One stop  L + 5.75%   N/A (5)  04/2020   -    (4)   -    - 
RCPSI Corporation*^  One stop  L + 5.75%   6.75%  04/2021   22,400    21,986    2.8    22,400 
Restaurant Holding Company, LLC  Senior loan  L + 7.75%   8.75%  02/2019   4,843    4,809    0.5    4,310 
Rubio's Restaurants, Inc  Senior loan  L + 4.75%   6.00%  11/2018   3,985    3,985    0.4    3,985 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   627    620    0.1    627 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   752    740    0.1    752 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   1,206    1,195    0.1    1,206 
Sneaker Villa, Inc.  One stop  P + 7.00%   10.25%  12/2017   1,253    1,240    0.2    1,253 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   2,506    2,489    0.3    2,506 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   4,154    4,126    0.5    4,154 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   4,317    4,254    0.5    4,317 
Specialty Catalog Corp.(3)  One stop  L + 6.00%   N/A (5)  07/2017   -    (3)   -    - 
Specialty Catalog Corp.  One stop  L + 6.00%   7.50%  07/2017   4,125    4,105    0.5    4,125 
                  164,868    162,723    20.1   163,292 
Telecommunications                                  
Arise Virtual Solutions, Inc.(3)  One stop  L + 5.50%   N/A (5)  12/2018   -    (1)   -    (3)
Arise Virtual Solutions, Inc.^  One stop  L + 5.50%   6.75%  12/2018   1,500    1,495    0.2    1,470 
Hosting.com Inc.  Senior loan  P + 3.25%   6.50%  12/2017   37    37    -    37 
Hosting.com Inc.*  Senior loan  L + 4.50%   5.75%  12/2017   790    784    0.1    790 
                  2,327    2,315    0.3   2,294 
Textile and Leather                                  
5.11, Inc.*^  Senior loan  L + 5.00%   6.00%  02/2020   991    987    0.1    994 
Southern Tide, LLC(3)  One stop  L + 6.75%   N/A (5)  06/2019   -    (7)   -    - 
Southern Tide, LLC^  One stop  L + 6.75%   7.75%  06/2019   4,055    4,024    0.5    4,055 
                  5,046    5,004    0.6   5,049 
Utilities                                  
PowerPlan Consultants, Inc.(3)  Senior loan  L + 5.25%   N/A (5)  02/2021   -    (7)   -    - 
PowerPlan Consultants, Inc.  Senior loan  L + 5.25%   6.25%  02/2022   4,885    4,818    0.6    4,885 
                  4,885    4,811    0.6   4,885 
                                   
Total debt investments United States                $1,471,217   $1,452,577    178.8%  $1,449,603 
                                   
Fair Value as a percentage of Principal Amount                         98.5%

 

See Notes to Consolidated Financial Statements

 

21

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Equity Investments (9) (10)                                
Aerospace and Defense                                
NTS Technical Systems  Common stock  N/A  N/A  N/A   2   $1,506    0.3%  $2,078 
Tresys Technology Holdings, Inc.  Common stock  N/A  N/A  N/A   295    295    -    - 
Whitcraft LLC  Preferred stock B  N/A  N/A  N/A   1    670    0.1    821 
Whitcraft LLC  Warrant  N/A  N/A  N/A   -    -    -    160 
                     2,471    0.4   3,059 
Automobile                                
K&N Engineering, Inc.  Preferred stock A  N/A  N/A  N/A   -    -    -    6 
K&N Engineering, Inc.  Preferred stock B  N/A  N/A  N/A   -    -    -    6 
K&N Engineering, Inc.  Common stock  N/A  N/A  N/A   -    -    -    47 
                     -    -   59 
Beverage, Food and Tobacco                                
Atkins Nutritionals, Inc.  LLC interest  N/A  N/A  N/A   57    746    0.4    2,996 
C. J. Foods, Inc.  Preferred stock  N/A  N/A  N/A   -    157    -    160 
First Watch Restaurants, Inc.  Common stock  N/A  N/A  N/A   9    964    0.2    1,481 
Hopdoddy Holdings, LLC  LLC interest  N/A  N/A  N/A   27    130    -    130 
Julio & Sons Company  LLC interest  N/A  N/A  N/A   521    521    0.1    769 
Northern Brewer, LLC  LLC interest  N/A  N/A  N/A   438    362    -    32 
Richelieu Foods, Inc.  LP interest  N/A  N/A  N/A   220    220    -    197 
Tate's Bake Shop, Inc.  LP interest  N/A  N/A  N/A   -    462    0.1    503 
Uinta Brewing Company  LP interest  N/A  N/A  N/A   -    462    -    192 
United Craft Brews LLC  LP interest  N/A  N/A  N/A   1    657    0.1    653 
                     4,681    0.9   7,113 
                                 
Buildings and Real Estate                                
Brooks Equipment Company, LLC  Common stock  N/A  N/A  N/A   10    1,021    0.1    892 
                                 
Chemicals, Plastics and Rubber                                
Flexan, LLC  Preferred stock  N/A  N/A  N/A   -    73    -    75 
Flexan, LLC  Common stock  N/A  N/A  N/A   1    -    -    14 
                     73    -   89 
Containers, Packaging and Glass                                
Packaging Coordinators, Inc.(8)  Common stock  N/A  N/A  N/A   25    2,065    0.3    2,533 
Packaging Coordinators, Inc.  Common stock  N/A  N/A  N/A   48    1,563    0.3    2,205 
                     3,628    0.6   4,738 
                                 
Diversified Conglomerate Manufacturing                                
Chase Industries, Inc.  LLC units  N/A  N/A  N/A   1    1,186    0.2    1,509 
ICCN Acquisition Corp.  Preferred stock  N/A  N/A  N/A   -    370    -    360 
ICCN Acquisition Corp.  Common stock  N/A  N/A  N/A   -    -    -    - 
Sunless Merger Sub, Inc.  LP interest  N/A  N/A  N/A   -    160    -    - 
                     1,716    0.2   1,869 
                                 
Diversified Conglomerate Service                                
Actiance, Inc.  Warrant  N/A  N/A  N/A   344    82    -    82 
Agility Recovery Solutions Inc.  Preferred stock  N/A  N/A  N/A   67    430    0.1    447 
Daxko, LLC  LLC units  N/A  N/A  N/A   219    219    -    343 
DISA Holdings Acquisition Subsidiary Corp.  Common stock  N/A  N/A  N/A   -    154    -    72 
HealthcareSource HR, Inc.  LLC interest  N/A  N/A  N/A   -    348    -    348 
Host Analytics, Inc.  Warrant  N/A  N/A  N/A   180    -    -    98 
Marathon Data Operating Co., LLC  LLC units  N/A  N/A  N/A   1    264    -    - 
Marathon Data Operating Co., LLC  LLC units  N/A  N/A  N/A   1    264    0.1    604 
PC Helps Support, LLC  Common stock  N/A  N/A  N/A   1    7    -    - 
PC Helps Support, LLC  Preferred stock A  N/A  N/A  N/A   -    61    -    62 
Secure-24, LLC  LLC units  N/A  N/A  N/A   263    263    0.1    379 
Steelwedge Software, Inc.  Warrant  N/A  N/A  N/A   36,575    76    -    76 
TA MHI Buyer, Inc.  Preferred stock  N/A  N/A  N/A   -    202    -    202 
Vendavo, Inc.  Preferred stock A  N/A  N/A  N/A   827    827    0.2    1,198 
                     3,197    0.5   3,911 

 

See Notes to Consolidated Financial Statements

 

22

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Electronics                                
ECI Acquisition Holdings, Inc.  Common stock  N/A  N/A  N/A   9    873    0.2    1,027 
Gamma Technologies, LLC  LLC units  N/A  N/A  N/A   1    134    -    134 
SEI, Inc.  LLC units  N/A  N/A  N/A   340    340    -    340 
Sloan Company, Inc., The  LLC units  N/A  N/A  N/A   1    14    -    14 
Sloan Company, Inc., The  LLC units  N/A  N/A  N/A   -    122    -    122 
Sparta Holding Corporation  Common stock  N/A  N/A  N/A   1    567    0.1    629 
Sparta Holding Corporation  Common stock  N/A  N/A  N/A   235    6    -    208 
                     2,056    0.3   2,474 
                                 
Grocery                                
MyWebGrocer, Inc.  LLC units  N/A  N/A  N/A   1,418    1,446    0.2    1,389 
                                 
Healthcare, Education and Childcare                                
Advanced Pain Management Holdings, Inc.  Common stock  N/A  N/A  N/A   67    67    -    - 
Advanced Pain Management Holdings, Inc.  Preferred stock  N/A  N/A  N/A   8    829    0.1    871 
Advanced Pain Management Holdings, Inc.  Preferred stock  N/A  N/A  N/A   1    64    -    194 
Avatar International, LLC  LP interest  N/A  N/A  N/A   1    741    -    - 
California Cryobank, LLC  LLC units  N/A  N/A  N/A   -    28    -    32 
California Cryobank, LLC  LLC units  N/A  N/A  N/A   -    -    -    5 
Certara L.P.  LP interest  N/A  N/A  N/A   -    635    0.1    923 
DCA Investment Holding, LLC  LLC units  N/A  N/A  N/A   65    6    -    6 
DCA Investment Holding, LLC  LLC units  N/A  N/A  N/A   6,386    639    0.1    639 
Deca Dental Management LLC  LLC units  N/A  N/A  N/A   357    357    -    357 
Dental Holdings Corporation  LLC units  N/A  N/A  N/A   734    734    0.1    736 
Dialysis Newco, Inc. (DSI Renal)  LLC units  N/A  N/A  N/A   871    -    0.5    3,447 
Encore GC Acquisition, LLC  LLC units  N/A  N/A  N/A   14    141    -    143 
Encore GC Acquisition, LLC  LLC units  N/A  N/A  N/A   14    -    -    - 
G & H Wire Company, Inc  LP interest  N/A  N/A  N/A   -    102    -    122 
Global Healthcare Exchange, LLC  Common stock  N/A  N/A  N/A   -    5    -    111 
Global Healthcare Exchange, LLC  Preferred stock  N/A  N/A  N/A   -    481    0.1    547 
IntegraMed America, Inc.  Common stock  N/A  N/A  N/A   1    875    -    281 
Katena Holdings, Inc.  LLC units  N/A  N/A  N/A   -    387    0.1    387 
Northwestern Management Services, LLC  LLC units  N/A  N/A  N/A   3    3    -    228 
Northwestern Management Services, LLC  LLC units  N/A  N/A  N/A   -    249    -    309 
Pentec Acquisition Sub, Inc.  Preferred stock  N/A  N/A  N/A   1    116    -    252 
Radiology Partners, Inc.  LLC units  N/A  N/A  N/A   43    85    -    82 
Reliant Pro ReHab, LLC  Preferred stock A  N/A  N/A  N/A   2    183    0.2    956 
RXH Buyer Corporation  LP interest  N/A  N/A  N/A   7    683    0.1    683 
Southern Anesthesia and Surgical  LLC units  N/A  N/A  N/A   487    487    0.1    794 
Spear Education, LLC  LLC units  N/A  N/A  N/A   1    1    -    20 
Spear Education, LLC  LLC units  N/A  N/A  N/A   -    86    -    94 
Surgical Information Systems, LLC  Common stock  N/A  N/A  N/A   4    414    0.1    681 
Young Innovations, Inc.  LLC units  N/A  N/A  N/A   -    236    -    346 
                     8,634    1.6   13,246 
Home and Office Furnishings, Housewares, and Durable Consumer                                
Top Knobs USA, Inc.  Common stock  N/A  N/A  N/A   3    27    -    231 
Zenith Products Corporation  Common stock  N/A  N/A  N/A   1    -    -    - 
                     27    -   231 

 

See Notes to Consolidated Financial Statements

 

23

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Insurance                                
Captive Resources Midco, LLC  LLC units  N/A  N/A  N/A   1    -    -    146 
Internet Pipeline, Inc.  Common stock  N/A  N/A  N/A   43    1    -    1 
Internet Pipeline, Inc.  Preferred stock  N/A  N/A  N/A   -    98    -    98 
                     99    -   245 
                                 
Investment Funds and Vehicles                                
Senior Loan Fund LLC (7)(8)  LLC interest  N/A  N/A  N/A   23,222    23,222    2.8    22,373 
                                 
Leisure, Amusement, Motion Pictures and Entertainment                                
Competitor Group, Inc.  LLC interest  N/A  N/A  N/A   1    714    -    22 
LMP TR Holdings, LLC  LLC units  N/A  N/A  N/A   712    712    -    22 
Starplex Operating, L.L.C.  Common stock  N/A  N/A  N/A   1    183    0.1    409 
Titan Fitness, LLC  LLC units  N/A  N/A  N/A   6    583    0.1    827 
                     2,192    0.2   1,280 
Personal and Non-Durable Consumer Products                                
C.B. Fleet Company, Incorporated  LLC units  N/A  N/A  N/A   2    174    -    268 
The Hygenic Corporation  LP interest  N/A  N/A  N/A   1    61    -    87 
Massage Envy, LLC  LLC interest  N/A  N/A  N/A   749    749    0.2    1,058 
Team Technologies Acquisition Company  Common stock  N/A  N/A  N/A   -    114    -    351 
                     1,098    0.2   1,764 
Personal, Food and Miscellaneous Services                                
R.G. Barry Corporation  Preferred stock  N/A  N/A  N/A   -    161    -    157 
Vetcor Professional Practices LLC  LLC units  N/A  N/A  N/A   85    85    -    85 
Vetcor Professional Practices LLC  LLC units  N/A  N/A  N/A   766    766    0.1    766 
                     1,012    0.1   1,008 
Printing and Publishing                                
Market Track, LLC  Preferred stock  N/A  N/A  N/A   -    145    -    195 
Market Track, LLC  Common stock  N/A  N/A  N/A   1    145    -    272 
                     290    -   467 
Retail Stores                                
Barcelona Restaurants, LLC(8)(11)  LP interest  N/A  N/A  N/A   1,996    1,996    0.7    5,523 
Benihana, Inc.  LLC units  N/A  N/A  N/A   43    699    0.1    595 
Cycle Gear, Inc.  LLC units  N/A  N/A  N/A   15    150    -    153 
DentMall MSO, LLC  LLC units  N/A  N/A  N/A   2    -    -    - 
DentMall MSO, LLC  LLC units  N/A  N/A  N/A   2    97    -    106 
Elite Sportswear, L.P.  LLC interest  N/A  N/A  N/A   -    73    -    71 
Express Oil Change, LLC  LLC interest  N/A  N/A  N/A   81    81    -    153 
Marshall Retail Group LLC, The  LLC units  N/A  N/A  N/A   15    154    -    59 
Paper Source, Inc.  Common stock  N/A  N/A  N/A   8    1,387    0.2    1,455 
RCP PetPeople LP  LP interest  N/A  N/A  N/A   889    889    0.2    1,331 
RCPSI Corporation  LLC interest  N/A  N/A  N/A   455    455    0.1    455 
Rubio's Restaurants, Inc.  Preferred stock A  N/A  N/A  N/A   2    945    0.3    2,711 
Sneaker Villa, Inc.  LLC interest  N/A  N/A  N/A   4    411    0.1    583 
SSH Corporation  Common stock  N/A  N/A  N/A   -    40    -    146 
                     7,377    1.7   13,341 

 

See Notes to Consolidated Financial Statements

 

24

 

 

Golub Capital BDC, Inc. and Subsidiaries

Consolidated Schedule of Investments (continued)

September 30, 2015

(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /   Amortized   of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Textiles and Leather                                
Southern Tide, LLC  LLC interest  N/A  N/A  N/A   2    191    -    222 
                                 
Utilities                                
PowerPlan Holdings, Inc.  Common stock  N/A  N/A  N/A   -    303    -    319 
PowerPlan Holdings, Inc.  Common stock  N/A  N/A  N/A   151    3    -    92 
                     306    -   411 
                                 
Total equity investments United States                   $64,737    9.8%  $80,181 
                                 
Total United States                   $1,517,314    188.6%  $1,529,784 
                                 
Total Investments                   $1,517,314    188.6%  $1,529,784 
                                 
Cash, Restricted Cash and Cash Equivalents                                
Cash and Restricted Cash                   $20,137    2.5%  $20,137 
BlackRock Liquidity Funds T-Fund Institutional Shares (CUSIP 09248U718)                    13,367    1.6    13,367 
BNY Mellon US Dollar Liquidity Fund Institutional Shares (CUSIP G1206E235)                    18,430    2.3    18,430 
US Bank Money Market Account (CUSIP 9AMMF05B2)                    45,550    5.6    45,550 
Total Cash, Restricted Cash and Cash Equivalents                   $97,484    12.0%  $97,484 
                                 
Total Investments and Cash, Restricted Cash and Cash Equivalents                   $1,614,798    200.6%  $1,627,268 

 

 

 

*   Denotes that all or a portion of the loan secures the notes offered in the 2010 Debt Securitization (as defined in Note 7).
^   Denotes that all or a portion of the loan secures the notes offered in the 2014 Debt Securitization (as defined in Note 7).
(1)   The majority of the investments bear interest at a rate that may be determined by reference to LIBOR ("L") or Prime ("P") and which reset daily, quarterly or semiannually.  For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect at September 30, 2015. Certain investments are subject to a LIBOR or Prime interest rate floor.  For fixed rate loans, a spread above a reference rate is not applicable.
(2)   For portfolio companies with multiple interest rate contracts, the interest rate shown is a weighted average current interest rate in effect at September 30, 2015.
(3)   The negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par.  The negative amortized cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(4)   The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 - Transfers and Servicing, and therefore, the entire one stop loan asset remains in the Consolidated Schedule of Investments.  (See Note 7 in the accompanying notes to the consolidated financial statements.)
(5)   The entire commitment was unfunded at September 30, 2015.  As such, no interest is being earned on this investment.
(6)   Loan was on non-accrual status as of September 30, 2015, meaning that the Company has ceased recognizing interest income on the loan.
(7)   As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).
(8)   The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act.  Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets.
(9)   Non-income producing securities.
(10)   Ownership of certain equity investments may occur through a holding company or partnership.
(11)   As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the portfolio company as the Company along with affiliated entities owns five percent or more of the portfolio company's voting securities.

 

See Notes to Consolidated Financial Statements

 

25

 

 

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Note 1.Organization

 

Golub Capital BDC, Inc. (“GBDC” and, collectively with its subsidiaries, the “Company”) is an externally managed, closed-end, non-diversified management investment company. GBDC has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the "1940 Act"). In addition, for U.S. federal income tax purposes, GBDC has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The Company’s investment strategy is to invest primarily in senior secured and one stop (a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans) loans of U.S. middle-market companies. The Company may also selectively invest in second lien and subordinated (a loan that ranks senior only to a borrower’s equity securities and ranks junior to all of such borrower’s other indebtedness in priority of payment) loans of, and warrants and minority equity securities in, U.S. middle-market companies. The Company has entered into an investment advisory agreement (the “Investment Advisory Agreement”) with GC Advisors LLC (the “Investment Adviser”), under which the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Company. Under an administration agreement (the “Administration Agreement”) the Company is provided with certain services by an administrator (the “Administrator”), which is currently Golub Capital LLC.

 

Note 2.Significant Accounting Policies and Recent Accounting Updates

 

Basis of presentation: The Company is an investment company as defined in the accounting and reporting guidance under Accounting Standards Codification (“ASC”) Topic 946 – Financial Services – Investment Companies (“ASC Topic 946”).

 

The accompanying interim consolidated financial statements of the Company and related financial information have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications consisting solely of normal accruals that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Fair value of financial instruments: The Company applies fair value to all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurement (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity-specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

 

26

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Any changes to the valuation methodology are reviewed by management and the Company’s board of directors (the “Board”) to confirm that the changes are appropriate. As markets change, new products develop and the pricing for products becomes more or less transparent, the Company will continue to refine its valuation methodologies. See further description of fair value methodology in Note 6.

 

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

 

Consolidation: As provided under Regulation S-X and ASC Topic 946, the Company will generally not 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. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated financial statements. The Company does not consolidate its non-controlling interest in Senior Loan Fund LLC (“SLF”). See further description of the Company’s investment in SLF in Note 4.

 

Assets related to transactions that do not meet ASC Topic 860 — Transfers and Servicing (“ASC Topic 860”) requirements for accounting sale treatment are reflected in the Company’s consolidated statements of financial condition as investments. Those assets are owned by special purpose entities, including Golub Capital BDC 2010-1 LLC ("2010 Issuer"), Golub Capital BDC CLO 2014 LLC (“2014 Issuer”), Golub Capital BDC Funding LLC ("Funding") and Golub Capital BDC Revolver Funding, LLC (“Revolver Funding”), that are consolidated in the Company’s consolidated financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of GBDC (or any affiliate of GBDC).

 

Cash and cash equivalents: Cash and cash equivalents are highly liquid investments with an original maturity of three months or less at the date of acquisition. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.

 

Restricted cash and cash equivalents: Restricted cash and cash equivalents include amounts that are collected and are held by trustees who have been appointed as custodians of the assets securing certain of the Company’s financing transactions. Restricted cash is held by the trustees for payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. In addition, restricted cash and cash equivalents include amounts held within the Company’s small business investment company (“SBIC”) subsidiaries. The amounts held within the SBICs are generally restricted to the originations of new loans from the SBICs and the payment of U.S. Small Business Administration (“SBA”) debentures and related interest expense.

 

Revenue recognition:

 

Investments and related investment income: Interest income is accrued based upon the outstanding principal amount and contractual interest terms of debt investments.

 

Loan origination fees, original issue discount and market discount or premium are capitalized, and the Company accretes or amortizes such amounts over the life of the loan as interest income. For the three and nine months ended June 30, 2016, interest income included $2,210 and $5,896, respectively, of accretion of discounts. For the three and nine months ended June 30, 2015, interest income included $2,587 and $6,077, respectively, of accretion of discounts. For the three and nine months ended June 30, 2016, the Company received loan origination fees of $3,257 and $8,048, respectively. For the three and nine months ended June 30, 2015, the Company received loan origination fees of $4,990 and $10,197, respectively.

 

27

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

For investments with contractual payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, the Company will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible.

 

For the three and nine months ended June 30, 2016, the Company recorded PIK income of $335 and $650, respectively, and received PIK payments in cash of $4 and $4, respectively. For the three and nine months ended June 30, 2015, the Company recorded PIK income of $252 and $1,067, respectively, and received PIK payments in cash of $86 and $465, respectively.

 

In addition, the Company may generate revenue in the form of amendment, structuring or due diligence fees, fees for providing managerial assistance, consulting fees and prepayment premiums on loans. The Company records these fees as fee income when received. All other income is recorded into income when earned. For the three and nine months ended June 30, 2016, fee income included $3 and $570, respectively, of prepayment premiums. For the three and nine months ended June 30, 2015, fee income included $14 and $714, respectively, of prepayment premiums.

 

For the three and nine months ended June 30, 2016, the Company received interest and fees in cash, which excludes capitalized loan origination fees, in the amounts of $28,694 and $83,438 respectively. For the three and nine months ended June 30, 2015, the Company received interest and fees in cash, which excludes capitalized loan origination fees, in the amounts of $27,639 and $79,156, respectively.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three and nine months ended June 30, 2016, the Company recorded dividend income of $1,179 and $3,364, respectively, and return of capital distributions of $2,969 and $5,127. For the three and nine months ended June 30, 2015, the Company recorded dividend income of $492 and $887, respectively, and return of capital distributions of $34 and $42.

 

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

 

Non-accrual loans: A loan may be left on accrual status during the period the Company is pursuing repayment of the loan. Management reviews all loans that become 90 days or more past due on principal and interest, or when there is reasonable doubt that principal or interest will be collected, for possible placement on non-accrual status. When a loan is placed on non-accrual status, unpaid interest credited to income is reversed. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, payments are likely to remain current. The total fair value of non-accrual loans was $1,326 and $6,487 as of June 30, 2016 and September 30, 2015, respectively.

