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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2017

OR

 

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 814-00712

BLACKROCK CAPITAL INVESTMENT CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   20-2725151

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

40 East 52nd Street, New York, NY   10022
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: 212-810-5800

 

 

      

 

Formerly known as BlackRock Kelso Capital Corporation

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  ☑    No  ☐

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

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

Large accelerated filer ☐    Accelerated filer ☑    Non-Accelerated filer ☐    (Do not check if a smaller reporting company)

Smaller reporting company ☐    Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

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

The number of shares of the Registrant’s common stock, $.001 par value per share, outstanding at August 2, 2017 was 73,052,261

 

 

 


Table of Contents

BLACKROCK CAPITAL INVESTMENT CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2017

Table of Contents

 

   

INDEX

   PAGE NO.  

PART I.

  FINANCIAL INFORMATION   

Item 1.

  CONSOLIDATED FINANCIAL INFORMATION   
 

Consolidated Statements of Assets and Liabilities as of June 30, 2017 and December 31, 2016 (unaudited)

     3  
 

Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (unaudited)

     4  
 

Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2017 and 2016 (unaudited)

     5  
 

Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)

     6  
 

Consolidated Schedules of Investments as of June 30, 2017 and December 31, 2016 (unaudited)

     7  
  Notes to Consolidated Financial Statements (unaudited)      23  

Item 2.

 

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

     51  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      63  

Item 4.

  Controls and Procedures      63  

PART II.

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      65  

Item 1A.

  Risk Factors      65  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      65  

Item 3.

  Defaults Upon Senior Securities      65  

Item 4.

  Mine Safety Disclosures      65  

Item 5.

  Other Information      66  

Item 6.

  Exhibits      66  

SIGNATURES

     67  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Company”, “we”, “us” and “our” refer to BlackRock Capital Investment Corporation unless the context states otherwise.

Item 1. Consolidated Financial Statements

BlackRock Capital Investment Corporation

Consolidated Statements of Assets and Liabilities

(Unaudited)

 

     June 30,
2017
    December 31,
2016
 

Assets

    

Investments at fair value:

    

Non-controlled, non-affiliated investments (cost of $459,980,587 and $586,176,755)

   $ 440,116,069     $ 512,308,390  

Non-controlled, affiliated investments (cost of $166,118,461 and $112,640,458)

     166,357,555       109,342,171  

Controlled investments (cost of $303,366,055 and $322,768,014)

     286,790,297       309,472,929  
  

 

 

   

 

 

 

Total investments at fair value (cost of $929,465,103 and $1,021,585,227)

     893,263,921       931,123,490  

Cash and cash equivalents

     15,700,798       10,707,834  

Receivable for investments sold

     1,789,143       449,578  

Interest, dividends and fees receivable

     10,244,804       10,750,723  

Prepaid expenses and other assets

     4,042,343       4,035,866  
  

 

 

   

 

 

 

Total Assets

   $ 925,041,009     $ 957,067,491  
  

 

 

   

 

 

 

Liabilities

    

Debt

   $    295,488,873     $    335,667,906  

Interest payable

     2,795,387       3,041,680  

Distributions payable

     13,127,773       15,262,010  

Base management fees payable

     4,139,347       4,860,614  

Accrued administrative services

     327,361       —  

Other accrued expenses and payables

     1,649,050       1,914,912  
  

 

 

   

 

 

 

Total Liabilities

     317,527,791       360,747,122  
  

 

 

   

 

 

 

Net Assets

    

Common stock, par value $.001 per share, 200,000,000 common shares authorized, 77,484,048 and 77,228,207 issued and 72,932,083 and 72,676,242 outstanding

     77,483       77,228  

Paid-in capital in excess of par

     883,420,730       877,300,709  

Undistributed / (Distributions in excess of) net investment income

     (5,764,145     (7,965,655

Accumulated net realized loss

     (196,135,641     (144,527,577

Net unrealized appreciation (depreciation)

     (37,782,388     (92,261,515

Treasury stock at cost, 4,551,965 and 4,551,965 shares held

     (36,302,821     (36,302,821
  

 

 

   

 

 

 

Total Net Assets

     607,513,218       596,320,369  
  

 

 

   

 

 

 

Total Liabilities and Net Assets

   $ 925,041,009     $ 957,067,491  
  

 

 

   

 

 

 

Net Asset Value Per Share

   $ 8.33     $ 8.21  

 

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

 


 

3


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Statements of Operations

(Unaudited)

 

     Three months
ended
June 30, 2017
    Three months
ended
June 30, 2016
     Six months
ended
June 30, 2017
    Six months
ended
June 30, 2016
 

Investment Income:

         

Interest income:

         

Non-controlled, non-affiliated investments

   $ 13,762,656     $ 21,740,253      $ 26,524,373     $ 43,479,695  

Non-controlled, affiliated investments

     3,441,137       1,246,674        7,102,818       2,631,941  

Controlled investments

     4,955,503       4,773,467        10,791,971       9,129,088  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest income

     22,159,296       27,760,394        44,419,162       55,240,724  

Fee income:

         

Non-controlled, non-affiliated investments: prepayment fees

     16,609       3,000,000        205,609       3,000,000  

Non-controlled, non-affiliated investments: other

     25,171       1,078,011        135,068       1,864,294  

Non-controlled, affiliated investments

     63,621       —        349,916       —  

Controlled investments

     —       44,422        25,000       69,422  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total fee income

     105,401       4,122,433        715,593       4,933,716  
  

 

 

   

 

 

    

 

 

   