 

28

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Partial loan sales: The Company follows the guidance in ASC Topic 860 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, 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 financial condition and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value. See Note 7 for additional information.

 

Income taxes: The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute dividends to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. The Company has made, and intends to continue to make, the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes with respect to all income distributed to its stockholders.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next tax year. The Company may then be required to pay a 4% excise tax on such income. To the extent that the Company determines that it’s estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three and nine months ended June 30, 2016, $0 and $333, respectively, was recorded for U.S. federal excise tax. For the three and nine months ended June 30, 2015, no amount was recorded for U.S. federal excise tax.

 

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through June 30, 2016. The 2013 through 2015 tax years remain subject to examination by U.S. federal and most state tax authorities.

 

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

 

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board declares a cash distribution, then stockholders who participate in the DRIP will have their cash distribution reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company may use newly issued shares under the guidelines of the DRIP (if the Company’s shares are trading at a premium to net asset value) or the Company may purchase shares in the open market in connection with the obligations under the plan. In particular, if the Company’s shares are trading at a discount to net asset value (“NAV”) and the Company is otherwise permitted under applicable law to purchase such shares, the Company intends to purchase shares in the open market in connection with any obligations under the DRIP.

 

29

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

In the event the market price per share of the Company’s common stock on the date of a distribution exceeds the most recently computed NAV per share of the common stock, the Company will issue shares of common stock to participants in the DRIP at the greater of the most recently computed NAV per share of common stock or 95% of the current market price per share of common stock (or such lesser discount to the current market price per share that still exceeds the most recently computed NAV per share of common stock).

 

Share repurchase plan: The Company has a share repurchase program (the “Program”) which allows the Company to repurchase up to $50,000 of the Company’s outstanding common stock on the open market at prices below the Company’s NAV as reported in its most recently published consolidated financial statements. The Board most recently reapproved the Program in August 2016 and the Program may be implemented at the discretion of management. The shares may be purchased from time to time at prevailing market prices, through open market transactions, including block transactions. The Company did not make any repurchases of its common stock during the three and nine months ended June 30, 2016.

 

Deferred debt issuance costs: Deferred debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. As of June 30, 2016 and September 30, 2015, the Company had deferred debt issuance costs of $6,051 and $7,624, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the estimated average life of the borrowings. Amortization expense for the three and nine months ended June 30, 2016 was $977 and $3,227, respectively. Amortization expense for the three and nine months ended June 30, 2015 was $1,117 and $3,252, respectively.

 

Deferred offering costs: Deferred offering costs consist of fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of equity offerings. Deferred offering costs are charged against the proceeds from equity offerings when received. As of June 30, 2016 and September 30, 2015, deferred offering costs, which are included in other assets on the consolidated statements of financial condition, were $174 and $174, respectively.

 

Recent accounting pronouncements: In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2015 and early adoption is permitted. The Company has elected to adopt the ASU which did not have a material impact on the Company’s consolidated financial statements other than corresponding reductions to total assets and total liabilities on the consolidated statements of financial condition. Prior to adoption, the Company recorded deferred debt issuance costs as deferred financing costs as an asset on the consolidated statements of financial condition. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduce debt in the liabilities on the consolidated statements of financial condition and retrospectively reclassified the $7,624 of deferred debt issuance costs that were previously presented as deferred financing costs as an asset as of September 30, 2015.

 

In May 2015, 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 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This guidance is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2015 and early adoption is permitted. The Company adopted the ASU during the year ended September 30, 2015, which did not have a material impact on the Company’s consolidated financial statements other than the enhanced disclosures around fair value measurements.

 

30

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Note 3.Related Party Transactions

 

Investment Advisory Agreement: Under the Investment Advisory Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, GBDC. The Board most recently reapproved the Investment Advisory Agreement in May 2016. The Investment Adviser is a registered investment adviser with the Securities and Exchange Commission (the “SEC”). The Investment Adviser receives fees for providing services, consisting of two components, a base management fee and an Incentive Fee (as defined below).

 

The base management fee is calculated at an annual rate equal to 1.375% of average adjusted gross assets at the end of the two most recently completed calendar quarters (including assets purchased with borrowed funds and securitization-related assets, leverage, unrealized depreciation or appreciation on derivative instruments and cash collateral on deposit with custodian but adjusted to exclude cash and cash equivalents so that investors do not pay the base management fee on such assets) and is payable quarterly in arrears. Additionally, the Investment Adviser is voluntarily excluding assets funded with secured borrowing proceeds from the base management fee. The base management fee is adjusted, based on the actual number of days elapsed relative to the total number of days in such calendar quarter, for any share issuances or repurchases during such calendar quarter. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial paper instruments maturing within 270 days of purchase (which is different than the GAAP definition, which defines cash equivalents as U.S. government securities and commercial paper instruments maturing within 90 days of purchase). To the extent that the Investment Adviser or any of its affiliates provides investment advisory, collateral management or other similar services to a subsidiary of the Company, the base management fee will be reduced by an amount equal to the product of (1) the total fees paid to the Investment Adviser by such subsidiary for such services and (2) the percentage of such subsidiary’s total equity, including membership interests and any class of notes not exclusively held by one or more third parties, that is owned, directly or indirectly, by the Company.

 

The Company has structured the calculation of the Incentive Fee to include a fee limitation such that an Incentive Fee for any quarter can only be paid to the Investment Adviser if, after such payment, the cumulative Incentive Fees paid to the Investment Adviser since April 13, 2010, the effective date of the Company’s election to become a BDC, would be less than or equal to 20.0% of the Company’s Cumulative Pre-Incentive Fee Net Income (as defined below).

 

The Company accomplishes this limitation by subjecting each quarterly Incentive Fee payable under the Income and Capital Gain Incentive Fee Calculation (as defined below) to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap in any quarter is equal to the difference between (a) 20.0% of Cumulative Pre-Incentive Fee Net Income and (b) cumulative Incentive Fees of any kind paid to the Investment Adviser by GBDC since April 13, 2010. To the extent the Incentive Fee Cap is zero or a negative value in any quarter, no Incentive Fee would be payable in that quarter. If, for any relevant period, the Incentive Fee Cap calculation results in the Company paying less than the amount of the Incentive Fee calculated above, then the difference between the Incentive Fee and the Incentive Fee Cap will not be paid by GBDC and will not be received by the Investment Adviser as an Incentive Fee either at the end of such relevant period or at the end of any future period. “Cumulative Pre-Incentive Fee Net Income” is equal to the sum of (a) Pre-Incentive Fee Net Investment Income (as defined below) for each period since April 13, 2010 and (b) cumulative aggregate realized capital gains, cumulative aggregate realized capital losses, cumulative aggregate unrealized capital depreciation and cumulative aggregate unrealized capital appreciation since April 13, 2010.

 

“Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the calendar quarter (including the base management fee, taxes, any expenses payable under the Investment Advisory Agreement and the Administration Agreement, any expenses of securitizations and any interest expense and dividends paid on any outstanding preferred stock, but excluding the

 

31

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Incentive Fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that the Company has not yet received in cash. Incentive Fees are calculated and payable quarterly in arrears (or, upon termination of the Investment Advisory Agreement, as of the termination date).

 

The income and capital gains incentive fee calculation (the “Income and Capital Gain Incentive Fee Calculation”) has two parts, the income component (the “Income Incentive Fee”) and the capital gains component (the “Capital Gain Incentive Fee” and, together with the Income Incentive Fee, the “Incentive Fee”). The Income Incentive Fee is calculated quarterly in arrears based on the Company’s Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter.

 

For the three and nine months ended June 30, 2016, the Income Incentive Fee incurred was $1,750 and $2,877, respectively. For the three and nine months ended June 30, 2015, the Income Incentive Fee incurred was $1,651 and $3,803, respectively.

 

Pre-Incentive 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 Income Incentive Fee, it is possible that an Incentive Fee may be calculated under this formula with respect to a period in which the Company has incurred a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the hurdle rate (as defined below) for a calendar quarter, the Income Incentive Fee will result in a positive value and an Incentive Fee will be paid unless the payment of such Incentive Fee would cause the Company to pay Incentive Fees on a cumulative basis that exceed the Incentive Fee Cap. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any Incentive Fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 2.0% quarterly. If market interest rates rise, the Company may be able to invest funds in debt instruments that provide for a higher return, which would increase Pre-Incentive Fee Net Investment Income and make it easier for the Investment Adviser to surpass the fixed hurdle rate and receive an Incentive Fee based on such net investment income.

 

The Company’s Pre-Incentive Fee Net Investment Income used to calculate this part of the Incentive Fee is also included in the amount of its total assets (excluding cash and cash equivalents but including assets purchased with borrowed funds and securitization-related assets, unrealized depreciation or appreciation on derivative instruments and cash collateral on deposit with custodian) used to calculate the 1.375% base management fee annual rate.

 

The Company calculates the Income Incentive Fee with respect to its Pre-Incentive Fee Net Investment Income quarterly, in arrears, as follows:

 

·Zero in any calendar quarter in which the Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate;
·100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.5% in any calendar quarter. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than 2.5%) is referred to as the “catch-up” provision. The catch-up is meant to provide the Investment Adviser with 20.0% of the Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply if the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.5% in any calendar quarter; and

 

32

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

·20.0% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any calendar quarter.

 

The Capital Gain Incentive Fee equals (a) 20.0% of the Company’s Capital Gain Incentive Fee Base (as defined below), if any, calculated in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), which commenced with the calendar year ending December 31, 2010, less (b) the aggregate amount of any previously paid Capital Gain Incentive Fees. The Company’s “Capital Gain Incentive Fee Base” equals (1) the sum of (i) realized capital gains, if any, on a cumulative positive basis from the date the Company elected to become a BDC through the end of each calendar year, (ii) all realized capital losses on a cumulative basis and (iii) all unrealized capital depreciation on a cumulative basis less (2) all unamortized deferred debt issuance costs, if and to the extent such costs exceed all unrealized capital appreciation on a cumulative basis.

 

·The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.
·The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company’s portfolio when sold and (b) the accreted or amortized cost basis of such investment.
·The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable Capital Gain Incentive Fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

The Capital Gain Incentive Fee payable as calculated under the Investment Advisory Agreement (as described above) for the three and nine months ended June 30, 2016 and 2015 was $0. However, in accordance with GAAP, we are required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement. If the Capital Gain Incentive Fee Base, adjusted as required by GAAP to include unrealized appreciation, is positive at the end of a period, then GAAP requires the Company to accrue a capital gain incentive fee equal to 20% of such amount, less the aggregate amount of the actual Capital Gain Incentive Fees paid and capital gain incentive fees accrued under GAAP in all prior periods. If such amount is negative, then there is no accrual for such period. The resulting accrual under GAAP in a given period may result in additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. There can be no assurance that such unrealized capital appreciation will be realized in the future. From inception through June 30, 2016, the Company has not made any Capital Gain Incentive Fee payments. For the three and nine months ended June 30, 2016 the Company accrued a capital gain incentive fee under GAAP of $561 and $1,385. For the three and nine months ended June 30, 2015, the Company accrued a capital gain incentive fee under GAAP of $732 and $1,909, respectively.

 

The sum of the Income Incentive Fee and Capital Gain Incentive Fee is the “Incentive Fee.”

 

Administration Agreement: Under the Administration Agreement, the Administrator furnishes the Company with office facilities and equipment, provides the Company with clerical, bookkeeping and record keeping services at such facilities and provides the Company with other administrative services as the Administrator, subject to review by the Board, determines necessary to conduct the Company’s day-to-day operations. GBDC reimburses the Administrator the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, fees and expenses associated with performing compliance functions and GBDC’s allocable portion of the cost of its chief financial officer and chief compliance officer and their respective

 

33

 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

staffs. The Board reviews such expenses to determine that these expenses are reasonable and comparable to administrative services charged by unaffiliated third party asset managers. Under the Administration Agreement, the Administrator also provides, on the Company’s behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance and will be paid an additional amount based on the cost of the services provided, which amount shall not exceed the amount the Company receives from such portfolio companies.

 

Included in accounts payable and accrued expenses is $531 and $606 as of June 30, 2016 and September 30, 2015, respectively, for accrued allocated shared services under the Administration Agreement.

 

Other related party transactions: The Administrator pays for certain unaffiliated third-party expenses incurred by the Company. Such expenses include postage, printing, office supplies and rating agency fees. These expenses are not marked-up and represent the same amount the Company would have paid had the Company paid the expenses directly. These expenses are subsequently reimbursed in cash.

 

Total expenses reimbursed to the Administrator during the three and nine months ended June 30, 2016 were $715 and $2,094, respectively. Total expenses reimbursed to the Administrator during the three and nine months ended June 30, 2015 were $224 and $681, respectively.

 

As of June 30, 2016 and September 30, 2015, included in accounts payable and accrued expenses were $344 and $554, respectively, for accrued expenses paid on behalf of the Company by the Administrator.

 

During the three and nine months ended June 30, 2016, the Company sold $29,369 and $144,515, respectively, of investments and unfunded commitments to SLF at fair value and recognized $258 and $1,011, respectively, of net realized gains. During the three and nine months ended June 30, 2015, the Company sold $102,776 and $201,977, respectively, of investments and unfunded commitments to SLF at fair value and recognized $902 and $1,685, respectively, of net realized gains.

 

On June 22, 2016, the Company entered into an unsecured revolving credit facility with the Investment Adviser (the “Adviser Revolver”), with a maximum credit limit of $20,000 and expiration date of June 22, 2019. Refer to Note 7 for discussion of the Adviser Revolver.

 

34

 

 

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Note 4.Investments

 

Investments as of June 30, 2016 and September 30, 2015 consisted of the following:

 

   As of June 30, 2016   As of September 30, 2015 
       Amortized   Fair       Amortized   Fair 
   Par   Cost   Value   Par   Cost   Value 
Senior secured  $176,730   $174,752   $174,608   $199,573   $197,189   $197,329 
One stop   1,250,856    1,233,710    1,235,496    1,153,450    1,137,654    1,134,222 
Second lien   37,838    37,394    37,461    39,924    39,464    39,774 
Subordinated debt   1,749    1,749    1,966    1,707    1,707    1,715 
Subordinated notes in SLF (1)   82,114    82,114    81,292    76,563    76,563    76,563 
LLC equity interests in SLF (1)   N/A    31,339    29,772    N/A    23,222    22,373 
Equity   N/A    49,369    67,914    N/A    41,515    57,808 
Total  $1,549,287   $1,610,427   $1,628,509   $1,471,217   $1,517,314   $1,529,784 

 

 

(1)SLF's proceeds from the subordinated notes and LLC equity interests invested in SLF were utilized by SLF to invest in senior secured loans.

 

The following tables show the portfolio composition by geographic region at amortized cost and fair value as a percentage of total investments in portfolio companies. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

 

   As of June 30, 2016   As of September 30, 2015 
Amortized Cost:                
United States                    
Mid-Atlantic  $372,955    23.1%  $400,538    26.4%
Midwest   340,010    21.1    288,923    19.0 
West   250,735    15.6    245,455    16.2 
Southeast   426,044    26.5    376,243    24.8 
Southwest   117,244    7.3    92,714    6.1 
Northeast   101,806    6.3    113,441    7.5 
Canada   1,633    0.1    -    - 
Total  $1,610,427    100.0%  $1,517,314    100.0%
                     
Fair Value:                    
United States                    
Mid-Atlantic  $366,393    22.5%  $395,779    25.9%
Midwest   348,852    21.4    292,826    19.1 
West   249,923    15.3    250,264    16.4 
Southeast   431,663    26.5    376,653    24.6 
Southwest   119,997    7.4    95,524    6.2 
Northeast   110,033    6.8    118,738    7.8 
Canada   1,648    0.1    -    - 
Total  $1,628,509    100.0%  $1,529,784    100.0%

 

35

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The industry compositions of the portfolio at amortized cost and fair value were as follows:

 

   As of June 30, 2016   As of September 30, 2015 
Amortized Cost:                    
Aerospace and Defense  $64,399    4.0%  $87,245    5.7%
Automobile   24,546    1.5    15,451    1.0 
Banking   17,347    1.1    17,059    1.1 
Beverage, Food and Tobacco   162,337    10.1    133,352    8.8 
Broadcasting and Entertainment   1,475    0.1    1,485    0.1 
Buildings and Real Estate   25,173    1.6    31,039    2.0 
Chemicals, Plastics and Rubber   73    0.0*   6,166    0.4 
Containers, Packaging and Glass   19,850    1.2    31,429    2.1 
Diversified Conglomerate Manufacturing   70,808    4.4    66,939    4.4 
Diversified Conglomerate Service   256,630    15.9    209,454    13.8 
Electronics   146,137    9.1    134,487    8.9 
Finance   -    -    10,056    0.7 
Grocery   17,712    1.1    21,670    1.4 
Healthcare, Education and Childcare   292,451    18.2    227,871    15.0 
Home and Office Furnishings, Housewares and Durable Consumer   30,914    1.9    25,102    1.7 
Hotels, Motels, Inns, and Gaming   806    0.1    -    - 
Insurance   32,711    2.0    31,407    2.1 
Investment Funds and Vehicles   113,453    7.0    99,785    6.6 
Leisure, Amusement, Motion Pictures and Entertainment   56,171    3.5    60,696    4.0 
Mining, Steel, Iron and Non-Precious Metals   4,627    0.3    4,968    0.3 
Oil and Gas   1,184    0.1    1,241    0.1 
Personal and Non-Durable Consumer Products   40,413    2.5    35,021    2.3 
Personal, Food and Miscellaneous Services   53,879    3.3    49,873    3.3 
Printing and Publishing   35,472    2.2    32,791    2.2 
Retail Stores   125,708    7.8    170,100    11.2 
Telecommunications   2,208    0.1    2,315    0.2 
Textiles and Leather   2,996    0.2    5,195    0.3 
Utilities   10,947    0.7    5,117    0.3 
Total  $1,610,427    100.0%  $1,517,314    100.0%

 

   As of June 30, 2016   As of September 30, 2015 
Fair Value:                    
Aerospace and Defense  $59,733    3.7%  $84,370    5.5%
Automobile   24,873    1.5    15,627    1.0 
Banking   17,440    1.1    17,177    1.1 
Beverage, Food and Tobacco   166,691    10.2    135,937    8.9 
Broadcasting and Entertainment   1,490    0.1    1,496    0.1 
Buildings and Real Estate   25,644    1.6    31,277    2.0 
Chemicals, Plastics and Rubber   84    0.0*   6,241    0.4 
Containers, Packaging and Glass   25,698    1.6    32,553    2.1 
Diversified Conglomerate Manufacturing   70,820    4.3    67,337    4.4 
Diversified Conglomerate Service   259,864    16.0    212,411    13.9 
Electronics   147,791    9.1    136,161    8.9 
Finance   -    -    10,290    0.7 
Grocery   18,433    1.1    21,843    1.4 
Healthcare, Education and Childcare   297,478    18.3    228,136    14.9 
Home and Office Furnishings, Housewares and Durable Consumer   30,061    1.8    23,750    1.6 
Hotels, Motels, Inns, and Gaming   820    0.1    -    - 
Insurance   33,369    2.0    31,694    2.1 
Investment Funds and Vehicles   111,064    6.8    98,936    6.5 
Leisure, Amusement, Motion Pictures and Entertainment   51,455    3.2    59,032    3.9 
Mining, Steel, Iron and Non-Precious Metals   3,974    0.2    4,999    0.3 
Oil and Gas   1,198    0.1    1,256    0.1 
Personal and Non-Durable Consumer Products   40,942    2.5    36,119    2.4 
Personal, Food and Miscellaneous Services   54,805    3.4    50,629    3.3 
Printing and Publishing   36,007    2.2    33,019    2.2 
Retail Stores   132,291    8.1    176,633    11.5 
Telecommunications   2,134    0.1    2,294    0.1 
Textiles and Leather   3,052    0.2    5,271    0.3 
Utilities   11,298    0.7    5,296    0.4 
Total  $1,628,509    100.0%  $1,529,784    100.0%

 

* Represents an amount less than 0.1%.

 

36

 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Senior Loan Fund LLC:

 

The Company co-invests with RGA Reinsurance Company (“RGA”) in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect of SLF must be approved by the SLF investment committee consisting of two representatives of each of the Company and RGA (with unanimous approval required from (i) one representative of each of the Company and RGA or (ii) both representatives of each of the Company and RGA). SLF may cease making new investments upon notification of either member but operations will continue until all investments have been sold or paid-off in the normal course of business. Investments held by SLF are measured at fair value using the same valuation methodologies as described in Note 6.

 

SLF is capitalized with subordinated notes and LLC equity interest subscriptions from its members. As of June 30, 2016 and September 30, 2015, the Company and RGA owned 87.5% and 12.5%, respectively, of both the outstanding subordinated notes and LLC equity interests. SLF’s profits and losses are allocated to the Company and RGA in accordance with their 87.5% and 12.5%, respectively, ownership interests. Additionally, SLF has entered into a senior secured revolving credit facility (as amended, the “SLF Credit Facility”) with Wells Fargo Bank, N.A., through its wholly-owned subsidiary Senior Loan Fund II LLC (“SLF II”), which as of June 30, 2016 allowed SLF II to borrow up to $300,000 at any one time outstanding, subject to leverage and borrowing base restrictions.

 

As of June 30, 2016 and September 30, 2015, SLF had the following commitments from its members:

 

   As of June 30, 2016   As of September 30, 2015 
   Committed   Funded (1)   Committed   Funded (1) 
Subordinated note commitments (2)  $160,000   $93,844   $160,000   $87,500 
LLC equity commitments (2)   40,000    35,816    40,000    26,540 
   Total   $200,000   $129,660   $200,000   $114,040 

 

 

(1)Funded subordinated note commitments are presented net of repayments subject to recall and funded LLC equity commitments are presented net of return of capital distributions subject to recall.
(2)Commitments presented are combined for the Company and RGA.

 

As of June 30, 2016 and September 30, 2015, SLF had total assets at fair value of $357,743 and $323,395, respectively. As of June 30, 2016 and September 30, 2015, SLF did not have any investments on non-accrual status. The portfolio companies in SLF are in industries and geographies similar to those in which the Company may invest directly. Additionally, as of June 30, 2016 and September 30, 2015, SLF had commitments to fund various undrawn revolvers and delayed draw investments to its portfolio companies totaling $26,835 and $30,840, respectively.

 

37

 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual loans in SLF’s portfolio as of June 30, 2016 and September 30, 2015:

 

   As of   As of 
   June 30,   September 30, 
   2016   2015 
Senior secured loans (1)  $356,334   $320,583 
Weighted average current interest rate on senior secured loans (2)   6.0%   5.8%
Number of borrowers in SLF   64    62 
Largest portfolio company investment (1)  $13,083   $12,734 
Total of five largest portfolio company investments (1)  $61,968   $59,917 

 

 

(1)At principal/par amount.

(2)Computed as the (a) annual stated interest rate on accruing senior secured loans divided by (b) total senior secured loans at principal/par amount.

 

38

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SLF Loan Portfolio as of June 30, 2016
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Security Type  Date  Rate (1)   Amount   Value (2) 
5.11, Inc.(3)  Textiles and Leather  Senior loan  02/2020   6.0%  $3,137   $3,137 
ACTIVE Network, Inc.  Electronics  Senior loan  11/2020   5.5    1,950    1,936 
Advanced Pain Management Holdings, Inc.,  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    6,805    6,736 
Advanced Pain Management Holdings, Inc.,  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    466    461 
Advanced Pain Management Holdings, Inc.(4)  Healthcare, Education and Childcare  Senior loan  02/2018   N/A(5)   -    (12)
AG Kings Holdings Inc.(3)  Grocery  Senior loan  04/2020   7.3    6,168    6,168 
Aimbridge Hospitality, LLC(3)  Hotels, Motels, Inns, and Gaming  Senior loan  10/2018   5.8    5,063    5,063 
American Seafoods Group LLC  Beverage, Food and Tobacco  Senior loan  08/2021   6.0    4,892    4,818 
Argon Medical Devices, Inc.  Healthcare, Education and Childcare  Senior loan  12/2021   5.8    3,990    3,990 
Arise Virtual Solutions, Inc.(3)  Telecommunications  Senior loan  12/2018   7.3    10,957    10,299 
Arise Virtual Solutions, Inc.(3)(4)  Telecommunications  Senior loan  12/2018   N/A(5)   -    (34)
Atkins Nutritionals, Inc(3)  Beverage, Food and Tobacco  Senior loan  01/2019   6.3    5,664    5,664 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior loan  02/2021   4.3    3,494    3,402 
BMC Software, Inc.  Electronics  Senior loan  09/2020   5.0    1,881    1,674 
Boot Barn, Inc.  Retail Stores  Senior loan  06/2021   5.5    10,694    10,694 
Brandmuscle, Inc.  Printing and Publishing  Senior loan  12/2021   5.8    4,960    4,960 
C.B. Fleet Company, Incorporated  Personal and Non Durable Consumer Products  Senior loan  12/2021   5.8    7,651    7,651 
Checkers Drive-In Restaurants, Inc.  Beverage, Food and Tobacco  Senior loan  01/2022   6.5    4,847    4,810 
CLP Healthcare Services, Inc.  Healthcare, Education and Childcare  Senior loan  12/2020   6.3    8,699    8,699 
CLP Healthcare Services, Inc.  Healthcare, Education and Childcare  Senior loan  12/2020   6.3    4,384    4,384 
Community Veterinary Partners, LLC  Personal, Food and Miscellaneous Services  Senior loan  10/2021   6.5    2,473    2,473 
Community Veterinary Partners, LLC  Personal, Food and Miscellaneous Services  Senior loan  10/2021   6.5    807    807 
CPI Buyer, LLC (Cole-Parmer)(3)  Healthcare, Education and Childcare  Senior loan  08/2021   5.5    5,820    5,704 
Curo Health Services LLC(3)  Healthcare, Education and Childcare  Senior loan  02/2022   6.5    5,925    5,905 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    10,173    8,851 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    1,000    652 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   5.5    4,579    4,442 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   5.5    255    224 
EAG, INC. (Evans Analytical Group)  Diversified/Conglomerate Service  Senior loan  07/2017   5.0    2,146    2,125 
Express Oil Change, LLC(3)  Retail Stores  Senior loan  12/2017   6.0    4,909    4,860 
Express Oil Change, LLC(4)  Retail Stores  Senior loan  12/2017   N/A(5)   -    (5)
Extreme Reach Inc.  Broadcasting and Entertainment  Senior loan  02/2020   7.3    5,032    5,027 
Federal-Mogul Corporation  Automobile  Senior loan  04/2021   4.8    3,930    3,661 
Flexan, LLC  Chemicals, Plastics and Rubber  Senior loan  02/2020   6.3    6,106    6,106 
Hygenic Corporation, The (3)  Personal and Non Durable Consumer Products  Senior loan  10/2020   7.5    4,481    4,481 
Jensen Hughes, Inc.  Diversified/Conglomerate Service  Senior loan  12/2021   6.0    2,354    2,354 
Jensen Hughes, Inc.  Diversified/Conglomerate Service  Senior loan  12/2021   6.0    110    110 
Joerns Healthcare, LLC(3)  Healthcare, Education and Childcare  Senior loan  05/2020   6.0    9,622    9,358 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    6,852    6,852 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    598    598 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    538    538 
K&N Engineering, Inc.(3)  Automobile  Senior loan  07/2019   5.3    3,791    3,791 
K&N Engineering, Inc.(3)  Automobile  Senior loan  07/2019   5.3    179    179 
Loar Group Inc.  Aerospace and Defense  Senior loan  01/2022   5.8    2,239    2,239 
Mediaocean LLC(3)  Diversified/Conglomerate Service  Senior loan  08/2022   5.8    2,978    2,978 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.5    3,877    3,877 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.5    424    424 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   7.5    352    352 
Packaging Coordinators, Inc.(3)  Containers, Packaging and Glass  Senior loan  08/2021   6.8    11,909    11,909 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.5    2,003    1,923 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.6    241    212 
Payless ShoeSource, Inc.  Retail Stores  Senior loan  03/2021   5.0    1,960    1,027 
Pentec Acquisition Sub, Inc.  Healthcare, Education and Childcare  Senior loan  05/2018   6.3    1,471    1,471 
PetVet Care Centers LLC(3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.8    5,910    5,910 
PetVet Care Centers LLC(3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.8    1,222    1,222 
PowerPlan Holdings, Inc.(3)  Utilities  Senior loan  02/2022   6.3    11,997    11,997 
PPT Management, LLC  Healthcare, Education and Childcare  Senior loan  04/2020   6.0    13,059    13,059 
Premise Health Holding Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2020   5.5    11,921    11,921 
Pyramid Healthcare, Inc.(3)  Healthcare, Education and Childcare  Senior loan  08/2019   6.8    8,375    8,375 
R.G. Barry Corporation  Personal, Food and Miscellaneous Services  Senior loan  09/2019   6.0    6,152    6,090 
Radiology Partners, Inc.(3)  Healthcare, Education and Childcare  Senior loan  09/2020   6.0    7,083    7,083 

 

39

 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SLF Loan Portfolio as of June 30, 2016 (continued)
             Current           
         Maturity   Interest    Principal/Par    Fair 
Portfolio Company  Business Description  Security Type  Date   Rate (1)    Amount    Value (2) 
Radiology Partners, Inc.(3)  Healthcare, Education and Childcare  Senior loan  09/2020   6.0    802    802 
Reliant Pro ReHab, LLC(3)  Healthcare, Education and Childcare  Senior loan  06/2017   6.0    3,358    3,358 
RSC Acquisition, Inc.(3)  Insurance  Senior loan  11/2022   6.3    3,742    3,742 
RSC Acquisition, Inc.(3)  Insurance  Senior loan  11/2022   6.3    172    172 
Rubio's Restaurants, Inc (3)  Beverage, Food and Tobacco  Senior loan  11/2018   6.0    5,057    5,057 
Rug Doctor LLC  Personal and Non Durable Consumer Products  Senior loan  06/2018   6.3    8,509    8,509 
Saldon Holdings, Inc.  Diversified/Conglomerate Service  Senior loan  09/2021   5.5    2,811    2,811 
Sarnova HC, LLC  Healthcare, Education and Childcare  Senior loan  01/2022   5.8    3,731    3,731 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior loan  10/2020   6.0    3,905    3,862 
SEI, Inc.  Electronics  Senior loan  07/2021   5.8    8,733    8,733 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior loan  02/2020   5.0    7,105    7,105 
Severin Acquisition, LLC  Diversified/Conglomerate Service  Senior loan  07/2021   5.9    4,894    4,868 
Severin Acquisition, LLC  Diversified/Conglomerate Service  Senior loan  07/2021   5.9    32    32 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    953    953 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Systems Maintenance Services Holding, Inc.(3)  Electronics  Senior loan  10/2019   5.0    2,396    2,396 
Tate's Bake Shop, Inc.(3)  Beverage, Food and Tobacco  Senior loan  08/2019   6.0    2,963    2,963 
Teasdale Quality Foods, Inc.  Grocery  Senior loan  10/2020   5.3    4,582    4,406 
Transaction Data Systems, Inc.(3)  Diversified/Conglomerate Service  Senior loan  06/2021   6.3    4,511    4,511 
Transaction Data Systems, Inc.  Diversified/Conglomerate Service  Senior loan  06/2020   5.5    9    9 
W3 Co.  Oil and Gas  Senior loan  03/2020   5.8    2,932    2,305 
Worldwide Express Operations, LLC  Cargo Transport  Senior loan  07/2019   6.0    4,869    4,869 
Worldwide Express Operations, LLC  Cargo Transport  Senior loan  07/2019   6.0    36    36 
Young Innovations, Inc.(3)  Healthcare, Education and Childcare  Senior loan  01/2019   5.3    3,814    3,814 
Young Innovations, Inc.(3)  Healthcare, Education and Childcare  Senior loan  01/2018   6.8    268    264 
Zest Holdings, LLC  Healthcare, Education and Childcare  Senior loan  08/2020   5.8    5,295    5,295 
                 $356,334   $350,565 

 

 

(1)Represents the weighted average annual current interest rate as of June 30, 2016. All interest rates are payable in cash.

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

(3)The Company also holds a portion of the first lien senior secured loan in this portfolio company.

(4)The negative fair value is the result of the unfunded commitment being valued below par.

(5)The entire commitment was unfunded at June 30, 2016. As such, no interest is being earned on this investment.

 

40

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SLF Loan Portfolio as of September 30, 2015
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Security Type  Date  Rate (1)   Amount   Value (2) 
1011778 B.C. ULC (New Red Finance/Burger King)  Beverage, Food and Tobacco  Senior loan  12/2021   3.8%  $2,271   $2,264 
5.11, Inc. (3)  Textiles and Leather  Senior loan  02/2020   6.0    3,162    3,172 
Acosta, Inc.  Diversified/Conglomerate Service  Senior loan  09/2021   4.3    2,978    2,938 
ACTIVE Network, Inc.  Electronics  Senior loan  11/2020   5.5    1,965    1,951 
Aderant North America, Inc.  Diversified/Conglomerate Service  Senior loan  12/2018   5.3    4,195    4,195 
Advanced Pain Management Holdings, Inc.  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    6,946    6,807 
Advanced Pain Management Holdings, Inc.  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    475    460 
Advanced Pain Management Holdings, Inc. (4)  Healthcare, Education and Childcare  Senior loan  02/2018   N/A(5)   -    (23)
Affordable Care Inc.  Personal, Food and Miscellaneous Services  Senior loan  12/2018   5.5    3,976    3,976 
Aimbridge Hospitality, LLC  Hotels, Motels, Inns, and Gaming  Senior loan  10/2018   5.8    5,204    5,204 
ARG IH Corporation  Beverage, Food and Tobacco  Senior loan  11/2020   4.8    4,370    4,385 
Arise Virtual Solutions, Inc. (3) (4)  Telecommunications  Senior loan  12/2018   N/A(5)   -    (23)
Arise Virtual Solutions, Inc. (3)  Telecommunications  Senior loan  12/2018   6.8    11,729    11,494 
Atkins Nutritionals, Inc (3)  Beverage, Food and Tobacco  Senior loan  01/2019   6.3    5,872    5,879 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior loan  02/2021   4.3    3,520    3,336 
BJ's Wholesale Club, Inc.  Retail Stores  Senior loan  09/2019   4.5    2,957    2,934 
BMC Software, Inc.  Electronics  Senior loan  09/2020   5.0    1,895    1,729 
Brickman Group Ltd. LLC  Farming and Agriculture  Senior loan  12/2020   4.0    1,980    1,954 
C.B. Fleet Company, Incorporated  Personal and Non Durable Consumer Products  Senior loan  10/2020   5.4    5,630    5,630 
C.B. Fleet Company, Incorporated  Personal and Non Durable Consumer Products  Senior loan  10/2020   5.4    696    696 
CLP Healthcare Services, Inc.  Healthcare, Education and Childcare  Senior loan  12/2020   5.8    4,417    4,401 
Connect Merger Sub, Inc.  Telecommunications  Senior loan  04/2020   4.8    3,935    3,820 
CPI Buyer, LLC (Cole-Parmer) (3)  Healthcare, Education and Childcare  Senior loan  08/2021   5.5    5,955    5,925 
Curo Health Services LLC (3)  Healthcare, Education and Childcare  Senior loan  02/2022   6.5    5,970    5,990 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    10,251    10,046 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    1,000    946 
Dialysis Newco, Inc.  Healthcare, Education and Childcare  Senior loan  04/2021   4.5    2,469    2,470 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   5.5    4,614    4,384 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   6.8    96    43 
EAG, INC. (Evans Analytical Group)  Diversified/Conglomerate Service  Senior loan  07/2017   5.0    2,245    2,245 
Extreme Reach Inc.  Broadcasting and Entertainment  Senior loan  01/2020   6.8    5,612    5,591 
Federal-Mogul Corporation  Automobile  Senior loan  04/2021   4.8    3,960    3,769 
GSDM Holdings Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2019   5.3    1,782    1,782 
Hygenic Corporation, The (3)  Personal and Non Durable Consumer Products  Senior loan  10/2020   6.0    4,515    4,515 
Integrated Supply Network, LLC (3)  Automobile  Senior loan  02/2020   6.3    12,000    12,000 
Integrated Supply Network, LLC (3)  Automobile  Senior loan  02/2020   6.9    734    734 
Joerns Healthcare, LLC  Healthcare, Education and Childcare  Senior loan  05/2020   6.2    9,696    9,647 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    6,906    6,906 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    254    254 
K&N Engineering, Inc. (3)  Automobile  Senior loan  07/2019   5.3    3,865    3,749 
K&N Engineering, Inc. (3)  Automobile  Senior loan  07/2019   5.3    183    177 
K&N Engineering, Inc. (3) (4)  Automobile  Senior loan  07/2019   N/A(5)   -    (6)
Mister Car Wash Holdings, Inc.  Automobile  Senior loan  08/2021   5.0    2,970    2,971 
National Veterinary Associates, Inc.  Personal, Food and Miscellaneous Services  Senior loan  08/2021   4.8    990    991 
Netsmart Technologies, Inc. (3)  Diversified/Conglomerate Service  Senior loan  02/2019   6.3    10,448    10,448 
Netsmart Technologies, Inc. (3)  Diversified/Conglomerate Service  Senior loan  02/2019   7.5    231    231 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.3    3,912    3,912 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   7.0    147    147 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.3    47    47 
Octane Fitness, LLC  Leisure, Amusement, Motion Pictures, Entertainment  Senior loan  10/2018   6.5    7,718    7,718 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.8    2,037    2,037 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.9    292    292 
Pasternack Enterprises, Inc.  Diversified/Conglomerate Manufacturing  Senior loan  12/2017   6.3    1,044    1,044 
Payless ShoeSource, Inc.  Retail Stores  Senior loan  03/2021   5.0    1,975    1,580 
PetVet Care Centers LLC (3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.5    5,955    5,955 
PetVet Care Centers LLC (3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.5    646    646 
PowerPlan Holdings, Inc. (3)  Utilities  Senior loan  02/2022   6.3    12,000    12,000 
Premise Health Holding Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2020   5.5    11,921    11,921 
Premise Health Holding Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2020   5.5    283    283 

 

41

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SLF Loan Portfolio as of September 30, 2015 (continued)
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Security Type  Date  Rate (1)   Amount   Value (2) 
R.G. Barry Corporation  Personal, Food and Miscellaneous Services  Senior loan  09/2019   6.0    6,272    6,209 
Reliant Pro ReHab, LLC (3)  Healthcare, Education and Childcare  Senior loan  06/2017   6.0    4,225    4,225 
Renaissance Pharma (U.S.) Holdings Inc.  Healthcare, Education and Childcare  Senior loan  05/2018   5.0    3,758    3,758 
Renaissance Pharma (U.S.) Holdings Inc.  Healthcare, Education and Childcare  Senior loan  05/2018   6.3    71    71 
Rubio's Restaurants, Inc (3)  Retail Stores  Senior loan  11/2018   6.0    5,095    5,095 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior loan  12/2016   6.3    9,769    9,769 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior loan  10/2020   6.0    3,935    3,891 
SEI, Inc.  Electronics  Senior loan  07/2021   5.8    8,799    8,711 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior loan  02/2020   5.0    7,930    7,930 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    960    960 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Spear Education, LLC  Healthcare, Education and Childcare  Senior loan  08/2019   6.0    5,960    5,960 
Spear Education, LLC  Healthcare, Education and Childcare  Senior loan  08/2019   6.0    500    500 
Syncsort Incorporated (3)  Electronics  Senior loan  03/2019   5.8    8,860    8,860 
Systems Maintenance Services Holding, Inc. (3)  Electronics  Senior loan  10/2019   5.0    2,415    2,415 
Take 5 Oil Change, L.L.C.  Automobile  Senior loan  07/2018   6.3    6,647    6,647 
Take 5 Oil Change, L.L.C.  Automobile  Senior loan  07/2018   6.3    187    187 
Tate's Bake Shop, Inc.  Beverage, Food and Tobacco  Senior loan  08/2019   5.8    2,978    2,978 
Teasdale Quality Foods, Inc.  Grocery  Senior loan  10/2020   5.3    4,651    4,651 
Transaction Data Systems, Inc.  Diversified/Conglomerate Service  Senior loan  06/2021   5.5    4,545    4,545 
W3 Co.  Oil and Gas  Senior loan  03/2020   5.8    2,954    2,516 
WII Components, Inc. (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior loan  07/2018   5.3    3,008    3,008 
Young Innovations, Inc. (3)  Healthcare, Education and Childcare  Senior loan  01/2019   5.3    4,018    4,018 
                 $320,583   $317,623 

 

 

(1)Represents the weighted average annual current interest rate as of September 30, 2015. All interest rates are payable in cash.
(2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of directors' valuation process described elsewhere herein.
(3)The Company also holds a portion of the first lien senior secured loan in this portfolio company.
(4)The negative fair value is the result of the unfunded commitment being valued below par.
(5)The entire commitment was unfunded at September 30, 2015. As such, no interest is being earned on this investment.

 

The Company has committed to fund $140,000 of subordinated notes and $35,000 of LLC equity interest subscriptions to SLF. The amortized cost, net of principal repayments that are subject to recall, and fair value of the subordinated notes held by the Company was $82,114 and $81,292, respectively, as of June 30, 2016, and $76,563 and $76,563, respectively, as of September 30, 2015. As of June 30, 2016, the subordinated notes pay a weighted average interest rate of three-month London Interbank Offered Rate (“LIBOR”) plus 8.0%. For the three and nine months ended June 30, 2016, the Company earned interest income on the subordinated notes of $1,799 and $5,192, respectively. For the three and nine months ended June 30, 2015, the Company earned interest income on the subordinated notes of $1,056 and $2,258, respectively.

 

As of June 30, 2016 and September 30, 2015, $31,339 and $23,222 of the Company’s LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall. For the three and nine months ended June 30, 2016, the Company received $1,068 and $2,971 in dividend income from the SLF LLC equity interests, respectively. For the three and nine months ended June 30, 2015, the Company received $418 and $732 in dividend income from the SLF LLC equity interests, respectively.

 

42

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

See below for certain summarized financial information for SLF as of June 30, 2016 and September 30, 2015 and for the three and nine months ended June 30, 2016 and 2015:

 

   As of June 30, 2016   As of September 30, 2015 
Selected Balance Sheet Information:          
Investments, at fair value  $350,565   $317,623 
Cash and other assets   6,393    5,772 
Receivable from investments sold   785    - 
Total assets  $357,743   $323,395 
           
Senior credit facility  $231,550   $212,300 
Unamortized debt issuance costs (1)   (1,336)   (2,464)
Other liabilities   599    489 
Total liabilities   230,813    210,325 
Subordinated notes and members' equity   126,930    113,070 
Total liabilities and members' equity  $357,743   $323,395 

 

(1)On October 1, 2015, SLF adopted ASU 2015-03 which requires that debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of the debt liability rather than as an asset. Adoption of ASU 2015-03 requires the changes to be applied retrospectively.

 

   Three months ended June 30,   Nine months ended June 30, 
   2016   2015   2016   2015 
Selected Statement of Operations Information:                
Interest income  $5,695   $3,091   $16,699   $6,732 
Fee income   -    -    22    4 
Total investment income   5,695    3,091    16,721    6,736 
                     
Interest expense   4,016    2,162    11,775    4,678 
Administrative service fee   127    70    327    166 
Other expenses   35    29    110    77 
Total expenses   4,178    2,261    12,212    4,921 
Net investment income   1,517    830    4,509    1,815 
                     
Net realized gains (losses) on investments   -    9    (430)   9 
Net change in unrealized appreciation (depreciation)
on investments, subordinated notes and secured borrowings		   591    (383)   (1,505)   (755)
Net increase (decrease) in net assets  $2,108   $456   $2,574   $1,069 

 

43

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Note 5.Transactions with Affiliated Companies

 

An affiliated company is generally a portfolio company in which the Company owns 5% or more of its voting securities. A controlled affiliate is generally a portfolio company in which the Company owns more than 25% of the portfolio company’s outstanding voting securities. Transactions related to our investments with both controlled and non-controlled affiliates for the nine months ended June 30, 2016 and 2015 were as follows:

 

   For the nine months ended June 30, 2016 
Portfolio  Fair value at   Purchases(1)   Redemptions   Sales   Transfer in (out)   Discount   Net unrealized   Fair value at   Net realized   Interest and   Dividend 
Company  September 30, 2015   (cost)   (cost)   (cost)   (cost)   accretion   gains / (losses)   June 30, 2016   gains / (losses)   fee income   income 
Controlled Affiliates                                                       
Senior Loan Fund LLC *  $98,936   $20,440   $(6,773)  $-   $-   $-   $(1,539)  $111,064   $-   $5,192  $2,971 
Non-Controlled Affiliates                                                       
Barcelona Restaurants, LLC (2)   5,523    -    (1,995)   -    (4,871)   -    1,343    -    2,722    -    - 
Competitor Group, Inc. (3)   -    149    -    -    13,743    50    (4,395)   9,547    -    337    - 
Total Controlled and                                                       
Non-Controlled Affiliates  $104,459   $20,589   $(8,768)  $-   $8,872   $50   $(4,591)  $120,611   $2,722   $5,529   $2,971 

 

 

*Together with RGA, the Company co-invests through SLF. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee consisting of two representatives of the Company and RGA (with unanimous approval required from (i) one representative of each of the Company and RGA or (ii) both representatives of each of the Company and RGA). Therefore, although the Company owns more than 25% of the voting securities of SLF, the Company does not believe that it has control over SLF for purposes of the 1940 Act or otherwise.

 

(1)Purchases at cost includes amounts related to PIK capitalized and added to the principal balance of the respective loans.

 

(2)During the three months ended December 31, 2015, a portion of the Company's investment was sold diluting the Company's ownership to less than five percent of the portfolio company's voting securities.
Effective as of and for periods subsequent to December 31, 2015, the Company no longer classified the portfolio company as a non-controlled affiliate company.

 

(3)During the three months ended March 31, 2016, the Company's ownership increased to over five percent of the portfolio company's voting securities as a result of a partial debt to equity conversion.

 

   For the nine months ended June 30, 2015 
Portfolio  Fair value at   Purchases(1)   Redemptions   Sales   Transfer in (out)   Discount   Net unrealized   Fair value at   Net realized   Interest and   Dividend 
Company  September 30, 2014   (cost)   (cost)   (cost)   (cost)   accretion   gains / (losses)   June 30, 2015   gains / (losses)   fee income   income 
Controlled Affiliates                                                       
Senior Loan Fund LLC *  $34,831   $52,831   $-   $-   $-   $-   $203   $87,865   $-   $2,258   $732 
Non-Controlled Affiliates                                                       
Barcelona Restaurants, LLC   3,080    -    -    -    -    -    727    3,807    -    -    - 
Total Controlled and                                                       
Non-Controlled Affiliates  $37,911   $52,831   $-   $-   $-   $-   $930   $91,672   $-   $2,258   $732 

 

 

*Together with RGA, the Company co-invests through SLF. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee consisting of two representatives of the Company and RGA (with unanimous approval required from (i) one representative of each of the Company and RGA or (ii) both representatives of each of the Company and RGA). Therefore, although the Company owns more than 25% of the voting securities of SLF (even though these "voting securities" do not afford the Company the right to elect directors of SLF or any other special rights), the Company does not believe that it has control over SLF for purposes of the 1940 Act or otherwise.
(1)Purchases at cost includes amounts related to PIK capitalized and added to the principal balance of the respective loans.

 

44

 

 

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

Note 6.Fair Value Measurements

 

The Company follows ASC Topic 820 for measuring fair value. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Assets and liabilities are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows: 

 

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.

Level 3: Inputs include significant unobservable inputs for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or a liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company assesses the levels of assets and liabilities at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfers. There were no transfers among Level 1, 2 and 3 of the fair value hierarchy for assets and liabilities during the three and nine months ended June 30, 2016 and 2015. The following section describes the valuation techniques used by the Company to measure different assets and liabilities at fair value and includes the level within the fair value hierarchy in which the assets and liabilities are categorized.

 

Investments

 

Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms that have been engaged at the direction of the Board to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with approximately 25% (based on the number of portfolio companies) of the Company’s valuations of debt and equity investments without readily available market quotations subject to review by an independent valuation firm. All investments as of June 30, 2016 and September 30, 2015, with the exception of money market funds included in cash and cash equivalents (Level 1 investments) and investments measured at fair value using the NAV, were valued using Level 3 inputs of the fair value hierarchy.

 

45

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

When determining fair value of Level 3 debt and equity investments, the Company may take into account the following factors, where relevant: the enterprise value of a portfolio company, 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, comparisons to publicly traded securities, and changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made and other relevant factors. The primary 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 (“EBITDA”). The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, the Company will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, the Company uses a market interest rate yield analysis to determine fair value.

 

In addition, for certain debt investments, the Company may base its valuation on indicative bid and ask prices provided by an independent third party pricing service. Bid prices reflect the highest price that the Company and others may be willing to pay. Ask prices represent the lowest price that the Company and others may be willing to accept. The Company generally uses the midpoint of the bid/ask range as its best estimate of fair value of such investment.

 

Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company may realize significantly less than the value at which such investment had previously been recorded.

 

The Company’s investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.

 

Secured Borrowings

 

The Company has elected the fair value option under ASC Topic 825 — Financial Instruments relating to accounting for debt obligations at their fair value for its secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. The Company reports changes in the fair value of its secured borrowings as a component of the net change in unrealized (appreciation) depreciation on secured borrowings in the consolidated statements of operations. The net gain or loss reflects the difference between the fair value and the principal amount due on maturity.

 

All secured borrowings as of June 30, 2016 and September 30, 2015 were valued using Level 3 inputs under the fair value hierarchy, and the Company’s approach to determining fair value of Level 3 secured borrowings is consistent with its approach to determining fair value of the Level 3 investments that are associated with these secured borrowings as previously described.

 

The following tables present fair value measurements of the Company’s investments and secured borrowings and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of June 30, 2016 and September 30, 2015:

 

46

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

As of June 30, 2016:  Fair Value Measurements Using 
Description  Level 1   Level 2   Level 3   Total 
Assets:                    
Debt investments(1)  $-   $-   $1,530,823   $1,530,823 
Equity investments(1)   -    -    67,914    67,914 
Money market funds (1)(2)   49,101    -    -    49,101 
Investment measured at NAV (3)(4)   -    -    -    29,772 
Total assets:  $49,101   $-   $1,598,737   $1,677,610 
Secured borrowings:  $-   $-   $326   $326 

 

As of September 30, 2015:  Fair Value Measurements Using 
Description   Level 1    Level 2    Level 3     Total  
Assets:                    
Debt investments(1)  $-   $-   $1,449,603   $1,449,603 
Equity investments(1)   -    -    57,808    57,808 
Money market funds (1)(2)   77,346    -    -    77,346 
Investment measured at NAV (3)(4)   -    -    -    22,373 
Total assets:  $77,346   $-   $1,507,411   $1,607,130 
Secured borrowings:  $-   $-   $355   $355 

 

 

(1)Refer to the consolidated schedules of investments for further details.
(2)Included in cash and cash equivalents and restricted cash and cash equivalents on the consolidated statements of financial condition.
(3)Certain investments that are measured at fair value using the NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of financial condition.
(4)Represents the Company's investment in LLC equity interests in SLF. The fair value of this investment has been estimated using the NAV of the Company's ownership interest in members' capital.

 

The net change in unrealized appreciation (depreciation) for the three and nine months ended June 30, 2016 and 2015 reported within the net change in unrealized appreciation (depreciation) on investments in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets held as of June 30, 2016 was $1,820 and $1,353, respectively. The net change in unrealized appreciation (depreciation) for the three and nine months ended June 30, 2015 reported within the net change in unrealized appreciation (depreciation) on investments in the Company’s consolidated statements of operations attributable to the Company’s Level 3 assets held as of June 30, 2015 was $4,075 and $7,871, respectively.

 

47

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The following table presents the changes in investments and secured borrowings measured at fair value using Level 3 inputs for the nine months ended June 30, 2016 and 2015:

 

   For the nine months ended June 30, 2016 
   Debt Investments   Equity Investments   Total Investments   Secured Borrowings 
                 
Fair value, beginning of period  $1,449,603   $57,808   $1,507,411   $355 
                     
Net change in unrealized appreciation (depreciation)
on investments		   4,081    2,249    6,330    -
Net change in unrealized appreciation (depreciation)
on secured borrowings		   -    -    -    (1)
Net realized gain (loss) on investments   (5,724)   5,464    (260)   - 
Proceeds from (funding of) revolving loans, net   2,624    -    2,624    - 
Fundings of investments   449,237    11,422    460,659    - 
PIK interest   689    -    689    - 
Proceeds from principal payments and sales of portfolio
investments		   (375,583)   (9,029)   (384,612)   - 
Repayments on secured borrowings   -    -    -    (29)
Accretion of discounts and amortization of premiums   5,896    -    5,896    1 
Fair value, end of period  $1,530,823   $67,914   $1,598,737   $326 
                     
   For the nine months ended June 30, 2015 
   Debt Investments   Equity Investments (1)   Total Investments (1)   Secured Borrowings 
                 
Fair value, beginning of period  $1,292,851   $45,519   $1,338,370   $389 
                     
Net change in unrealized appreciation (depreciation)
on investments		   (1,535)   4,634    3,099    - 
Net change in unrealized appreciation (depreciation)
on secured borrowings		   -    -    -    (1)
Net realized gain (loss) on investments   (1,229)   5,732    4,503    - 
Proceeds from (funding of) revolving loans, net   2,865    -    2,865    - 
Fundings of investments   647,577    6,962    654,539    - 
PIK interest   748    -    748    - 
Proceeds from principal payments and sales of portfolio
investments		   (453,821)   (7,694)   (461,515)   - 
Repayments on secured borrowings   -    -    -    (26)
Accretion of discounts and amortization of premiums   6,077    -    6,077    1 
Fair value, end of period  $1,493,533   $55,153   $1,548,686   $363 

 

(1)The changes in Level 3 Equity investments presented for the nine months ended June 30, 2015 have been restated to exclude certain investments that are measusred at fair value using the NAV in accordance with the retrospective application of the Company’s adoption of ASU 2015-07.

 

48

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The following tables present quantitative information about the significant unobservable inputs of the Company’s Level 3 investments and secured borrowings as of June 30, 2016 and September 30, 2015.

 

Quantitative information about Level 3 Fair Value Measurements
   Fair value as of
June 30, 2016		   Valuation Techniques  Unobservable Input  Range (Weighted Average)
Assets:              
Senior secured loans (1)(2)  $155,367   Market rate approach  Market interest rate  4.0% - 33.3% (6.7%)
        Market comparable companies  EBITDA multiples  6.0x - 17.5x (11.7x)
    19,085   Market comparable  Broker/dealer bids or quotes  N/A
               
Subordinated Notes of SLF  $81,292   Discounted cash flow analysis  Discount rate  8.2%
               
One stop loans (1)(3)(4)  $1,230,583   Market rate approach  Market interest rate  5.5% - 22.8% (7.8%)
        Market comparable companies  EBITDA multiples (6)  4.0x - 18.0x (11.4x)
           Revenue multiples (6)  2.0x - 4.3x (3.7x)
    3,743   Market comparable  Broker/dealer bids or quotes  N/A
               
Subordinated and second lien loans (1)  $39,427   Market rate approach  Market interest rate  9.0% - 19.5% (11.1%)
        Market comparable companies  EBITDA multiples  6.5x - 12.0x (10.3x)
    -   Market comparable  Broker/dealer bids or quotes  N/A
               
Equity securities (5)  $67,914   Market comparable companies  EBITDA multiples (6)  5.0x - 20.0x (10.8x)
           Revenue multiples (6)  2.0x - 4.0x (3.3x)
               
Liabilities:              
Secured borrowings (7)  $326   Market rate approach  Market interest rate  6.0%
        Market comparable companies  EBITDA multiples  16.0x

 

 

 

(1)The fair value of this asset class was determined using the market rate approach as the investments in this asset class were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of March 31, 2016 was determined using the market rate approach.
(2)Excludes $156 of non-accrual loans at fair value, which the Company valued on a liquidation basis.
(3)Excludes $1,170 of non-accrual loans at fair value, which the Company valued on a liquidation basis.
(4)The Company valued $1,120,679 and $109,904 of one stop loans using EBITDA and revenue multiples, respectively. All one stop loans were also valued using the market rate approach.
(5)Excludes $29,772 of LLC equity interests in SLF at fair value, which the Company valued using the NAV.
(6)The Company valued $64,177 and $3,737 of equity investments using EBITDA and revenue multiples, respectively.
(7)The fair value of the secured borrowings was determined using the market rate approach as the corresponding investments were determined not to be credit impaired using the market (comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of March 31, 2016 was determined using the market rate approach.

 

49

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Quantitative information about Level 3 Fair Value Measurements
   Fair value as of
September 30,
2015		   Valuation Techniques  Unobservable Input  Range (Weighted Average)
Assets:              
Senior secured loans (1)(2)  $153,205   Market rate approach  Market interest rate  4.0% - 25.3% (6.5%)
        Market comparable companies  EBITDA multiples  4.0x - 17.5x (11.7x)
               
Subordinated Notes of SLF  $76,563   Discounted cash flow analysis  Discount rate  8.2%
               
One stop loans (1)(3)(4)  $1,085,189   Market rate approach  Market interest rate  5.0% - 24.0% (7.8%)
        Market comparable companies  EBITDA multiples (5)  4.5x - 40.0x (10.9x)
           Revenue multiples (5)  2.1x - 5.0x (3.6x)
               
Subordinated and second lien loans (1)(6)  $20,444   Market rate approach  Market interest rate  9.0% - 14.6% (9.5%)
        Market comparable companies  EBITDA multiples  7.5x - 16.0x (12.5x)
               
Equity securities (7)  $57,808   Market comparable companies  EBITDA multiples (8)  4.0x - 40.0x (10.9x)
           Revenue multiples (8)  2.1x - 5.0x (3.0x)
               
Liabilities:              
Secured borrowings (9)  $355   Market rate approach  Market interest rate  6.0%
        Market comparable companies  EBITDA multiples  30.0x

 

 

(1)The fair value of this asset class was determined using the market rate approach as the investments in this asset class were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of September 30, 2015 was determined using the market rate approach.
(2)Excludes $44,124 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(3)Excludes $42,546 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(4)Excludes $6,487 of non-accrual loans at fair value, which the Company valued on a liquidation basis.
(5)The Company valued $996,998 and $88,191 of one stop loans using EBITDA and revenue multiples, respectively. All one stop loans were also valued using the market rate approach.
(6)Excludes $21,045 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(7)Excludes $22,373 of LLC equity interests in SLF at fair value, which the Company valued using the NAV.
(8)The Company valued $54,965 and $2,843 of equity investments using EBITDA and revenue multiples, respectively.
(9)The fair value of the secured borrowings was determined using the market rate approach as the corresponding investments were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of September 30, 2015 was determined using the market rate approach.

 

The above tables are not intended to be all-inclusive but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

 

The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity investments and secured borrowings are EBITDA multiples, revenue multiples and market interest rates. The Company uses EBITDA multiples and, to a lesser extent revenue multiples, on its debt and equity investments and secured borrowings to determine any credit gains or losses. Increases or decreases in either of these inputs in isolation may result in a significantly lower or higher fair value measurement. The Company uses market interest rates for loans to determine if the effective yield on a loan is commensurate with the market yields for that type of loan. If a loan’s effective yield is significantly less than the market yield for a similar loan with a similar credit profile, then the resulting fair value of the loan may be lower.

 

Other Financial Assets and Liabilities

 

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. As a result, with the exception of the line item titled “debt” which is reported at cost, all assets and liabilities approximate fair value on the consolidated statements of financial condition due to their short maturity. Fair value of the Company’s debt is estimated using Level 3 inputs by discounting remaining payments using comparable market rates or market quotes for similar instruments at the measurement date, if available.

 

50

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The following are the carrying values and fair values of the Company’s debt as of June 30, 2016 and September 30, 2015. Fair value is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available.

 

   As of June 30, 2016   As of September 30, 2015 
   Carrying Value   Fair Value   Carrying Value   Fair Value 
                     
Debt  $862,050   $859,463   $813,250   $815,087 

 

Note 7.Borrowings

 

In accordance with the 1940 Act, with certain limited 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. On September 13, 2011, the Company received exemptive relief from the SEC allowing it to modify the asset coverage requirement to exclude the SBA debentures from this calculation. As such, the Company’s ratio of total consolidated assets to outstanding indebtedness may be less than 200%. This provides the Company with increased investment flexibility but also increases its risks related to leverage. As of June 30, 2016, the Company’s asset coverage for borrowed amounts was 234.5% (excluding the SBA debentures).

 

Debt Securitizations: On July 16, 2010, the Company completed a $300,000 term debt securitization, which was subsequently increased to $350,000 (as amended, “2010 Debt Securitization”). The notes (“2010 Notes”) offered in the 2010 Debt Securitization were issued by the 2010 Issuer, a subsidiary of Golub Capital BDC 2010-1 Holdings LLC (“Holdings”), a direct subsidiary of the Company, and the Class A 2010 Notes and Class B 2010 Notes are secured by the assets held by the 2010 Issuer. The 2010 Debt Securitization consists of $203,000 of Aaa/AAA Class A 2010 Notes, $12,000 face amount of Class B 2010 Notes and $135,000 face amount of Subordinated 2010 Notes that do not bear interest. The Class A 2010 Notes and Class B 2010 Notes are included in the June 30, 2016 and September 30, 2015 consolidated statements of financial condition as debt of the Company. As of June 30, 2016 and September 30, 2015, the Subordinated 2010 Notes were eliminated in consolidation.

 

Through July 20, 2017, all principal collections received on the underlying collateral may be used by the 2010 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as collateral manager of the 2010 Issuer and in accordance with the Company’s investment strategy, allowing the Company to maintain the leverage in the 2010 Debt Securitization. The 2010 Notes are scheduled to mature on July 20, 2023.

 

As of June 30, 2016 and September 30, 2015, there were 80 and 78 portfolio companies with a total fair value of $333,768 and $310,622, respectively, securing the 2010 Notes. The pool of loans in the 2010 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

 

51

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The interest charged under the 2010 Debt Securitization is based on three-month LIBOR, which as of June 30, 2016 was 0.6%. For the three and nine months ended June 30, 2016 and 2015, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the 2010 Debt Securitization were as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Stated interest expense  $1,309   $1,113   $3,726   $3,306 
Amortization of debt issuance costs   30    227    360    678 
Total interest and other debt financing expenses  $1,339   $1,340   $4,086   $3,984 
Cash paid for interest expense  $1,305   $1,093   $3,590   $3,289
Annualized average stated interest rate   2.4%   2.1%   2.3%   2.1%
Average outstanding balance  $215,000   $215,000   $215,000   $215,000 

 

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A and B 2010 Notes are as follows:

 

Description   Class A 2010 Notes   Class B 2010 Notes
         
Type    Senior Secured Floating Rate    Senior Secured Floating Rate
Amount Outstanding   $203,000   $12,000
Moody's Rating    "Aaa"    "Aa"
S&P Rating    "AAA"    "AA"
Interest Rate    LIBOR + 1.74%    LIBOR + 2.40%
Stated Maturity   July 20, 2023   July 20, 2023

 

On June 5, 2014, the Company completed a $402,569 term debt securitization (“2014 Debt Securitization”). The notes (“2014 Notes”) offered in the 2014 Debt Securitization were issued by the 2014 Issuer, a wholly-owned subsidiary of the Company, and are secured by a diversifed portfolio of senior secured and second lien loans held by the 2014 Issuer. The 2014 Debt Securitization consists of $191,000 of Aaa/AAA Class A-1 2014 Notes, $20,000 of Aaa/AAA Class A-2 2014 Notes and $35,000 of Aa2/AA Class B 2014 Notes. In partial consideration for the loans transferred to the 2014 Issuer as part of the 2014 Debt Securitization, the Company received $37,500 of Class C 2014 Notes and $119,069 of LLC equity interests in the 2014 Issuer. The Company retained all of the Class C 2014 Notes and LLC equity interests totaling $37,500 and $119,069, respectively. The Class A-1, Class A-2 and Class B 2014 Notes are included in the June 30, 2016 and September 30, 2015 consolidated statements of financial condition as debt of the Company. As of June 30, 2016 and September 30, 2015, the Class C 2014 Notes and LLC equity interests were eliminated in consolidation.

 

Through April 28, 2018, all principal collections received on the underlying collateral may be used by the 2014 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as collateral manager of the 2014 Issuer and in accordance with the Company’s investment strategy, allowing the Company to maintain the initial leverage in the 2014 Debt Securitization. The 2014 Notes are scheduled to mature on April 25, 2026.

 

As of June 30, 2016 and September 30, 2015, there were 79 and 71 portfolio companies with a total fair value of $384,127 and $382,077, respectively, securing the 2014 Notes. The pool of loans in the 2014 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

 

52

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The interest charged under the 2014 Debt Securitization is based on three-month LIBOR, which as of June 30, 2016 was 0.6%. For the three and nine months ended June 30, 2016 and 2015, the components of interest expense, cash paid for interest, annualized average interest rates and average outstanding balances for the 2014 Debt Securitization were as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Stated interest expense  $1,558   $1,308   $4,415   $3,879 
Amortization of debt issuance costs   160    159    480    477 
Total interest and other debt financing expenses  $1,718   $1,467   $4,895   $4,356 
Cash paid for interest expense  $1,550   $1,299   $4,225   $4,595 
Annualized average stated interest rate   2.5%   2.1%   2.4%   2.1%
Average outstanding balance  $246,000   $246,000   $246,000   $246,000 

 

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A-1, A-2 and B 2014 Notes are as follows:

 

Description   Class A-1 2014 Notes   Class A-2 2014 Notes   Class B 2014 Notes
             
Type    Senior Secured Floating Rate    Senior Secured Floating Rate    Senior Secured Floating Rate
Amount Outstanding   $191,000   $20,000   $35,000
Moody's Rating    "Aaa"    "Aaa"    "Aa2"
S&P Rating    "AAA"    "AAA"    "AA"
Interest Rate    LIBOR + 1.75%   LIBOR + 1.95%    LIBOR + 2.50%
Stated Maturity   April 25, 2026   April 25, 2026   April 25, 2026

 

The Investment Adviser serves as collateral manager to the 2010 Issuer and the 2014 Issuer under separate collateral management agreements and receives a fee for providing these services. The total fees payable by the Company under its Investment Advisory Agreement are reduced by an amount equal to the total aggregate fees that are paid to the Investment Adviser by the 2010 Issuer and the 2014 Issuer for rendering such collateral management services.

 

As part of each of the 2010 Debt Securitization and the 2014 Debt Securitization, the Company entered into master loan sale agreements under which the Company agreed to directly or indirectly sell or contribute certain senior secured and second lien loans (or participation interests therein) to the 2010 Issuer and the 2014 Issuer, as applicable, and to purchase or otherwise acquire the Subordinated 2010 Notes and the LLC equity interests in the 2014 Issuer, as applicable. The 2010 Notes (other than the 2010 Subordinated Notes) and the 2014 Notes are the secured obligations of the 2010 Issuer and 2014 Issuer, respectively, and indentures governing each of the 2010 Notes and the 2014 Notes include customary covenants and events of default. The pool of loans in the 2010 Debt Securitization and the 2014 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

 

SBA Debentures: On August 24, 2010, GC SBIC IV, L.P. (“SBIC IV”), a wholly-owned subsidiary of the Company, received approval for a license from the SBA to operate as an SBIC. On December 5, 2012, GC SBIC V, L.P. (“SBIC V”), a wholly-owned subsidiary of the Company, received a license from the SBA to operate as an SBIC. SBICs are subject to a variety of regulations and oversight by the SBA concerning the size and nature of the companies in which they may invest as well as the structures of those investments.

 

53

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The licenses allow the SBICs to obtain leverage by issuing SBA-guaranteed debentures, subject to issuance of a capital commitment by the SBA and customary procedures. These debentures are non-recourse to GBDC, have interest payable semiannually and a ten-year maturity. The interest rate is fixed at the time of issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities.

 

Under present SBIC regulations, the maximum amount of SBA-guaranteed debentures that may be issued by multiple licensees under common management is $350,000 and the maximum amount that a single SBIC licensee may issue is $150,000. On February 11, 2016, the SBA approved SBIC V’s application for an additional $75,000 of debenture commitments bringing SBIC V’s total debenture commitments up to $150,000. As of June 30, 2016, SBIC IV and SBIC V, our consolidated SBIC subsidiaries, had $150,000 and $105,000, respectively, of outstanding SBA-guaranteed debentures, respectively that mature between March 2021 and September 2026, leaving incremental borrowing capacity of $45,000 for SBIC V under present SBIC regulations. As of September 30, 2015, SBIC IV and SBIC V had $150,000 and $75,000 of outstanding SBA-guaranteed debentures, respectively that mature between March 2021 and September 2025.

 

The interest rate on $225,000 of outstanding debentures as of June 30, 2016 is fixed at an average annualized interest rate of 3.7%. The annualized interim financing rate on the remaining $30,000 of outstanding debentures was 1.9% as June 30, 2016. For the three and nine months ended June 30, 2016 and 2015, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the SBA debentures were as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Stated interest expense  $2,140   $1,929   $6,284   $5,756 
Amortization of debt issuance costs   455    486    1,386    1,449 
Total interest and other debt financing expenses  $2,595   $2,415   $7,670   $7,205 
Cash paid for interest expense  $-   $-   $4,083   $3,791 
Annualized average stated interest rate   3.6%   3.6%   3.6%   3.7%
Average outstanding balance  $241,967   $212,838   $230,883   $210,113 

 

Revolving Credit Facility: On July 21, 2011, Funding, a wholly-owned subsidiary of the Company, entered into a senior secured revolving credit facility (as amended, the “Credit Facility”) with Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo Bank, N.A., as lender, which as of June 30, 2016 allowed Funding to borrow up to $200,000 at any one time outstanding, subject to leverage and borrowing base restrictions.

 

Through the reinvestment period, which ends July 29, 2017, the Credit Facility bears interest at one-month LIBOR plus 2.25% per annum. After the reinvestment period, through the stated maturity date of July 30, 2020, the rate will reset to one-month LIBOR plus 2.75% per annum for the remaining term of the Credit Facility. In addition to the stated interest expense on the Credit Facility, the Company is required to pay a non-usage fee rate between 0.50% and 2.00% per annum depending on the size of the unused portion of the Credit Facility.

 

On March 1, 2016 the Credit Facility was amended to, among other things, make certain amendments to the computation of the borrowing base restrictions in the Credit Facility. Our maximum borrowing capacity under the Credit Facility, the expiration of the reinvestment period and the stated maturity date of the Credit Facility did not change in connection with this amendment.

 

The Credit Facility is collateralized by all of the assets held by Funding, and GBDC has pledged its interests in Funding as collateral to Wells Fargo Bank, N.A., as the collateral agent, under an ancillary agreement to secure the obligations of GBDC as the transferor and servicer under the Credit Facility. Both GBDC and Funding have made

 

54

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. Borrowing under the Credit Facility is subject to the leverage restrictions contained in the 1940 Act.

 

The Company plans to transfer certain loans and debt securities it has originated or acquired from time to time to Funding through a purchase and sale agreement and may cause Funding to originate or acquire loans in the future, consistent with the Company’s investment objectives.

 

As of June 30, 2016 and September 30, 2015, the Company had outstanding debt under the Credit Facility of $146,050 and $127,250, respectively. For the three and nine months ended June 30, 2016, the Company had borrowings on the Credit Facility of $93,300 and $248,550 and repayments on the Credit Facility of $94,800 and $229,750, respectively. For the three and nine months ended June 30, 2015, the Company had borrowings on the Credit Facility of $225,250 and $335,350 and repayments on the Credit Facility of $168,600 and $221,400, respectively.

 

For the three and nine months ended June 30, 2016 and 2015, the components of interest expense, cash paid for interest and facility fees, annualized average interest rates and average outstanding balances for the Credit Facility were as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Stated interest expense  $953   $556   $2,629   $1,064 
Facility fees   78    108    288    557 
Amortization of debt issuance costs   332    185    967    516 
Total interest and other debt financing expenses  $1,363   $849   $3,884   $2,137 
Cash paid for interest expense and facility fees  $1,019   $631   $2,866   $1,481 
Annualized average stated interest rate   2.7%   2.5%   2.7%   2.5%
Average outstanding balance  $139,817   $89,232   $131,251   $57,447 

 

Revolver: On November 22, 2013, Revolver Funding, a wholly-owned subsidiary of GBDC, entered into a $15,000 revolving line of credit (as amended, the “Revolver”), which could have been increased up to $30,000, with The PrivateBank and Trust Company (“PrivateBank”). On October 21, 2015, the Company and Revolver Funding terminated the Revolver with PrivateBank. There were no borrowings outstanding on the Revolver at the time of termination and Revolver Funding was released of all obligations under the Revolver and all liens on the assets held by Revolver Funding collateralizing the Revolver were released.

 

For the three and nine months ended June 30, 2016 and 2015, the components of interest expense, cash paid for interest and facility fees, annualized average interest rates and average outstanding balances for the Revolver were as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Stated interest expense  $-   $-   $-   $- 
Facility fees   -    9    2    28 
Amortization of debt issuance costs   -    61    34    132 
Total interest and other debt financing expenses  $-   $70   $36   $160 
Cash paid for interest expense and facility fees  $-   $9   $2   $28 
Annualized average stated interest rate    N/A    N/A    N/A    N/A 
Average outstanding balance  $-   $-   $-   $- 

 

55

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

On June 22, 2016, the Company entered into the Adviser Revolver with the Investment Adviser, with a maximum credit limit of $20,000 and expiration date of June 22, 2019. The Adviser Revolver bears an interest rate equal to the short-term Applicable Federal Rate (“AFR”), which was 0.6% as of June 30, 2016. As of June 30, 2016, the Company had no outstanding debt under the Adviser Revolver, and the Adviser Revolver was not outstanding as of September 30, 2015. For the three and nine months ended June 30, 2016, the annualized average stated interest rate was 0.7% on average outstanding borrowings of $104, interest expense was an amount less than $1 and cash paid for interest was an amount less than $1. For the three and nine months ended June 30, 2016, the Company had borrowings on the Adviser Revolver of $9,500 and repayments on the Adviser Revolver of $9,500. The Adviser Revolver was not outstanding for the three and nine months ended June 30, 2015.

 

The average total debt outstanding (including the debt under the 2010 Debt Securitization, the 2014 Debt Securitization, SBA debentures, Credit Facility, Revolver and Adviser Revolver) for the three and nine months ended June 30, 2016 was $842,888 and $823,169, respectively. The average total debt outstanding (including the debt under the 2010 Debt Securitization, the 2014 Debt Securitization, SBA debentures, Credit Facility and Revolver) for the three and nine months ended June 30, 2015 was $763,070 and $728,560, respectively.

 

For the three and nine months ended June 30, 2016, the effective annualized average interest rate, which includes amortization of debt financing costs and non-usage facility fees, on the Company’s total debt outstanding (excluding secured borrowings) was 3.3% and 3.3%, respectively. For the three and nine months ended June 30, 2015, the effective annualized average interest rate, which includes amortization of debt financing costs and non-usage facility fees, on the Company’s total debt outstanding (excluding secured borrowings) was 3.2% and 3.3%, respectively.

 

A summary of the Company’s maturity requirements for borrowings as of June 30, 2016 is as follows:

 

   Payments Due by Period 
       Less Than           More Than 
   Total   1 Year   1-3 Years   3-5 Years   5 Years 
                     
2010 Debt Securitization  $215,000   $-   $-   $-   $215,000 
2014 Debt Securitization   246,000    -    -    -    246,000 
SBA debentures   255,000    -    -    20,000    235,000 
Credit Facility   146,050    -    -    146,050    - 
Adviser Revolver   -    -    -    -    - 
                          
Total borrowings  $862,050   $-   $-   $166,050   $696,000 

 

Secured Borrowings: Certain partial loan sales do not qualify for sale accounting under ASC Topic 860 because these sales do not meet the definition of a “participating interest”, as defined in the guidance, 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 as an investment on the consolidated statements of financial condition and the portion sold is recorded as a secured borrowing in the liabilities section of the consolidated statements of financial condition. For these partial loan sales, the interest earned on the entire loan balance is recorded within “interest income” and the interest earned by the buyer in the partial loan sale is recorded within “interest and other debt financing expenses” in the consolidated statements of operations.

 

56

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

As of June 30, 2016 and September 30, 2015, the Company recognized secured borrowings at fair value of $326 and $355, respectively, and the fair values of the loans that are associated with these secured borrowings was $1,198 and $1,256, respectively. These secured borrowings were the result of the Company’s completion of partial sales of one stop loans associated with one portfolio company that did not meet the definition of a “participating interest”. As a result, sale treatment was not allowed and these partial loan sales were treated as secured borrowings.

 

During the three and nine months ended June 30, 2016, there were no partial loan sales, no fundings on revolving and delayed draw secured borrowings and repayments on secured borrowings totaled $8 and $29. During the three and nine months ended June 30, 2015, there were no partial loan sales, no fundings on revolving and delayed draw secured borrowings and repayments on secured borrowings totaled $9 and $26, respectively.

 

For the three and nine months ended June 30, 2016, the effective annualized average interest rate on secured borrowings, which includes amortization of original issuance costs, was 4.6% and 4.6%, interest expense was $3 and $11 and amortization of original issue discount was $1 and $1, respectively. For the three and nine months ended June 30, 2015, the effective annualized average interest rate on secured borrowings, which includes amortization of original issuance costs, was 4.5% and 4.5%, interest expense was $1 and $9 and amortization of original issue discount was an amount less than $1 and $1, respectively.

 

Note 8.Commitments and Contingencies

 

Commitments: The Company had outstanding commitments to fund investments totaling $94,996 and $121,545 under various undrawn revolvers and other credit facilities as of June 30, 2016 and September 30, 2015, respectively. As described in Note 4, the Company had commitments of up to $61,547 and $75,215 to SLF as of June 30, 2016 and September 30, 2015, respectively, that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee.

 

Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as these involve future claims that may be made against the Company but that have not occurred. The Company expects the risk of any future obligations under these indemnifications to be remote.

 

Off-balance sheet risk: Off-balance sheet risk refers to an unrecorded potential liability that may result in a future obligation or loss, even though it does not appear on the consolidated statements of financial condition. The Company has entered and, in the future, may again enter into derivative instruments that contain elements of off-balance sheet market and credit risk. There were no commitments outstanding for derivative contracts as of June 30, 2016 and September 30, 2015. Derivative instruments can be affected by market conditions, such as interest rate volatility, which could impact the fair value of the derivative instruments. If market conditions move against the Company, it may not achieve the anticipated benefits of the derivative instruments and may realize a loss. The Company minimizes market risk through monitoring its investments and borrowings.

 

Concentration of credit and counterparty risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of the contract. The Company has engaged and, in the future, may engage again in derivative transactions with counterparties. In the event that the counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparties or issuers of the instruments. The Company’s maximum loss that it could incur related to counterparty risk on derivative instruments is the value of the collateral for that respective derivative instrument. It is the Company’s policy to review, as necessary, the credit standing of each counterparty.

 

57

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Legal proceedings: In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company does not believe any disposition will have a material adverse effect on the Company’s consolidated financial statements.

 

Note 9.Financial Highlights

 

The financial highlights for the Company are as follows:

   Nine months ended June 30, 
Per share data(1):  2016   2015 
Net asset value at beginning of period  $15.80   $15.55 
Net increase in net assets as a result of issuance of shares (2)   0.01    - 
Net increase in net assets as a result of public offering   -    0.09 
Net investment income   0.93    0.90 
Net realized gain (loss) on investments   (0.01)   0.10 
Net change in unrealized appreciation (depreciation) on investments   0.11    0.06 
Dividends and distributions declared          
From net investment income   (0.96)   (0.96)
Net asset value at end of period  $15.88   $15.74 
           
Per share market value at end of period  $18.07   $16.56 
Total return based on market value(3)   19.79%   9.84%
Shares outstanding at end of period   51,623,325    51,259,434 
_____________________________________________________          
Listed below are supplemental data and ratios to the financial highlights: 
           
Ratio of expenses (without incentive fees) to average net assets *   6.72%   6.57%
Ratio of incentive fees to average net assets   0.52%   0.76%
Ratio of total expenses to average net assets (4)   7.24%   7.33%
Ratio of net investment income to average net assets *   7.82%   7.69%
Total return based on average net asset value (5)*   8.70%   9.07%
           
Net assets at end of period  $819,981   $807,044 
Average debt outstanding  $823,169   $728,560 
Average debt outstanding per share  $15.95   $14.21 
Asset coverage ratio (6)   234.46%   233.45%
Portfolio turnover *   32.73%   42.97%

 

*Annualized for a period less than one year.
(1)Based on actual number of shares outstanding at the end of the corresponding period or the weighted average shares outstanding for the period, unless otherwise noted, as appropriate.

(2)Net increase in net assets as a result of issuance of shares for the nine months ended June 30, 2016 is related to shares issued through the DRIP.

(3)Total return based on market value assumes dividends are reinvested.
(4)Expenses, other than incentive fees, are annualized for a period less than one year.
(5)Total return based on average net asset value is calculated as (a) the net increase in net assets resulting from operations divided by (b) the daily average of total net assets.

(6)In accordance with the 1940 Act, with certain limited exceptions (including the Company's exemptive relief related to SBA debentures), 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.

 

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Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Note 10.Earnings Per Share

 

The following information sets forth the computation of the net increase in net assets per share resulting from operations for the three and nine months ended June 30, 2016 and 2015:

 

   Three months ended June 30,   Nine months ended June 30, 
   2016   2015   2016   2015 
Earnings available to stockholders  $18,289   $18,288   $53,105   $51,321 
Basic and diluted weighted average shares outstanding   51,513,685    50,491,035    51,399,363    48,262,048 
Basic and diluted earnings per share  $0.35   $0.36   $1.03   $1.06 

 

Note 11.Dividends and Distributions

 

The Company’s dividends and distributions are recorded on the ex-dividend date. The following table summarizes the Company’s dividend declarations and distributions during three and nine months ended June 30, 2016 and 2015:

 

         Amount   Cash   DRIP Shares   DRIP Shares 
Date Declared  Record Date  Payment Date  Per Share   Distribution   Issued   Value 
                       
Nine months ended June 30, 2016            
05/03/2016  06/06/2016  06/29/2016  $0.32   $14,558    112,104   $1,926 
02/02/2016  03/07/2016  03/30/2016  $0.32   $14,287    131,434   $2,155 
11/17/2015  12/11/2015  12/29/2015  $0.32   $15,149    79,594   $1,267 
                           
Nine months ended June 30, 2015            
05/11/2015  06/18/2015  06/29/2015  $0.32   $15,887    31,930   $505 
02/03/2015  03/20/2015  03/27/2015  $0.32   $14,187    53,694   $908 
11/17/2014  12/18/2014  12/29/2014  $0.32   $14,193    52,020   $885 

 

Note 12.Subsequent Events

 

On July 18, 2016, the Company entered into a Securities Purchase Agreement between the Company and an institutional investor for the sale of 1,433,486 shares of the Company’s common stock at a price per share of $17.44. Proceeds in cash of $25,000 were received and the transactions closed on July 21, 2016.

 

On August 3, 2016, the Company’s Board declared a quarterly dividend of $0.32 per share payable on September 29, 2016 to holders of record as of September 5, 2016.

 

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

 

The information contained in this section should be read in conjunction with our interim and unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us,” “our” and “Golub Capital BDC” refer to Golub Capital BDC, Inc. and its consolidated subsidiaries.

 

Forward-Looking Statements

 

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

 

·our future operating results;
·our business prospects and the prospects of our portfolio companies;
·the effect of investments that we expect to make and the competition for those investments;
·our contractual arrangements and relationships with third parties;
·actual and potential conflicts of interest with GC Advisors LLC, or GC Advisors, and other affiliates of Golub Capital Incorporated and Golub Capital LLC, collectively, Golub Capital;
·the dependence of our future success on the general economy and its effect on the industries in which we invest;
·the ability of our portfolio companies to achieve their objectives;
·the use of borrowed money to finance a portion of our investments;
·the adequacy of our financing sources and working capital;
·the timing of cash flows, if any, from the operations of our portfolio companies;
·general economic trends and other external factors;
·the ability of GC Advisors to locate suitable investments for us and to monitor and administer our investments;
·the ability of GC Advisors or its affiliates to attract and retain highly talented professionals;
·our ability to qualify and maintain our qualification as a regulated investment company, or RIC, and as a business development company;
·general price and volume fluctuations in the stock markets;
·the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations issued thereunder; and
·the effect of changes to tax legislation and our tax position.

 

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words. The forward looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth elsewhere in this quarterly report on Form 10-Q and as “Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2015.

 

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We have based the forward-looking statements included in this report on information available to us on the date of this report. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. You are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K. This quarterly report on Form 10-Q contains statistics and other data that have been obtained from or compiled from information made available by third-party service providers. We have not independently verified such statistics or data.

 

Overview

 

We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As a business development company and a RIC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code.

 

Our shares are currently listed on The NASDAQ Global Select Market under the symbol “GBDC”.

 

Our investment objective is to generate current income and capital appreciation by investing primarily in senior secured and one stop loans of U.S. middle-market companies. We may also selectively invest in second lien and subordinated loans of, and warrants and minority equity securities in U.S. middle-market companies. We intend to achieve our investment objective by (1) accessing the established loan origination channels developed by Golub Capital, a leading lender to U.S. middle-market companies with over $18.0 billion in capital under management as of June 30, 2016, (2) selecting investments within our core middle-market company focus, (3) partnering with experienced private equity firms, or sponsors, in many cases with whom Golub Capital has invested alongside in the past, (4) implementing the disciplined underwriting standards of Golub Capital and (5) drawing upon the aggregate experience and resources of Golub Capital.

 

Our investment activities are managed by GC Advisors and supervised by our board of directors of which a majority of the members are independent of us, GC Advisors and its affiliates.

 

Under an investment advisory agreement, or the Investment Advisory Agreement, which was most recently reapproved by our board of directors in May 2016, we have agreed to pay GC Advisors an annual base management fee based on our average adjusted gross assets as well as an incentive fee based on our investment performance. Under an administration agreement, or the Administration Agreement, we are provided with certain administrative services by an administrator, or the Administrator, which is currently Golub Capital LLC. Under the Administration Agreement, we have agreed to reimburse the Administrator for our allocable portion (subject to the review and approval of our independent directors) of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement.

 

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We seek to create a portfolio that includes primarily senior secured and one stop loans by primarily investing approximately $5.0 million to $30.0 million of capital, on average, in the securities of U.S. middle-market companies. We may also selectively invest more than $30.0 million in some of our portfolio companies and generally expect that the size of our individual investments will vary proportionately with the size of our capital base.

 

We generally invest in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. These securities, which may be referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. In addition, many of our debt investments have floating interest rates that reset on a periodic basis and typically do not fully pay down principal prior to maturity, which may increase our risk of losing part or all of our investment.

 

As of June 30, 2016 and September 30, 2015, our portfolio at fair value was comprised of the following:

 

   As of June 30, 2016   As of September 30, 2015 
   Investments   Percentage of   Investments   Percentage of 
Investment  at Fair Value   Total   at Fair Value   Total 
Type  (In thousands)   Investments   (In thousands)   Investments 
Senior secured  $174,608    10.7%  $197,329    12.9%
One stop   1,235,496    75.9    1,134,222    74.1 
Second lien   37,461    2.3    39,774    2.6 
Subordinated debt   1,966    0.1    1,715    0.1 
Subordinated notes in SLF (1)   81,292    5.0    76,563    5.0 
LLC equity interests in SLF (1)   29,772    1.8    22,373    1.5 
Equity   67,914    4.2    57,808    3.8 
Total  $1,628,509    100.0%  $1,529,784    100.0%

 

(1)Proceeds from the subordinated notes and limited liability company, or LLC, equity interests invested in Senior Loan Fund LLC, or SLF, were utilized by SLF to invest in senior secured loans.

One stop loans include loans to technology companies undergoing strong growth due to new services, increased adoption and/or entry into new markets. We refer to loans to these companies as late stage lending loans. Other targeted characteristics of late stage lending businesses include strong customer revenue retention rates, a diversified customer base and backing from growth equity or venture capital firms. In some cases, the borrower’s high revenue growth is supported by a high level of discretionary spending. As part of the underwriting of such loans and consistent with industry practice, we may adjust our characterization of the earnings of such borrowers for a reduction or elimination of such discretionary expenses, if appropriate. As of June 30, 2016 and September 30, 2015, one stop loans included $109.9 million and $88.2 million, respectively, of late stage lending loans at fair value.

 

As of June 30, 2016 and September 30, 2015, we had debt and equity investments in 185 and 164 portfolio companies, respectively, and investments in subordinated notes and LLC equity interests in SLF.

 

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The weighted average annualized income yield and weighted average annualized investment income yield of our income producing debt investments, which represented nearly 100% of our debt investments, for the three and nine months ended June 30, 2016 and 2015 was as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Weighted average annualized income yield (1)     7.6%   7.6%   7.6%   7.7%
Weighted average annualized investment income yield (2)   8.2%   8.4%   8.1%   8.3%

 

 

(1)Represents income from interest, including subordordinated notes in SLF, and fees excluding amortization of capitalized fees and discounts divided by the average fair value of earning debt investments.
(2)Represents income from interest, including subordordinated notes in SLF, fees and amortization of capitalized fees and discounts divided by the average fair value of earning debt investments.

 

Revenues: We generate revenue in the form of interest and fee income on debt investments and capital gains and distributions, if any, on portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured, one stop, second lien or subordinated loans, typically have a term of three to seven years and bear interest at a fixed or floating rate. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. In some cases, our investments provide for deferred interest payments or payment-in-kind, or PIK, interest. The principal amount of loans and any accrued but unpaid interest generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums on loans as fee income. For additional details on revenues, see “Critical Accounting Policies—Revenue Recognition”.

 

We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment or derivative instrument, without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments and derivative instruments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

 

Expenses: Our primary operating expenses include the payment of fees to GC Advisors under the Investment Advisory Agreement and interest expense on our outstanding debt. We bear all other out-of-pocket costs and expenses of our operations and transactions, including:

 

·calculating our net asset value, or NAV (including the cost and expenses of any independent valuation firm);
·fees and expenses incurred by GC Advisors payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments, which fees and expenses may include, among other items, due diligence reports, appraisal reports, any studies that may be commissioned by GC Advisors and travel and lodging expenses;
·expenses related to unsuccessful portfolio acquisition efforts;
·offerings of our common stock and other securities;

·administration fees and expenses, if any, payable under the Administration Agreement (including payments based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our chief compliance officer, chief financial officer and their respective staffs);

 

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·fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments in portfolio companies, including costs associated with meeting financial sponsors;
·transfer agent, dividend agent and custodial fees and expenses;
·U.S. federal and state registration and franchise fees;
·all costs of registration and listing our shares on any securities exchange;
·U.S. federal, state and local taxes;
·independent directors’ fees and expenses;
·costs of preparing and filing reports or other documents required by the SEC or other regulators;
·costs of any reports, proxy statements or other notices to stockholders, including printing costs;
·costs associated with individual or group stockholders;
·costs associated with compliance under the Sarbanes-Oxley Act of 2002, as amended;
·our allocable portion of any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
·direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs;
·proxy voting expenses; and
·all other expenses incurred by us or the Administrator in connection with administering our business.

 

We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

 

GC Advisors, as collateral manager for Golub Capital BDC 2010-1 LLC, or the 2010 Issuer, our indirect subsidiary, under a collateral management agreement, or the 2010 Collateral Management Agreement, is entitled to receive an annual fee in an amount equal to 0.35% of the principal balance of the portfolio loans held by the 2010 Issuer at the beginning of the collection period relating to each payment date, which is payable in arrears on each payment date. Under the 2010 Collateral Management Agreement, the term ‘‘collection period’’ refers to a quarterly period running from the day after the end of the prior collection period to the fifth business day of the calendar month in which a payment date occurs.

 

GC Advisors, as collateral manager for Golub Capital BDC CLO 2014 LLC, or the 2014 Issuer, our wholly-owned subsidiary, under a collateral management agreement, or the 2014 Collateral Management Agreement, is entitled to receive an annual fee in an amount equal to 0.25% of the principal balance of the portfolio loans held by the 2014 Issuer at the beginning of the collection period relating to each payment date, which is payable in arrears on each payment date. Under the 2014 Collateral Management Agreement, the term ‘‘collection period’’ refers to a quarterly period running from the day after the end of the prior collection period to the tenth business day prior to the payment date.

 

Collateral management fees are paid directly by the 2010 Issuer and the 2014 Issuer to GC Advisors and offset against the management fees payable under the Investment Advisory Agreement. In addition, the 2010 Issuer and 2014 Issuer paid Wells Fargo Securities, LLC structuring and placement fees for its services in connection with the initial structuring and subsequent amendment of a $350.0 million term debt securitization, or the 2010 Debt Securitization, and the initial structuring of a $402.6 million term debt securitization, or the 2014 Debt Securitization. The 2010 Issuer and 2014 Issuer also agreed to pay ongoing administrative expenses to the trustee, collateral manager, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2010 Debt Securitization and the 2014 Debt Securitization, or, collectively, the Debt Securitizations, as applicable.

 

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We believe that these administrative expenses approximate the amount of ongoing fees and expenses that we would be required to pay in connection with a traditional secured credit facility. Our common stockholders indirectly bear all of these expenses.

 

Recent Developments

 

On July 18, 2016, the Company entered into a Securities Purchase Agreement between the Company and an institutional investor for the sale of 1,433,486 shares of the Company’s common stock at a price per share of $17.44. Proceeds in cash of $25.0 million were received and the transactions closed on July 21, 2016.

 

On August 3, 2016, our board of directors declared a quarterly distribution of $0.32 per share payable on September 29, 2016 to holders of record as of September 5, 2016.

 

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Consolidated Results of Operations

 

Consolidated operating results for the three and nine months ended June 30, 2016 and 2015 are as follows:

 

   For the three months ended June 30,   Variances   For the nine months ended June 30,   Variances 
   2016   2015   2016 vs. 2015   2016   2015   2016 vs. 2015 
   (In thousands)   (In thousands) 
                         
Interest income  $26,858   $26,195   $663   $78,082   $76,312   $1,770 
Income from accretion of discounts and origination fees   2,210    2,587    (377)   5,896    6,076    (180)
Interest income from subordinated notes of SLF   1,799    1,056    743    5,192    2,258    2,934 
Dividend income   1,179    498    681    3,364    883    2,481 
Fee income   60    74    (14)   834    887    (53)
                               
Total investment income   32,106    30,410    1,696    93,368    86,416    6,952 
                               
Total expenses   16,221    15,205    1,016    45,283    42,900    2,383 
                               
Net investment income - before excise tax   15,885    15,205    680    48,085    43,516    4,569 
                               
Excise tax   -    -    -    333    -    333 
                               
Net investment income - after excise tax   15,885    15,205    680    47,752    43,516    4,236 
                               
Net realized gain (loss) on investments   (5,416)   (1,746)   (3,670)   (260)   4,503    (4,763)
Net change in unrealized appreciation (depreciation) on investments, and secured borrowings   7,820    4,829    2,991    5,613    3,302    2,311 
                               
Net income  $18,289   $18,288  $1   $53,105   $51,321   $1,784 
                               
Average earning portfolio company                              
investments, at fair value  $1,524,854   $1,437,003   $87,851   $1,478,618   $1,372,658   $105,960 
                               
Average debt outstanding (1)  $842,888   $763,070   $79,818   $823,169   $728,560   $94,609 

 

 

(1)For the three and nine months ending June 30, 2016 and 2015 we have excluded $0.3 million and $0.4 million, respectively, of secured borrowings, at fair value, which were the result  of participations and partial loan sales that did not meetthe definition of a "participating interest", as defined in the guidance to Accounting Standards Codification,  or ASC, Topic 860 - Transfers and Servicing, or ASC Topic 860.

Net income can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

 

Investment Income

 

Investment income increased from the three months ended June 30, 2015 to the three months ended June 30, 2016 by $1.7 million primarily as a result of an increase in income from our investments in SLF of $1.3 million.

 

Investment income increased from the nine months ended June 30, 2015 to the nine months ended June 30, 2016 by $7.0 million primarily as a result of an increase in the average earning investment balance, which is the annual average balance of accruing loans in our investment portfolio, of $106.0 million and an increase in income from our investment in SLF of $5.1 million.

 

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The annualized income yield by security type for the three and nine months ended June 30, 2016 and 2015 was as follows:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Senior secured   6.3%   6.3%   6.3%   6.3%
One stop   7.6%   7.8%   7.7%   7.9%
Second lien   10.1%   9.6%   9.7%   9.5%
Subordinated debt   4.8%   8.2%   5.1%   8.2%
Subordinated notes in SLF (1)   8.5%   8.3%   8.4%   8.3%

 

 
(1) SLF's proceeds from the subordinated notes were utilized by SLF to fund senior secured loans.

 

Annualized income yields on one stop loans have declined for the three and nine months ended June 30, 2016 compared to the three and nine months ended June 30, 2015 primarily due to a continued general trend of interest rate compression on new investments. Due to the limited number of second lien and subordinated debt investments, quarterly income yields on second lien and subordinated debt investments can be significantly impacted by the addition, subtraction or refinancing of one investment. The increase in the annualized income yield on second lien investments was driven by a contractual rate change on one investment representing 24% of the $37.5 million, at fair value, of second lien investments held. As of June 30, 2016, we have four remaining second lien investments and two remaining subordinated debt investments shown in the Consolidated Schedule of Investments.

 

For additional details on investment yields and asset mix, refer to the “Liquidity and Capital Resources - Portfolio Composition, Investment Activity and Yield” section below.

 

Expenses

 

The following table summarizes our expenses:

 

   For the three months ended June 30,   Variances   For the nine months ended June 30,   Variances 
   2016   2015   2016 vs. 2015   2016   2015   2016 vs. 2015 
   (In thousands)   (In thousands) 
                         
Interest and other debt financing expenses  $6,042   $5,025   $1,017   $17,356   $14,601   $2,755 
Amortization of debt issuance costs   977    1,117    (140)   3,227    3,252    (25)
Base management fee   5,567    5,226    341    16,286    14,902    1,384 
Income Incentive Fee   1,750    1,651    99    2,877    3,803    (926)
Capital gain incentive fee accrued under GAAP   561    732    (171)   1,385    1,909    (524)
Professional fees   692    741    (49)   2,123    2,210    (87)
Administrative service fee   531    575    (44)   1,643    1,766    (123)
General and administrative expenses   101    138    (37)   386    457    (71)
                               
Total expenses  $16,221   $15,205   $1,016   $45,283   $42,900   $2,383 

 

Interest and other debt financing expenses increased by $1.0 million from the three months ended June 30, 2015 to the three months ended June 30, 2016 primarily due to an increase in the weighted average of outstanding borrowings from $763.1 million for the three months ended June 30, 2015 to $842.9 million for the three months ended June 30, 2016 and an increase in the average London Interbank Offered Rate, or LIBOR, which is the index that determines the interest rate on our floating rate liabilities. The increase in our debt was primarily driven by an increase in our use of debt under our Small Business Administration, or SBA, debentures through our small business investment companies, or SBICs, which had outstanding balances of $255.0 million as of June 30, 2016 and $220.8 million as of June 30, 2015 as well as under the senior secured revolving credit facility, or the Credit Facility, entered into by Golub Capital BDC Funding LLC, or Funding, our wholly-owned subsidiary, with Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo Bank, N.A., as lender, which increased to an outstanding balance of $146.1 million as of June 30, 2016 from an outstanding balance of $141.3 million as of June 30, 2015. The effective annualized average interest rate on our outstanding debt increased slightly to 3.3% for the three months ended June 30, 2016 from 3.2% for the three months ended June 30, 2015 primarily due to the increase in LIBOR.

 

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Interest and other debt financing expenses increased by $2.8 million from the nine months ended June 30, 2015 to the nine months ended June 30, 2016 primarily due to an increase in the weighted average of outstanding borrowings from $728.6 million for the nine months ended June 30, 2015 to $823.2 million for the nine months ended June 30, 2016. The effective annualized average interest rate on our outstanding debt remained stable at 3.3% for the nine months ended June 30, 2016 and 2015.

 

The base management fee increased as a result of a sequential increase in average assets from June 30, 2015 to June 30, 2016. The administrative service fee declined from the nine months ended June 30, 2015 to the nine months ended June 30, 2016 due to efficiencies gained by the Administrator in servicing a growing portfolio.

 

The incentive fee payable under the Investment Advisory Agreement consists of two parts: (1) the income component, or the Income Incentive Fee, and (2) the capital gains component, or the Capital Gain Incentive Fee. The Income Incentive Fee increased by less than $0.1 million and decreased $0.9 million from the three and nine months ended June 30, 2015 to the three and nine months ended June 30, 2016 as the interest rate compression on new investments and the change in asset mix of our portfolio caused a decline in our Pre-Incentive Fee Net Investment Income (as defined below), expressed as a rate of return on the value of our net assets. Due to this decline, we were not fully through the catch-up provision of the Income Incentive Fee calculation. For the three months ended June 30, 2016, the Income Incentive Fee as a percentage of Pre-Incentive Fee Net Investment Income was 9.6% compared to 9.4% for the three months ended June 30, 2015. For the nine months ended June 30, 2016, the Income Incentive Fee as a percentage of Pre-Incentive Fee Net Investment Income was 5.5% compared to 7.7% for the nine months ended June 30, 2015. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies, but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the calendar quarter (including the base management fee, taxes, any expenses payable under the Investment Advisory Agreement and the Administration Agreement, any expenses of securitizations and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that we have not yet received in cash.

 

The Capital Gain Incentive Fee payable as calculated under the Investment Advisory Agreement for the three and nine months ended June 30, 2016 and 2015 was $0. However, in accordance with GAAP, we are required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement.

 

We recorded an accrual for capital gain incentive fee under GAAP of $0.6 million, or $0.01 per share, and $1.4 million, or $0.03 per share, for the three and nine months ended June 30, 2016, respectively. The accrual for capital gain incentive fee under GAAP was $0.7 million, or $0.02 per share, for the three months ended June 30, 2015 and $1.9 million, or $0.04 per share, for the nine months ended June 30, 2015.The decrease in the accrual for capital gain incentive fee under GAAP for the three and nine months ended June 30, 2016 from the three and nine months ended June 30, 2015 was primarily the result of the realized loss on the liquidation of one non-accrual portfolio company investment that was partially offset by unrealized appreciation of debt and equity investments.

 

For additional details on the liquidation of equity investments, refer to the “Net Realized and Unrealized Gains and Losses” section below.

   

The Administrator pays for certain expenses incurred by us. These expenses are subsequently reimbursed in cash. Total expenses reimbursed by us to the Administrator for the three and nine months ended June 30, 2016 were $0.7

 

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million and $2.1 million, respectively. Total expenses reimbursed by us to the Administrator for the three and nine months ended June 30, 2015 were $0.2 million and $0.7 million, respectively.

 

As of June 30, 2016 and September 30, 2015, included in accounts payable and accrued expenses were $0.3 million and $0.6 million, respectively, for accrued expenses paid on behalf of us by the Administrator.

 

Excise Tax Expense

 

We have elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, we are required to meet certain source of income and asset diversification requirements, as well as timely distribute to our stockholders at least 90% of investment company taxable income, as defined by the Code, and determined without regard to any deduction for dividends paid for each tax year. We have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to retain taxable income in excess of current year distributions into the next tax year in an amount less than what would trigger payments of federal income tax under Subchapter M of the Code. We may then be required to pay a 4% excise tax on such income. To the extent that we determine that our estimated current year annual taxable income may exceed estimated current year distributions, we accrue excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three and nine months ended June 30, 2016, we recorded a net expense of $0 and $333,000, respectively, for U.S. federal excise tax. For the three and nine months ended June 30, 2015, we recorded no U.S. federal excise tax expense.

 

Net Realized and Unrealized Gains and Losses

 

The following table summarizes our net realized and unrealized gains (losses) for the periods presented:

 

   For the three months ended June 30,   Variances   For the nine months ended June 30,   Variances 
   2016   2015   2016 vs. 2015   2016   2015   2016 vs. 2015 
   (In thousands)   (In thousands)     
                         
Net realized gain (loss) on investments  $(5,416)  $(1,746)  $(3,670)  $(260)  $4,503   $(4,763)
                               
Net realized gain (loss)   (5,416)   (1,746)   (3,670)   (260)   4,503    (4,763)
                               
Unrealized appreciation on investments   17,257    11,856    5,401    33,855    21,901    11,954 
Unrealized (depreciation) on investments   (10,256)   (7,008)   (3,248)   (26,704)   (18,803)   (7,901)
Unrealized appreciation on investments in SLF (1)   818    -    818    -    203    (203)
Unrealized (depreciation) on investments in SLF (1)   -    (19)   19    (1,539)   -    (1,539)
Unrealized depreciation on secured borrowings   1    -    1    1    1    - 
                              
Net change in unrealized appreciation (depreciation) on
investments, investments in SLF, and secured borrowings		  $7,820   $4,829   $2,991   $5,613   $3,302   $2,311 

 

 

(1)Unrealized appreciation (depreciation) on investments in SLF include our investments in subordinated notes and LLC interests in SLF.

 

For the three months ended June 30, 2016, we had a net realized loss of $5.4 million primarily due to the realized loss on the sale of one non-accrual portfolio company investment that was partially offset by the sale of equity and debt investments. For the nine months ended June 30, 2016, we had a net realized loss of $0.3 million primarily due to the realized loss on the sale of one non-accrual portfolio company investment and the write off of one non-accrual portfolio company investment that were partially offset by the sale of, or capital gain distributions received from, five equity investments.

  

During the three months ended June 30, 2016, we had $17.3 million in unrealized appreciation on 114 portfolio company investments, which was offset by $10.3 million in unrealized depreciation on 143 portfolio company investments. For the nine months ended June 30, 2016, we had $33.9 million in unrealized appreciation on 135 portfolio company investments, which was offset by $26.7 million in unrealized depreciation on 138 portfolio company investments. Unrealized appreciation during the three and nine months ended June 30, 2016 resulted from an

 

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increase in fair value primarily due to the rise in market prices of portfolio company investments and the reversal of prior period unrealized depreciation associated with the non-accrual portfolio company investments that were sold and written-off. Unrealized depreciation primarily resulted from the amortization of discounts, negative credit related adjustments that caused a reduction in fair value and the reversal of the net unrealized appreciation associated with the sales of portfolio company investments during the three and nine months ended June 30, 2016.

 

For the three months ended June 30, 2016, we had $0.8 million in unrealized appreciation on our investment in SLF LLC equity interests and an amount less than $0.1 million in unrealized appreciation on our investment in SLF subordinated notes. The unrealized appreciation on the SLF LLC equity interests was driven by positive credit related adjustments associated with SLF’s investment portfolio.

 

For the nine months ended June 30, 2016, we had $0.7 million of unrealized depreciation on our investment in SLF LLC equity interests and $0.8 million of unrealized depreciation on our investment in SLF subordinated notes. The unrealized depreciation on the SLF subordinated notes was the result of the lower yielding contractual rate compared to comparable market pricing of subordinated notes. The unrealized depreciation on the SLF LLC equity interests was driven by negative credit related adjustments associated with SLF’s investment portfolio which was partially offset by the offsetting impact of the pricing on the subordinated notes.

 

For the three months ended June 30, 2015, we had a net realized loss of $1.7 million primarily due to the write off of one non-accrual portfolio company investment. For the nine months ended June 30, 2015, we had net realized gains on investments totaling $4.5 million primarily due to the sale of four equity investments, which was partially offset by the write-off of one non-accrual portfolio company investment.

 

During the three months ended June 30, 2015, we had $11.9 million in unrealized appreciation on 83 portfolio company investments, which was offset by $7.0 million in unrealized depreciation on 128 portfolio company investments. For the nine months ended June 30, 2015, we had $21.9 million in unrealized appreciation on 108 portfolio company investments, which was offset by $18.8 million in unrealized depreciation on 132 portfolio company investments. Unrealized appreciation during the three and nine months ended June 30, 2015 resulted from an increase in fair value primarily due to the rise in market prices of portfolio company investments and the reversal of prior period unrealized depreciation associated with the portfolio company investment write-off. Unrealized depreciation primarily resulted from the amortization of discounts, negative credit related adjustments that caused a reduction in fair value and the reversal of the net unrealized appreciation associated with the sales of portfolio company investments during the three and nine months ended June 30, 2015.

 

For the three and nine months ended June 30, 2015, we had less than $0.1 million in unrealized depreciation and $0.2 million in unrealized appreciation on our investment in SLF LLC equity interests, respectively. The unrealized appreciation on the SLF LLC equity interests was primarily driven by no negative mark-to-market losses in the aggregate associated with SLF’s investment portfolio. For the three and nine months ended June 30, 2015, we had no unrealized appreciation or depreciation on our investment in SLF subordinated notes.

 

Liquidity and Capital Resources

 

For the nine months ended June 30, 2016, we experienced a net decrease in cash and cash equivalents of $2.3 million. During the period, cash used in operating activities was $38.7 million primarily as a result of funding of portfolio investments of $471.5 million. This was partially offset by the proceeds from principal payments and sales of portfolio investments of $387.3 million and net investment income of $47.8 million. During the same period, cash provided by investment activities of $33.3 million was driven by the decrease in restricted cash and cash equivalents. Lastly, cash provided by financing activities was $3.1 million, primarily driven by borrowings on debt of $288.1 million that were partially offset by repayments of debt of $239.1 million and distributions paid of $44.0 million.

 

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For the nine months ended June 30, 2015, we experienced a net increase in cash and cash equivalents of $1.4 million. During the period, we used $170.7 million in operating activities primarily as a result of fundings of portfolio investments of $667.1 million. This was partially offset by proceeds from principal payments and sales of portfolio investments of $461.5 million and net investment income of $43.5 million. During the same period, cash provided by investment activities of $24.6 million was driven by the decrease in restricted cash and cash equivalents. Lastly, cash provided by financing activities was $147.4 million, primarily driven by borrowings on debt of $347.4 million and proceeds from shares sold of $67.6 million that were partially offset by repayments of debt of $221.4 million and distributions paid of $44.3 million.

 

As of June 30, 2016 and September 30, 2015, we had cash and cash equivalents of $3.2 million and $5.5 million, respectively. In addition, we had restricted cash and cash equivalents of $58.7 million and $92.0 million as of June 30, 2016 and September 30, 2015, respectively. Cash and cash equivalents are available to fund new investments, pay operating expenses and pay distributions. As of June 30, 2016, $49.1 million of our restricted cash and cash equivalents could be used to fund new investments that meet the investment guidelines established in the Debt Securitizations and for the payment of interest expense on the notes issued in the Debt Securitizations. $5.7 million of such restricted cash and cash equivalents could be used to fund investments that meet the guidelines under the Credit Facility as well as for the payment of interest expense and revolving debt of the Credit Facility. As of June 30, 2016, $3.9 million of restricted cash and cash equivalents can be used to fund new investments that meet the regulatory and investment guidelines established by the SBA for our SBICs which are described in further detail in Note 7 to our consolidated financial statements, and for interest expense and fees on our outstanding SBA debentures.

 

As of June 30, 2016, the Credit Facility allowed Funding to borrow up to $200.0 million at any one time outstanding, subject to leverage and borrowing base restrictions. As of June 30, 2016 and September 30, 2015, subject to leverage and borrowing base restrictions, we had approximately $53.9 million and $72.7 million, respectively, of remaining commitments and $6.3 million and $40.1 million, respectively, of availability on the Credit Facility. As of June 30, 2016 and September 30, 2015, we had $146.1 million and $127.3 million outstanding under the Credit Facility, respectively. On June 22, 2016, we entered into an unsecured revolving credit facility with GC Advisors, the Adviser Revolver, which permitted us to borrow up to $20.0 million at any one time outstanding. As of June 30, 2016, we had no amounts outstanding on the Adviser Revolver which was not outstanding as of September 30, 2015. On October 21, 2015, we terminated the $15.0 million revolving line of credit, or the Revolver, entered into by Golub Capital BDC Revolver Funding LLC, or Revolver Funding, our wholly-owned subsidiary, with PrivateBank and Trust Company. As of September 30, 2015, the Revolver allowed Revolver Funding to borrow up to $15.0 million at any one time outstanding, subject to leverage and borrowing base restrictions. As of September 30, 2015, subject to leverage and borrowing base restrictions, we had approximately $15.0 million of remaining commitments and $2.9 million of availability on the Revolver.

 

On July 16, 2010, we completed the 2010 Debt Securitization, which was subsequently increased to $350 million. The notes offered in the 2010 Debt Securitization, or the 2010 Notes, were issued by the 2010 Issuer and consist of $203.0 million of Class A 2010 Notes, which bear interest at a rate of three-month LIBOR rate, plus 1.74%, $12.0 million of Class B 2010 Notes, which bear interest at a rate of three-month LIBOR plus 2.40%, and $135.0 million face amount of Subordinated 2010 Notes that do not bear interest. The Class A 2010 Notes and Class B 2010 Notes of the 2010 Debt Securitization are included in the June 30, 2016 and September 30, 2015 consolidated statements of financial condition as our debt and the Subordinated 2010 Notes were eliminated in consolidation.

 

On June 5, 2014, we completed the 2014 Debt Securitization in which the 2014 Issuer issued an aggregate of $402.6 million of notes, or the 2014 Notes, including $191.0 million of Class A-1 2014 Notes, which bear interest at a rate of three-month LIBOR plus 1.75%, $20.0 million of Class A-2 2014 Notes, which bear interest at a rate of three-month LIBOR plus 1.95%, $35.0 million of Class B 2014 Notes, which bear interest at a rate of three-month LIBOR plus 2.50%, $37.5 million of Class C 2014 Notes, which bear interest at a rate of three-month LIBOR plus 3.50%, and $119.1 million of LLC equity interests in the 2014 Issuer that do not bear interest. We retained all of the Class C 2014

 

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Notes and LLC equity interests in the 2014 Issuer totaling $37.5 million and $119.1 million, respectively. The Class A-1, Class A-2 and Class B 2014 Notes are included in the June 30, 2016 and September 30, 2015 consolidated statements of financial condition as our debt and the Class C 2014 Notes and LLC equity interests in the 2014 Issuer were eliminated in consolidation. As of June 30, 2016 and September 30, 2015, we had outstanding debt under the 2014 Debt Securitization of $246.0 million.

  

Under present SBIC regulations, the maximum amount of SBA-guaranteed debentures that may be issued by multiple licensees under common management is $350.0 million. The maximum amount that a single SBIC licensee may issue is $150.0 million. On February 11, 2016, the SBA approved GC SBIC V, L.P.’s, or SBIC V, application for an additional $75.0 million of debenture commitments bringing SBIC V’s total debenture commitments up to $150.0 million. GC SBIC IV, L.P., or SBIC IV, and SBIC V, our consolidated SBIC subsidiaries, may each borrow up to two times the amount of its regulatory capital, subject to customary regulatory requirements. As of June 30, 2016, SBIC IV and SBIC V had $150.0 million and $105.0 million of outstanding SBA-guaranteed debentures, respectively, that mature between March 2021 and September 2026, leaving incremental borrowing capacity of $45.0 million for SBIC V under present SBIC regulations. As of September 30, 2015, SBIC IV and SBIC V had $150.0 million and $75.0 million of outstanding SBA-guaranteed debentures, respectively, that mature between March 2021 and September 2025.

 

In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. On September 13, 2011, we received exemptive relief from the SEC allowing us to modify the asset coverage requirement to exclude the SBA debentures from this calculation. As such, our ratio of total consolidated assets to outstanding indebtedness may be less than 200%. This provides us with increased investment flexibility but also increases our risks related to leverage. As of June 30, 2016, our asset coverage for borrowed amounts was 234.5% (excluding the SBA debentures).

 

As of June 30, 2016 and September 30, 2015, we had outstanding commitments to fund investments totaling $95.0 million and $121.5 million, respectively. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of June 30, 2016 and September 30, 2015, respectively, subject to the terms of each loan’s respective credit agreement. As of June 30, 2016, we believe that we had sufficient assets and liquidity to adequately cover future obligations under our unfunded commitments based on historical rates of drawings upon unfunded commitments, cash and restricted cash balances that we maintain, availability under our Credit Facility and Adviser Revolver, and ongoing principal repayments on debt investments. In addition, we generally hold some syndicated loans in larger portfolio companies that are salable over a relatively short period to generate cash.

 

Although we expect to fund the growth of our investment portfolio through the net proceeds from future securities offerings and through our dividend reinvestment plan as well as future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our efforts to raise capital will be successful. In addition to capital not being available, it also may not be available on favorable terms. To the extent we are not able to raise capital on what we believe are favorable terms, we will focus on optimizing returns by investing capital generated from repayments into new investments we believe are attractive from a risk/reward perspective. Furthermore, to the extent we are not able to raise capital and are at or near our targeted leverage ratios, we may receive smaller allocations, if any, on new investment opportunities under GC Advisors’ allocation policy and have, in the past, received such smaller allocations under similar circumstances.

 

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Portfolio Composition, Investment Activity and Yield

 

As of June 30, 2016 and September 30, 2015, we had investments in 185 and 164 portfolio companies, respectively, with a total fair value of $1,517.4 million and $1,430.9 million, respectively, and had investments in subordinated notes and LLC equity interests in SLF with a total fair value of $111.1 million and $98.9 million, respectively.

 

The following table shows the asset mix of our new investment commitments for the three and nine months ended June 30, 2016 and 2015:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
   (In thousands)   Percentage of
Commitments		   (In thousands)   Percentage of
Commitments		   (In thousands)   Percentage of
Commitments		   (In thousands)   Percentage of
Commitments		 
                                 
Senior secured  $27,257    17.5%  $53,593    13.3%  $99,420    20.8%  $187,204    25.8%
One stop   126,245    80.9    314,127    78.3    352,666    73.9    479,844    66.0 
Subordinated debt   42    0.0*   -    -    42    0.0*   -    - 
Subordinated notes in SLF (1)   -    -    24,307    6.1    9,620    2.0    40,275    5.5 
LLC equity interests in SLF (1)   -    -    6,562    1.6    10,820    2.3    12,557    1.7 
Equity securities   2,421    1.6    2,810    0.7    4,529    1.0    6,961    1.0 
Total new investment commitments  $155,965    100.0%  $401,399    100.0%  $477,097    100.0%  $726,841    100.0%

 

 

*Represents an amount less than 0.1%.
(1)SLF's proceeds from the subordinated notes and LLC equity interests were utilized by SLF to fund senior secured loans. As of June 30, 2016, SLF funded senior secured loans to 64 different borrowers.

 

For the three and nine months ended June 30, 2016, we had approximately $106.2 million and $239.0 million, respectively, in proceeds from principal payments and return of capital distributions of portfolio companies. For the three and nine months ended June 30, 2016, we had sales of securities in 6 and 28 portfolio companies, respectively, aggregating approximately $33.2 million and $148.1 million, respectively, in net proceeds.

 

For the three and nine months ended June 30, 2015, we had approximately $130.0 million and $256.5 million, respectively, in proceeds from principal payments and return of capital distributions from portfolio companies. For the three and nine months ended June 30, 2015, we had sales of securities in 14 and 39 portfolio companies, respectively, aggregating approximately $103.5 million and $205.0 million, respectively, in net proceeds.

 

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The following table shows the par, amortized cost and fair value of our portfolio of investments by asset class:

 

   As of June 30, 2016 (1)   As of September 30, 2015 (1) 
       Amortized   Fair       Amortized   Fair 
   Par   Cost   Value   Par   Cost   Value 
   (In thousands) 
                         
Senior secured:                              
Performing  $175,292   $173,319   $174,452   $199,573   $197,189   $197,329 
Non-accrual (2)   1,438    1,433    156    -    -    - 
                               
One stop:                              
Performing   1,246,957    1,229,865    1,234,326    1,135,805    1,120,576    1,127,735 
Non-accrual (2)   3,899    3,845    1,170    17,645    17,078    6,487 
                               
Second lien:                              
Performing   37,838    37,394    37,461    39,924    39,464    39,774 
Non-accrual (2)   -    -    -    -    -    - 
                               
Subordinated debt:                              
Performing   1,749    1,749    1,966    1,707    1,707    1,715 
Non-accrual (2)   -    -    -    -    -    - 
                               
Subordinated notes in SLF (3)                              
Performing   82,114    82,114    81,292    76,563    76,563    76,563 
Non-accrual (2)   -    -    -    -    -    - 
                               
LLC equity interests in SLF (3)   N/A    31,339    29,772    N/A    23,222    22,373 
                               
Equity   N/A    49,369    67,914    N/A    41,515    57,808 
                               
Total  $1,549,287   $1,610,427   $1,628,509   $1,471,217   $1,517,314   $1,529,784 

 

 

(1)Twelve and nine of our loans included a feature permitting a portion of the interest due on such loan to be PIK interest as of June 30, 2016 and September 30, 2015, respectively.
(2)We refer to a loan as non-accrual when we cease recognizing interest income on the loan because we have stopped pursuing repayment of the loan or, in certain circumstances, it is past due 90 days or more on principal and interest or our management has reasonable doubt that principal or interest will be collected. See "—Critical Accounting Policies—Revenue Recognition."
(3)SLF's proceeds from the subordinated notes and LLC equity interests in SLF were utilized by SLF to fund senior secured loans.

 

As of June 30, 2016 and September 30, 2015, the fair value of our debt investments, including our investment in SLF subordinated notes, as a percentage of the outstanding par value was 98.8% and 98.5%, respectively.

 

The following table shows the weighted average rate, spread over LIBOR of floating rate, and fees of investments originated and the weighted average rate of sales and payoffs of portfolio companies during the three and nine months ended June 30, 2016 and 2015:

 

   For the three months ended June 30,   For the nine months ended June 30, 
   2016   2015   2016   2015 
Weighted average rate of new investment fundings (1)     7.2%   6.8%   7.0%   6.7%
Weighted average spread over LIBOR of new floating rate investment fundings (1)     6.2%   5.8%   6.0%   5.7%
Weighted average rate of new fixed rate investment fundings   10.6%   N/A    10.6%   10.8%
Weighted average fees of new investment fundings   2.1%   1.4%   1.8%   1.5%
Weighted average rate of sales and payoffs of portfolio companies (2)     6.8%   6.8%   7.1%   6.7%
Weighted average annualized income yield (3)     7.6%   7.6%   7.6%   7.7%

 

 

(1)Excludes subordinated note investment in SLF.
(2)Excludes exits on investments on non-accrual status.
(3)Represents income from interest, including subordordinated note investment in SLF, and fees excluding amortization of capitalized fees and discounts divided by the average fair value of earning debt investments.

 

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As of June 30, 2016, 94.3% and 94.3% of our debt portfolio at fair value and at amortized cost, respectively, had interest rate floors that limit the minimum applicable interest rates on such loans. As of September 30, 2015, 94.2% and 94.1% of our debt portfolio at fair value and at amortized cost, respectively, had interest rate floors that limit the minimum applicable interest rates on such loans.

 

As of June 30, 2016, the portfolio median earnings before interest, taxes, depreciation and amortization, or EBITDA, for our portfolio companies was $24.6 million. The portfolio median EBITDA is based on the most recently reported trailing twelve-month EBITDA received from the portfolio company. The portfolio median EBITDA excludes underlying borrowers in SLF.

 

As part of the monitoring process, GC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal system developed by Golub Capital and its affiliates. This system is not generally accepted in our industry or used by our competitors. It is based on the following categories, which we refer to as GC Advisors’ internal performance ratings:

 

Internal Performance Ratings
Rating   Definition
5   Involves the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk factors are generally favorable.
4   Involves an acceptable level of risk that is similar to the risk at the time of origination. The borrower is generally performing as expected, and the risk factors are neutral to favorable.
3   Involves a borrower performing below expectations and indicates that the loan’s risk has increased somewhat since origination. The borrower may be out of compliance with debt covenants; however, loan payments are generally not past due.
2   Involves a borrower performing materially below expectations and indicates that the loan’s risk has increased materially since origination. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).
1   Involves a borrower performing substantially below expectations and indicates that the loan’s risk has substantially increased since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans rated 1 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we anticipate will be recovered.

 

Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.

 

For any investment rated 1, 2 or 3, GC Advisors will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions.

 

GC Advisors monitors and, when appropriate, changes the internal performance ratings assigned to each investment in our portfolio. In connection with our valuation process, GC Advisors and our board of directors review these internal performance ratings on a quarterly basis.

 

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The following table shows the distribution of our investments on the 1 to 5 internal performance rating scale at fair value as of June 30, 2016 and September 30, 2015:

 

    As of June 30, 2016   As of September 30, 2015 
Internal   Investments   Percentage of   Investments   Percentage of 
Performance   at Fair Value   Total   at Fair Value   Total 
Rating   (In thousands)   Investments   (In thousands)   Investments 
 5   $93,519    5.7%  $134,142    8.8%
 4    1,374,463    84.4    1,298,558    84.9 
 3    158,788    9.8    87,687    5.7 
 2    1,739    0.1    9,397    0.6 
 1    -    -    -    - 
 Total   $1,628,509    100.0%  $1,529,784    100.0%

 

Senior Loan Fund LLC

 

We co-invest with RGA Reinsurance Company, or RGA, in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect of SLF must be approved by the SLF investment committee consisting of two representatives of each of us and RGA (with unanimous approval required from (i) one representative of each of us and RGA or (ii) both representatives of each of us and RGA). SLF may cease making new investments upon notification of either member but operations will continue until all investments have been sold or paid-off in the normal course of business.

 

SLF is capitalized with subordinated notes and LLC equity interest subscriptions from its members. As of June 30, 2016, we and RGA owned 87.5% and 12.5%, respectively, of both the outstanding subordinated notes and LLC equity interests.

 

As of June 30, 2016 and September 30, 2015, SLF had the following commitments from its members:

 

   As of June 30, 2016   As of September 30, 2015 
   Committed   Funded (1)   Committed   Funded (1) 
   (Dollars in thousands) 
Subordinated note commitments (2)  $160,000   $93,844   $160,000   $87,500 
LLC equity commitments (2)   40,000    35,816    40,000    26,540 
Total  $200,000   $129,660   $200,000   $114,040 

 

 

(1)Funded subordinated note commitments are presented net of repayments subject to recall and funded LLC equity commitments are presented net of return of capital distributions subject to recall.
(2)Commitments presented are combined for us and RGA.

 

As of June 30, 2016, the senior secured revolving credit facility, or, as amended, the SLF Credit Facility, which SLF entered into through its wholly-owned subsidiary, Senior Loan Fund II LLC, or SLF II, allows SLF II to borrow up to $300.0 million subject to leverage and borrowing base restrictions. The reinvestment period of the SLF Credit Facility ends May 12, 2017, and the stated maturity date is May 13, 2020. As of June 30, 2016 and September 30, 2015, SLF II had outstanding debt under the SLF Credit Facility of $231.6 million and $212.3 million, respectively.

 

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Through the reinvestment period, the SLF Credit Facility bears interest at one-month LIBOR plus a rate between 1.75% and 2.25%, depending on the composition of the collateral asset portfolio, per annum. After the reinvestment period, the rate will reset to one-month LIBOR plus 2.75% per annum for the remaining term of the SLF Credit Facility.

 

As of June 30, 2016 and September 30, 2015, SLF had total assets at fair value of $357.7 million and $323.4 million, respectively. As of both June 30, 2016 and September 30, 2015, SLF did not have any investments on non-accrual status. The portfolio companies in SLF are in industries and geographies similar to those in which we may invest directly. Additionally, as of June 30, 2016 and September 30, 2015, SLF had commitments to fund various undrawn revolving credit and delayed draw loans to its portfolio companies totaling $26.8 million and $30.8 million, respectively.

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual loans in SLF’s portfolio as of June 30, 2016 and September 30, 2015:

 

   As of June 30, 2016   As of September 30, 2015 
   (Dollars in thousands) 
Senior secured loans (1)      $356,334   $320,583 
Weighted average current interest rate on senior secured loans (2)     6.0%   5.8%
Number of borrowers in SLF    64    62 
Largest portfolio company investment (1)    $13,083   $12,734 
Total of five largest portfolio company investments (1)    $61,968   $59,917 

 

 

(1)At principal amount.
(2)Computed as the (a) annual stated interest rate on accruing senior secured loans divided by (b) total senior secured loans at principal amount.

 

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SLF Loan Portfolio as of June 30, 2016
                      
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Security Type  Date  Rate (1)   Amount   Value (2) 
                (In thousands) 
5.11, Inc.(3)  Textiles and Leather  Senior loan  02/2020   6.0%   3,137    3,137 
ACTIVE Network, Inc.  Electronics  Senior loan  11/2020   5.5    1,950    1,936 
Advanced Pain Management Holdings, Inc.,  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    6,805    6,736 
Advanced Pain Management Holdings, Inc.,  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    466    461 
Advanced Pain Management Holdings, Inc.(4)  Healthcare, Education and Childcare  Senior loan  02/2018   N/A(5)   -    (12)
AG Kings Holdings Inc.(3)  Grocery  Senior loan  04/2020   7.3    6,168    6,168 
Aimbridge Hospitality, LLC(3)  Hotels, Motels, Inns, and Gaming  Senior loan  10/2018   5.8    5,063    5,063 
American Seafoods Group LLC  Beverage, Food and Tobacco  Senior loan  08/2021   6.0    4,892    4,818 
Argon Medical Devices, Inc.  Healthcare, Education and Childcare  Senior loan  12/2021   5.8    3,990    3,990 
Arise Virtual Solutions, Inc.(3)  Telecommunications  Senior loan  12/2018   7.3    10,957    10,299 
Arise Virtual Solutions, Inc.(3)(4)  Telecommunications  Senior loan  12/2018   N/A(5)    -    (34)
Atkins Nutritionals, Inc(3)  Beverage, Food and Tobacco  Senior loan  01/2019   6.3    5,664    5,664 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior loan  02/2021   4.3    3,494    3,402 
BMC Software, Inc.  Electronics  Senior loan  09/2020   5.0    1,881    1,674 
Boot Barn, Inc.  Retail Stores  Senior loan  06/2021   5.5    10,694    10,694 
Brandmuscle, Inc.  Printing and Publishing  Senior loan  12/2021   5.8    4,960    4,960 
C.B. Fleet Company, Incorporated  Personal and Non Durable Consumer Products  Senior loan  12/2021   5.8    7,651    7,651 
Checkers Drive-In Restaurants, Inc.  Beverage, Food and Tobacco  Senior loan  01/2022   6.5    4,847    4,810 
CLP Healthcare Services, Inc.  Healthcare, Education and Childcare  Senior loan  12/2020   6.3    8,699    8,699 
CLP Healthcare Services, Inc.  Healthcare, Education and Childcare  Senior loan  12/2020   6.3    4,384    4,384 
Community Veterinary Partners, LLC  Personal, Food and Miscellaneous Services  Senior loan  10/2021   6.5    2,473    2,473 
Community Veterinary Partners, LLC  Personal, Food and Miscellaneous Services  Senior loan  10/2021   6.5    807    807 
CPI Buyer, LLC (Cole-Parmer)(3)  Healthcare, Education and Childcare  Senior loan  08/2021   5.5    5,820    5,704 
Curo Health Services LLC(3)  Healthcare, Education and Childcare  Senior loan  02/2022   6.5    5,925    5,905 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    10,173    8,851 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    1,000    652 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   5.5    4,579    4,442 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   5.5    255    224 
EAG, INC. (Evans Analytical Group)  Diversified/Conglomerate Service  Senior loan  07/2017   5.0    2,146    2,125 
Express Oil Change, LLC(3)  Retail Stores  Senior loan  12/2017   6.0    4,909    4,860 
Express Oil Change, LLC(4)  Retail Stores  Senior loan  12/2017   N/A(5)    -    (5)
Extreme Reach Inc.  Broadcasting and Entertainment  Senior loan  02/2020   7.3    5,032    5,027 
Federal-Mogul Corporation  Automobile  Senior loan  04/2021   4.8    3,930    3,661 
Flexan, LLC  Chemicals, Plastics and Rubber  Senior loan  02/2020   6.3    6,106    6,106 
Hygenic Corporation, The (3)  Personal and Non Durable Consumer Products  Senior loan  10/2020   7.5    4,481    4,481 
Jensen Hughes, Inc.  Diversified/Conglomerate Service  Senior loan  12/2021   6.0    2,354    2,354 
Jensen Hughes, Inc.  Diversified/Conglomerate Service  Senior loan  12/2021   6.0    110    110 
Joerns Healthcare, LLC(3)  Healthcare, Education and Childcare  Senior loan  05/2020   6.0    9,622    9,358 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    6,852    6,852 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    598    598 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    538    538 
K&N Engineering, Inc.(3)  Automobile  Senior loan  07/2019   5.3    3,791    3,791 
K&N Engineering, Inc.(3)  Automobile  Senior loan  07/2019   5.3    179    179 
Loar Group Inc.  Aerospace and Defense  Senior loan  01/2022   5.8    2,239    2,239 
Mediaocean LLC(3)  Diversified/Conglomerate Service  Senior loan  08/2022   5.8    2,978    2,978 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.5    3,877    3,877 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.5    424    424 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   7.5    352    352 
Packaging Coordinators, Inc.(3)  Containers, Packaging and Glass  Senior loan  08/2021   6.8    11,909    11,909 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.5    2,003    1,923 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.6    241    212 
Payless ShoeSource, Inc.  Retail Stores  Senior loan  03/2021   5.0    1,960    1,027 
Pentec Acquisition Sub, Inc.  Healthcare, Education and Childcare  Senior loan  05/2018   6.3    1,471    1,471 
PetVet Care Centers LLC(3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.8    5,910    5,910 
PetVet Care Centers LLC(3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.8    1,222    1,222 
PowerPlan Holdings, Inc.(3)  Utilities  Senior loan  02/2022   6.3    11,997    11,997 
PPT Management, LLC  Healthcare, Education and Childcare  Senior loan  04/2020   6.0    13,059    13,059 
Premise Health Holding Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2020   5.5    11,921    11,921 
Pyramid Healthcare, Inc.(3)  Healthcare, Education and Childcare  Senior loan  08/2019   6.8    8,375    8,375 
R.G. Barry Corporation  Personal, Food and Miscellaneous Services  Senior loan  09/2019   6.0    6,152    6,090 
Radiology Partners, Inc.(3)  Healthcare, Education and Childcare  Senior loan  09/2020   6.0    7,083    7,083 

 

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SLF Loan Portfolio as of June 30, 2016 (continued)
                      
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
                (In thousands) 
Radiology Partners, Inc.(3)  Healthcare, Education and Childcare  Senior loan  09/2020   6.0    802    802 
Reliant Pro ReHab, LLC(3)  Healthcare, Education and Childcare  Senior loan  06/2017   6.0    3,358    3,358 
RSC Acquisition, Inc.(3)  Insurance  Senior loan  11/2022   6.3    3,742    3,742 
RSC Acquisition, Inc.(3)  Insurance  Senior loan  11/2022   6.3    172    172 
Rubio's Restaurants, Inc (3)  Beverage, Food and Tobacco  Senior loan  11/2018   6.0    5,057    5,057 
Rug Doctor LLC  Personal and Non Durable Consumer Products  Senior loan  06/2018   6.3    8,509    8,509 
Saldon Holdings, Inc.  Diversified/Conglomerate Service  Senior loan  09/2021   5.5    2,811    2,811 
Sarnova HC, LLC  Healthcare, Education and Childcare  Senior loan  01/2022   5.8    3,731    3,731 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior loan  10/2020   6.0    3,905    3,862 
SEI, Inc.  Electronics  Senior loan  07/2021   5.8    8,733    8,733 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior loan  02/2020   5.0    7,105    7,105 
Severin Acquisition, LLC  Diversified/Conglomerate Service  Senior loan  07/2021   5.9    4,894    4,868 
Severin Acquisition, LLC  Diversified/Conglomerate Service  Senior loan  07/2021   5.9    32    32 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    953    953 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Systems Maintenance Services Holding, Inc.(3)  Electronics  Senior loan  10/2019   5.0    2,396    2,396 
Tate's Bake Shop, Inc.(3)  Beverage, Food and Tobacco  Senior loan  08/2019   6.0    2,963    2,963 
Teasdale Quality Foods, Inc.  Grocery  Senior loan  10/2020   5.3    4,582    4,406 
Transaction Data Systems, Inc.(3)  Diversified/Conglomerate Service  Senior loan  06/2021   6.3    4,511    4,511 
Transaction Data Systems, Inc.  Diversified/Conglomerate Service  Senior loan  06/2020   5.5    9    9 
W3 Co.  Oil and Gas  Senior loan  03/2020   5.8    2,932    2,305 
Worldwide Express Operations, LLC  Cargo Transport  Senior loan  07/2019   6.0    4,869    4,869 
Worldwide Express Operations, LLC  Cargo Transport  Senior loan  07/2019   6.0    36    36 
Young Innovations, Inc.(3)  Healthcare, Education and Childcare  Senior loan  01/2019   5.3    3,814    3,814 
Young Innovations, Inc.(3)  Healthcare, Education and Childcare  Senior loan  01/2018   6.8    268    264 
Zest Holdings, LLC  Healthcare, Education and Childcare  Senior loan  08/2020   5.8    5,295    5,295 
                 $356,334   $350,565 

 

 

(1)Represents the weighted average annual current interest rate as of June 30, 2016. All interest rates are payable in cash.
(2)Represents the fair value in accordance with Accounting Standards Codification, or Topic 820 – Fair Value Measurement, or ASC Topic 820. The determination of such fair value is not included in our board of directors' valuation process described elsewhere herein.
(3)We also hold a portion of the first lien senior secured loan in this portfolio company.
(4)The negative fair value is the result of the unfunded commitment being valued below par.
(5)The entire commitment was unfunded at June 30, 2016. As such, no interest is being earned on this investment.

 

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SLF Loan Portfolio as of September 30, 2015
                      
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
                (In thousands) 
1011778 B.C. ULC (New Red Finance/Burger King)  Beverage, Food and Tobacco  Senior loan  12/2021   3.8%  $2,271   $2,264 
5.11, Inc. (3)  Textiles and Leather  Senior loan  02/2020   6.0    3,162    3,172 
Acosta, Inc.  Diversified/Conglomerate Service  Senior loan  09/2021   4.3    2,978    2,938 
ACTIVE Network, Inc.  Electronics  Senior loan  11/2020   5.5    1,965    1,951 
Aderant North America, Inc.  Diversified/Conglomerate Service  Senior loan  12/2018   5.3    4,195    4,195 
Advanced Pain Management Holdings, Inc.  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    6,946    6,807 
Advanced Pain Management Holdings, Inc.  Healthcare, Education and Childcare  Senior loan  02/2018   6.3    475    460 
Advanced Pain Management Holdings, Inc. (4)  Healthcare, Education and Childcare  Senior loan  02/2018   N/A (5)   -    (23)
Affordable Care Inc.  Personal, Food and Miscellaneous Services  Senior loan  12/2018   5.5    3,976    3,976 
Aimbridge Hospitality, LLC  Hotels, Motels, Inns, and Gaming  Senior loan  10/2018   5.8    5,204    5,204 
ARG IH Corporation  Beverage, Food and Tobacco  Senior loan  11/2020   4.8    4,370    4,385 
Arise Virtual Solutions, Inc. (3) (4)  Telecommunications  Senior loan  12/2018   N/A  (5)   -    (23)
Arise Virtual Solutions, Inc. (3)  Telecommunications  Senior loan  12/2018   6.8    11,729    11,494 
Atkins Nutritionals, Inc (3)  Beverage, Food and Tobacco  Senior loan  01/2019   6.3    5,872    5,879 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior loan  02/2021   4.3    3,520    3,336 
BJ's Wholesale Club, Inc.  Retail Stores  Senior loan  09/2019   4.5    2,957    2,934 
BMC Software, Inc.  Electronics  Senior loan  09/2020   5.0    1,895    1,729 
Brickman Group Ltd. LLC  Farming and Agriculture  Senior loan  12/2020   4.0    1,980    1,954 
C.B. Fleet Company, Incorporated  Personal and Non Durable Consumer Products  Senior loan  10/2020   5.4    5,630    5,630 
C.B. Fleet Company, Incorporated  Personal and Non Durable Consumer Products  Senior loan  10/2020   5.4    696    696 
CLP Healthcare Services, Inc.  Healthcare, Education and Childcare  Senior loan  12/2020   5.8    4,417    4,401 
Connect Merger Sub, Inc.  Telecommunications  Senior loan  04/2020   4.8    3,935    3,820 
CPI Buyer, LLC (Cole-Parmer) (3)  Healthcare, Education and Childcare  Senior loan  08/2021   5.5    5,955    5,925 
Curo Health Services LLC (3)  Healthcare, Education and Childcare  Senior loan  02/2022   6.5    5,970    5,990 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    10,251    10,046 
DentMall MSO, LLC  Retail Stores  Senior loan  07/2019   6.0    1,000    946 
Dialysis Newco, Inc.  Healthcare, Education and Childcare  Senior loan  04/2021   4.5    2,469    2,470 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   5.5    4,614    4,384 
DISA Holdings Acquisition Subsidiary Corp.  Diversified/Conglomerate Service  Senior loan  12/2020   6.8    96    43 
EAG, INC. (Evans Analytical Group)  Diversified/Conglomerate Service  Senior loan  07/2017   5.0    2,245    2,245 
Extreme Reach Inc.  Broadcasting and Entertainment  Senior loan  01/2020   6.8    5,612    5,591 
Federal-Mogul Corporation  Automobile  Senior loan  04/2021   4.8    3,960    3,769 
GSDM Holdings Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2019   5.3    1,782    1,782 
Hygenic Corporation, The (3)  Personal and Non Durable Consumer Products  Senior loan  10/2020   6.0    4,515    4,515 
Integrated Supply Network, LLC (3)  Automobile  Senior loan  02/2020   6.3    12,000    12,000 
Integrated Supply Network, LLC (3)  Automobile  Senior loan  02/2020   6.9    734    734 
Joerns Healthcare, LLC  Healthcare, Education and Childcare  Senior loan  05/2020   6.2    9,696    9,647 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    6,906    6,906 
Julio & Sons Company  Beverage, Food and Tobacco  Senior loan  09/2017   6.5    254    254 
K&N Engineering, Inc. (3)  Automobile  Senior loan  07/2019   5.3    3,865    3,749 
K&N Engineering, Inc. (3)  Automobile  Senior loan  07/2019   5.3    183    177 
K&N Engineering, Inc. (3) (4)  Automobile  Senior loan  07/2019   N/A (5)   -    (6)
Mister Car Wash Holdings, Inc.  Automobile  Senior loan  08/2021   5.0    2,970    2,971 
National Veterinary Associates, Inc.  Personal, Food and Miscellaneous Services  Senior loan  08/2021   4.8    990    991 
Netsmart Technologies, Inc. (3)  Diversified/Conglomerate Service  Senior loan  02/2019   6.3    10,448    10,448 
Netsmart Technologies, Inc. (3)  Diversified/Conglomerate Service  Senior loan  02/2019   7.5    231    231 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.3    3,912    3,912 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   7.0    147    147 
Northwestern Management Services, LLC  Healthcare, Education and Childcare  Senior loan  10/2017   6.3    47    47 
Octane Fitness, LLC  Leisure, Amusement, Motion Pictures, Entertainment  Senior loan  10/2018   6.5    7,718    7,718 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.8    2,037    2,037 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior loan  11/2018   6.9    292    292 
Pasternack Enterprises, Inc.  Diversified/Conglomerate Manufacturing  Senior loan  12/2017   6.3    1,044    1,044 
Payless ShoeSource, Inc.  Retail Stores  Senior loan  03/2021   5.0    1,975    1,580 
PetVet Care Centers LLC (3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.5    5,955    5,955 
PetVet Care Centers LLC (3)  Personal, Food and Miscellaneous Services  Senior loan  12/2020   5.5    646    646 
PowerPlan Holdings, Inc. (3)  Utilities  Senior loan  02/2022   6.3    12,000    12,000 
Premise Health Holding Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2020   5.5    11,921    11,921 
Premise Health Holding Corp. (3)  Healthcare, Education and Childcare  Senior loan  06/2020   5.5    283    283 

 

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SLF Loan Portfolio as of September 30, 2015 (continued)
                      
            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
                (In thousands) 
R.G. Barry Corporation  Personal, Food and Miscellaneous Services  Senior loan  09/2019   6.0    6,272    6,209 
Reliant Pro ReHab, LLC (3)  Healthcare, Education and Childcare  Senior loan  06/2017   6.0    4,225    4,225 
Renaissance Pharma (U.S.) Holdings Inc.  Healthcare, Education and Childcare  Senior loan  05/2018   5.0    3,758    3,758 
Renaissance Pharma (U.S.) Holdings Inc.  Healthcare, Education and Childcare  Senior loan  05/2018   6.3    71    71 
Rubio's Restaurants, Inc (3)  Retail Stores  Senior loan  11/2018   6.0    5,095    5,095 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior loan  12/2016   6.3    9,769    9,769 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior loan  10/2020   6.0    3,935    3,891 
SEI, Inc.  Electronics  Senior loan  07/2021   5.8    8,799    8,711 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior loan  02/2020   5.0    7,930    7,930 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    960    960 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior loan  05/2018   6.3    75    75 
Spear Education, LLC  Healthcare, Education and Childcare  Senior loan  08/2019   6.0    5,960    5,960 
Spear Education, LLC  Healthcare, Education and Childcare  Senior loan  08/2019   6.0    500    500 
Syncsort Incorporated (3)  Electronics  Senior loan  03/2019   5.8    8,860    8,860 
Systems Maintenance Services Holding, Inc. (3)  Electronics  Senior loan  10/2019   5.0    2,415    2,415 
Take 5 Oil Change, L.L.C.  Automobile  Senior loan  07/2018   6.3    6,647    6,647 
Take 5 Oil Change, L.L.C.  Automobile  Senior loan  07/2018   6.3    187    187 
Tate's Bake Shop, Inc.  Beverage, Food and Tobacco  Senior loan  08/2019   5.8    2,978    2,978 
Teasdale Quality Foods, Inc.  Grocery  Senior loan  10/2020   5.3    4,651    4,651 
Transaction Data Systems, Inc.  Diversified/Conglomerate Service  Senior loan  06/2021   5.5    4,545    4,545 
W3 Co.  Oil and Gas  Senior loan  03/2020   5.8    2,954    2,516 
WII Components, Inc. (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior loan  07/2018   5.3    3,008    3,008 
Young Innovations, Inc. (3)  Healthcare, Education and Childcare  Senior loan  01/2019   5.3    4,018    4,018 
                         
                 $320,583   $317,623 

  

 

(1)Represents the weighted average annual current interest rate as of September 30, 2015. All interest rates are payable in cash.
(2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of directors' valuation process described elsewhere herein.
(3)We also hold a portion of the first lien senior secured loan in this portfolio company.
(4)The negative fair value is the result of the unfunded commitment being valued below par.
(5)The entire commitment was unfunded at September 30, 2015. As such, no interest is being earned on this investment.

 

We have committed to fund $140.0 million of subordinated notes and $35.0 million of LLC equity interest subscriptions to SLF. The amortized cost, net of principal repayments that are subject to recall, and fair value of the subordinated notes in SLF held by us were $82.1 million and $81.3 million, respectively, as of June 30, 2016, and $76.6 million and $76.6 million, respectively, as of September 30, 2015. The subordinated notes pay a weighted average interest rate of three-month LIBOR plus 8.0%. For the three and nine months ended June 30, 2016, we earned interest income of $1.8 million and $5.2 million, respectively, on the subordinated notes. For the three and nine months ended June 30, 2015, we earned interest income of $1.1 million and $2.3 million, respectively, on the subordinated notes. As of June 30, 2016 and September 30, 2015, $31.3 million and $23.2 million of our LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall. For the three and nine months ended June 30, 2016, we received $1.1 million and $3.0 million, respectively, in dividend income from the SLF LLC equity interests. For the three and nine months ended June 30, 2015, we received $0.4 million and $0.7 million, respectively, in dividend income from the SLF LLC equity interests.

 

For the three and nine months ended June 30, 2016, we earned an annualized total return on our weighted average capital invested in SLF of 12.6% and 7.8%, respectively. For the three and nine months ended June 30, 2015, we earned an annualized total return on our weighted average capital invested in SLF of 8.5% and 8.6%, respectively. The annualized total return on weighted average capital invested is calculated by dividing total income earned on our investments in SLF subordinated notes and LLC equity interests by the combined daily average of our investments in (1) the principal of the SLF subordinated notes and (2) the NAV of the SLF LLC equity interests.

 

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Below is certain summarized financial information for SLF as of June 30, 2016 and September 30, 2015 and for the three and nine months ended June 30, 2016 and 2015:

 

   As of June 30, 2016   As of September 30, 2015 
   (In thousands) 
Selected Balance Sheet Information:          
Investments, at fair value  $350,565   $317,623 
Cash and other assets   6,393    5,772 
Receivable from investments sold    785    - 
Total assets  $357,743   $323,395 
           
Senior credit facility  $231,550   $212,300 
Unamortized debt issuance costs (1)     (1,336)   (2,464)
Other liabilities   599    489 
Total liabilities   230,813    210,325 
Subordinated notes and members' equity   126,930    113,070 
Total liabilities and members' equity  $357,743   $323,395 

 

(1)On October 1, 2015, SLF adopted ASU 2015-03 which requires that debt issuance costs related to a recognized debt liability to be  presented on the balance sheet as a direct deduction from the carrying amount of the debt liability rather than as an asset.  Adoption of ASU 2015-03 requires the changes to be applied retrospectively.

 

   Three months ended June 30,   Nine months ended June 30, 
   2016   2015   2016   2015 
   (In thousands)   (In thousands) 
Selected Statement of Operations Information:                
Interest income   $5,695   $3,091   $16,699   $6,732 
Fee income    -    -    22    4 
Total investment income   5,695    3,091    16,721    6,736 
                     
Interest expense    4,016    2,162    11,775    4,678 
Administrative service fee   127    70    327    166 
Other expenses    35    29    110    77 
Total expenses    4,178    2,261    12,212    4,921 
Net investment income    1,517    830    4,509    1,815 
                     
                     
Net realized gains (losses) on investments   -    9    (430)   9 
Net change in unrealized appreciation (depreciation)
on investments, subordinated notes and secured borrowings		   591    (383)   (1,505)   (755)
Net increase (decrease) in net assets  $2,108   $456   $2,574   $1,069 

 

SLF has elected to fair value the subordinated notes issued to us and RGA under Accounting Standards Codification, or ASC, Topic 825 – Financial Instruments, or ASC Topic 825. The subordinated notes are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model. For each of the three and nine months ended June 30, 2016, SLF recognized an amount less than $0.1 million in unrealized appreciation and $1.0 million in unrealized depreciation on the subordinated notes, respectively. SLF did not recognize unrealized appreciation or depreciation on the subordinated notes for each of the three and nine months ended June 30, 2015.

 

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The following table presents the difference between fair value and the aggregate contractual principal amounts of subordinated notes for which the fair value option has been elected as of June 30, 2016 and September 30, 2015:

 

   As of June 30, 2016   As of September 30, 2015 
   (In thousands)   (In thousands) 
   Par Value   Carrying Value   Fair Value   Par Value   Carrying Value   Fair Value 
                               
Subordinated notes  $93,844   $93,844   $92,906   $87,500   $87,500   $87,500 

 

Contractual Obligations and Off-Balance Sheet Arrangements

 

A summary of our significant contractual payment obligations as of June 30, 2016 is as follows:

 

   Payments Due by Period (In millions) 
         Less Than              More Than 
    Total    1 Year    1-3 Years    3-5 Years    5 Years 
                          
2010 Debt Securitization   $215.0   $-   $-   $-   $215.0 
2014 Debt Securitization    246.0    -    -    -    246.0 
SBA debentures    255.0    -    -    20.0    235.0 
Credit Facility    146.1    -    -    146.1    - 
Adviser Revolver    -    -    -    -    - 
Unfunded commitments (1)     95.0    95.0    -    -    - 
Total contractual obligations (2)    $957.1   $95.0   $-   $166.1   $696.0 

 

 

(1)   Unfunded commitments represent all amounts unfunded as of June 30, 2016.  These amounts may or may not be funded to the borrowing party now or in the future.  The unfunded commitments relate to loans with various maturity dates, but we are showing this amount in the less than one year category as this entire amount was eligible for funding to the borrowers as of June 30, 2016, subject to the terms of each loan's respective credit agreement.
   
(2) Total contractual obligations exclude $0.3 million of secured borrowings.

 

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of June 30, 2016 and September 30, 2015, we had outstanding commitments to fund investments totaling $95.0 million and $121.5 million, respectively. We have commitments of up to $61.5 million and $75.2 million to SLF as of June 30, 2016 and September 30, 2015, respectively, that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee.

 

We have certain contracts under which we have material future commitments. We have entered into the Investment Advisory Agreement with GC Advisors in accordance with the 1940 Act. Under the Investment Advisory Agreement, GC Advisors provides us with investment advisory and management services.

 

Under the Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us with clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. The Administrator also provides on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance.

 

If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

 

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Distributions

 

We intend to make quarterly distributions to our stockholders as determined by our board of directors. For additional details on distributions, see “Income taxes” in Note 2 to our consolidated financial statements.

 

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 our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a business development company under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse U.S. federal income tax consequences, including the possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions.

 

Because 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 within capital accounts in the financial statements to reflect their tax character. For example, permanent differences in classification may result from the treatment of distributions paid from short-term gains as ordinary income dividends for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

 

To the extent our taxable earnings fall below the total amount of our distributions for any tax year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a dividend payment carefully and should not assume that the source of any distribution is our ordinary income or gains.

 

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, our stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our dividend reinvestment plan. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.

 

Related Party Transactions

 

We have entered into a number of business relationships with affiliated or related parties, including the following:

 

·We entered into an Investment Advisory Agreement with GC Advisors. Each of Mr. Lawrence Golub, our chairman, and Mr. David Golub, our chief executive officer, is a manager of GC Advisors, and each of Messrs. Lawrence Golub and David Golub owns an indirect pecuniary interest in GC Advisors.

 

·Golub Capital LLC provides, and other affiliates of Golub Capital have historically provided, us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement.

 

·We have entered into a license agreement with Golub Capital LLC, pursuant to which Golub Capital LLC has granted us a non-exclusive, royalty-free license to use the name “Golub Capital.”

 

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·Under a staffing agreement, or the Staffing Agreement, Golub Capital LLC has agreed to provide GC Advisors with the resources necessary to fulfill its obligations under the Investment Advisory Agreement. The Staffing Agreement provides that Golub Capital LLC will make available to GC Advisors experienced investment professionals and access to the senior investment personnel of Golub Capital LLC for purposes of evaluating, negotiating, structuring, closing and monitoring our investments. The Staffing Agreement also includes a commitment that the members of GC Advisors’ investment committee will serve in such capacity. Services under the Staffing Agreement are provided on a direct cost reimbursement basis.

 

·GC Advisors serves as collateral manager to the 2010 Issuer and the 2014 Issuer under collateral management agreements and receives a fee for providing these services that is offset against the base management fee payable by us under the Investment Advisory Agreement.

 

·We have entered into the Adviser Revolver with GC Advisors.

 

·During calendar year 2016, the Golub Capital Employee Grant Program Rabbi Trust (the “Trust”) purchased approximately $1.5 million of shares, or 95,035 shares, of the Company, for the purpose of awarding incentive compensation to employees of Golub Capital. During calendar year 2015, the Trust purchased approximately $16.0 million of shares, or 952,051 shares, of the Company, for the purpose of awarding incentive compensation to employees of Golub Capital. During calendar year 2014, the Trust purchased approximately $14.5 million of shares, or 835,271 shares, of the Company, for the purpose of awarding incentive compensation to employees of Golub Capital.

 

GC Advisors also sponsors or manages, and may in the future sponsor or manage, other investment funds, accounts or investment vehicles (together referred to as “accounts”) that have investment mandates that are similar, in whole and in part, with ours. For example, GC Advisors presently serves as the investment adviser to Golub Capital Investment Corporation, a private business development company that commenced operations on December 31, 2014, which primarily focuses on investing in senior secured and one stop loans. In addition, our officers and directors serve in similar capacities for Golub Capital Investment Corporation. GC Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other accounts. In such event, depending on the availability of such investment and other appropriate factors, and pursuant to GC Advisors’ allocation policy, GC Advisors or its affiliates may determine that we should invest side-by-side with one or more other accounts. We do not intend to make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, or if they are inconsistent with GC Advisors’ allocation procedures.

 

In addition, we have adopted a formal code of ethics that governs the conduct of our and GC Advisors’ officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the General Corporation Law of the State of Delaware.

 

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Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.

 

Fair Value Measurements

 

We value investments for which market quotations are readily available at their market quotations. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our board of directors under our valuation policy and process.

 

Valuation methods may include comparisons of the portfolio companies to peer companies that are public, determination of the enterprise value of a portfolio company, discounted cash flow analysis and a market interest rate approach. The factors that are taken into account in fair value pricing investments include: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. 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 investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from values that may ultimately be received or settled.

 

Our board of directors is ultimately and solely responsible for determining, in good faith, the fair value of investments that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.

 

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 investment being initially valued by the investment professionals of GC Advisors responsible for credit monitoring.
·Preliminary valuation conclusions are then documented and discussed with our senior management and GC Advisors.
·The audit committee of our board of directors reviews these preliminary valuations.
·At least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm.
·The board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

 

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

 

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We follow ASC Topic 820 for measuring fair value. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity. Our fair value analysis includes an analysis of the value of any unfunded loan commitments. Assets and liabilities are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows:

 

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.

Level 3: Inputs include significant unobservable inputs for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or a liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and we consider factors specific to the asset or liability. We assess the levels of assets and liabilities at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfers. There were no transfers among Level 1, 2 and 3 of the fair value hierarchy for assets and liabilities during the three and nine months ended June 30, 2016 and 2015. The following section describes the valuation techniques used by us to measure different assets and liabilities at fair value and includes the level within the fair value hierarchy in which the assets and liabilities are categorized.

 

Valuation of Investments

 

Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by our board of directors, based on input of management, the audit committee and independent valuation firms that have been engaged at the direction of our board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with approximately 25% (based on the number of portfolio companies) of our valuations of debt and equity investments without readily available market quotations subject to review by an independent valuation firm. All investments as of June 30, 2016 and September 30, 2015, with the exception of money market funds included in cash and cash equivalents (Level 1 investments) and investments measured at fair value using the NAV, were valued using Level 3 inputs of the fair value hierarchy.

 

When determining fair value of Level 3 debt and equity investments, we may take into account the following factors, where relevant: the enterprise value of a portfolio company, 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, comparisons to publicly traded securities, and changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby

 

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appropriate multiples are applied to the portfolio company’s EBITDA. The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, we will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, we use a market interest rate yield analysis to determine fair value.

  

In addition, for certain debt investments, we may base our valuation on indicative bid and ask prices provided by an independent third party pricing service. Bid prices reflect the highest price that we and others may be willing to pay. Ask prices represent the lowest price that we and others may be willing to accept. We generally use the midpoint of the bid/ask range as our best estimate of fair value of such investment.

 

Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize significantly less than the value at which such investment had previously been recorded.

 

Our investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.

 

Valuation of Secured Borrowings

 

We have elected the fair value option under ASC Topic 825 relating to accounting for debt obligations at their fair value for our secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. All secured borrowings as of June 30, 2016 and September 30, 2015 were valued using Level 3 inputs under the fair value hierarchy, and our approach to determining fair value of Level 3 secured borrowings is consistent with our approach to determining fair value of the Level 3 investments that are associated with these secured borrowings as previously described.

 

Valuation of Other Financial Assets and Liabilities

 

Fair value of our debt is estimated using Level 3 inputs by discounting remaining payments using comparable market rates or market quotes for similar instruments at the measurement date, if available.

 

Revenue Recognition:

 

Our revenue recognition policies are as follows:

 

Investments and Related Investment Income: Interest income is accrued based upon the outstanding principal amount and contractual interest terms of debt investments. Premiums, discounts, and origination fees are amortized or accreted into interest income over the life of the respective debt investment. For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not likely to be collectible. In addition, we may generate revenue in the form of amendment, structuring or due diligence fees, fees for providing managerial assistance, consulting fees and prepayment premiums on loans and record these fees as fee income when received. Loan origination fees, original issues discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums on

 

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loans as fee income. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Distributions received from LLC and limited partnership, or LP, investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.

  

We account for investment transactions on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. We report changes in fair value of investments from the prior period that is measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in our consolidated statements of operations.

 

Non-accrual: Loans may be left on accrual status during the period we are pursuing repayment of the loan. Management reviews all loans that become past due 90 days or more on principal and interest or when there is reasonable doubt that principal or interest will be collected for possible placement on non-accrual status. We generally reverse accrued interest when a loan is placed on non-accrual. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. We restore non-accrual loans to accrual status when past due principal and interest are paid and, in our management’s judgment, are likely to remain current. The total fair value of our non-accrual loans was $1.3 million as of June 30, 2016 and $6.5 million as of September 30, 2015.

 

Partial loan sales: We follow the guidance in ASC Topic 860 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, in order for sale treatment to be allowed. Participations or other partial loan sales that do not meet the definition of a participating interest remain on our statements of assets and liabilities and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value.

 

Income taxes: See “Consolidated Results of Operations – Expenses – Excise Tax Expense.”

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are subject to financial market risks, including changes in interest rates. Many of the loans in our portfolio have floating interest rates, and we expect that our loans in the future may also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate reset provisions that adjust applicable interest rates under such loans to current market rates on a quarterly basis. The loans that are subject to floating LIBOR are also subject to a minimum base rate, or floor, that we charge on our loans if the current market rates are below the respective floors. As of June 30, 2016 and September 30, 2015, the weighted average LIBOR floor on the loans subject to floating interest rates was 1.04% and 1.08%, respectively. In addition, the Class A and B 2010 Notes issued as a part of the 2010 Debt Securitization and the Class A-1, A-2 and B 2014 Notes issued as part of the 2014 Debt Securitization have floating interest rate provisions based on three-month LIBOR that resets quarterly and the Credit Facility has a floating interest rate provision based on one-month LIBOR that resets daily. As of June 30, 2016 and September 30, 2015, the weighted average LIBOR floor on the secured borrowings, which reset quarterly, was 1.00% and 1.00%, respectively. We expect that other credit facilities into which we enter in the future may have floating interest rate provisions.

 

Assuming that the interim and unaudited consolidated statement of financial condition as of June 30, 2016 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.

 

           Net increase 
   Increase (decrease) in   Increase (decrease) in   (decrease) in 
Change in interest rates  interest income   interest expense   investment income 
   (in thousands) 
Down 25 basis points  $(206)  $(1,518)  $1,312 
Up 50 basis points   2,246    3,036    (790)
Up 100 basis points   9,546    6,073    3,473 
Up 150 basis points   17,109    9,110    7,999 
Up 200 basis points   24,674    12,146    12,528 

 

Although we believe that this analysis is indicative of our sensitivity to interest rate changes as of June 30, 2016, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the Debt Securitizations and the Credit Facility, or other borrowings, that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

 

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as interest rate swaps, futures, options and forward contracts to the limited extent permitted under the 1940 Act and applicable commodities laws. 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 the investments in our portfolio with fixed interest rates.

 

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Item 4: Controls and Procedures.

 

As of the period covered by this report, we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on our evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be disclosed in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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Part II – Other Information

 

Item 1: Legal Proceedings.

 

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.

 

Item 1A: Risk Factors.

 

None.

 

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

 

None.

 

Item 3: Defaults Upon Senior Securities.

 

None.

 

Item 4: Mine Safety Disclosures.

 

None.

 

Item 5: Other Information.

 

None.

 

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Item 6: Exhibits.

 

EXHIBIT INDEX

 

Number   Description
     
10.1   Unsecured revolving loan agreement, dated as of June 22, 2016, by Golub Capital BDC, Inc., as the borrower, and GC Advisors LLC, as the lender. *
31.1   Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2   Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

* Filed herewith

 

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SIGNATURES

 

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

 

  Golub Capital BDC, Inc.
     
Dated:      August 3, 2016 By /s/ David B. Golub
    David B. Golub
    Chief Executive Officer
    (Principal Executive Officer)
     
Dated:      August 3, 2016 By /s/ Ross A. Teune
    Ross A. Teune
    Chief Financial Officer
    (Principal Accounting and Financial Officer)

 

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GOLUB CAPITAL BDC, Inc. Reports

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