 

 

 

Dividend income:

         

Non-controlled, non-affiliated investments

     —       196,119        470,724       398,202  

Non-controlled, affiliated investments

     277,119       541,186        466,145       1,082,374  

Controlled investments

     2,111,151       808,656        3,508,502       1,610,941  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total dividend income

     2,388,270       1,545,961        4,445,371       3,091,517  
  

 

 

   

 

 

    

 

 

   

 

 

 

Other income

     590,429       —        590,429       —  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total investment income

     25,243,396       33,428,788        50,170,555       63,265,957  
  

 

 

   

 

 

    

 

 

   

 

 

 

Expenses:

         

Base management fees

     4,139,347       5,721,689        8,663,204       11,412,179  

Interest and credit facility fees

     5,261,085       4,154,021        9,248,165       8,810,020  

Incentive management fees (See Note 3)

     2,773,859       —        3,583,042       —  

Professional fees

     792,283       559,375        1,357,393       1,104,000  

Administrative services

     303,782       285,940        631,459       755,940  

Director fees

     145,249       188,000        317,749       361,500  

Investment advisor expenses

     87,501       87,500        175,001       175,000  

Other

     644,853       825,319        1,342,988       1,562,125  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total expenses, before incentive management fee waiver

     14,147,959       11,821,844        25,319,001       24,180,764  

Incentive management fee waiver (See Note 3)

     (2,773,859     —        (3,583,042     —  
  

 

 

   

 

 

    

 

 

   

 

 

 

Expenses, net of incentive management fee waiver

     11,374,100       11,821,844        21,735,959       24,180,764  
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Investment Income

     13,869,296       21,606,944        28,434,596       39,085,193  
  

 

 

   

 

 

    

 

 

   

 

 

 

Realized and Unrealized Gain (Loss):

         

Net realized gain (loss):

         

Non-controlled, non-affiliated investments

     8,362       (30,974,445      (53,983,599     (30,939,561

Non-controlled, affiliated investments

     —       —        —       —  

Controlled investments

     —         —        2,375,535       —  
  

 

 

   

 

 

    

 

 

   

 

 

 

Net realized gain (loss)

     8,362       (30,974,445      (51,608,064     (30,939,561
  

 

 

   

 

 

    

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on:

         

Non-controlled, non-affiliated investments

     (2,697,247     4,972,791        54,003,848       (52,016,971

Non-controlled, affiliated investments

     6,225,975       (3,028,106      3,537,381       3,210,820  

Controlled investments

     (576,287     (2,123,389      (3,280,674     (7,503,552

Foreign currency translation

     145,276       (7,882      218,571       435,215  
  

 

 

   

 

 

    

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation)

     3,097,717       (186,586      54,479,126       (55,874,488
  

 

 

   

 

 

    

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     3,106,079       (31,161,031      2,871,062       (86,814,049
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets Resulting from Operations

   $ 16,975,375     $ (9,554,087    $ 31,305,658     $ (47,728,856
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Investment Income Per Share—basic

   $ 0.19     $ 0.30      $ 0.39     $ 0.54  
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (Loss) Per Share—basic

   $ 0.23     $ (0.13    $ 0.43     $ (0.65
  

 

 

   

 

 

    

 

 

   

 

 

 

Average Shares Outstanding—basic

     72,929,346       72,700,685        72,867,332       72,903,681  
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Investment Income Per Share—diluted

   $ 0.19     $ 0.28      $ 0.38     $ 0.52  
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (Loss) Per Share—diluted

   $ 0.22     $ (0.13    $ 0.42     $ (0.65
  

 

 

   

 

 

    

 

 

   

 

 

 

Average Shares Outstanding—diluted

     86,187,472       72,700,685        84,454,044       72,903,681  
  

 

 

   

 

 

    

 

 

   

 

 

 

Distributions Declared Per Share

   $ 0.18     $ 0.21      $ 0.36     $ 0.42  

 

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

 


 

4


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

    

Six months ended

 
    

June 30, 2017

   

June 30, 2016

 

Net Increase (Decrease) in Net Assets Resulting from Operations:

    

Net investment income (loss)

   $ 28,434,596     $ 39,085,193  

Net realized gain (loss)

     (51,608,064     (30,939,561

Net change in unrealized appreciation (depreciation)

     54,479,126       (55,874,488
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     31,305,658       (47,728,856
  

 

 

   

 

 

 

Distributions to Stockholders from:

    

Net investment income

     (26,233,131     (30,508,680
  

 

 

   

 

 

 

Capital Share Transactions:

    

Reinvestment of distributions

     1,782,691       2,020,562  

Issuance of convertible notes

     4,337,631       —  

Purchases of treasury stock

     —       (16,093,205
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from capital share transactions

     6,120,322       (14,072,643
  

 

 

   

 

 

 

Total Increase (Decrease) in Net Assets

     11,192,849       (92,310,179

Net assets at beginning of period

     596,320,369       753,752,615  
  

 

 

   

 

 

 

Net assets at end of period

   $ 607,513,218     $ 661,442,436  
  

 

 

   

 

 

 

Capital Share Activity:

    

Shares issued from reinvestment of distributions

     255,841       226,889  

Shares from purchases of treasury stock

     —       (1,904,064
  

 

 

   

 

 

 

Net increase (decrease) in shares outstanding

     255,841       (1,677,175
  

 

 

   

 

 

 

 

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

 


 

5


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Statements of Cash Flows

(Unaudited)

 

    

Six months ended

 
    

June 30, 2017

   

June 30, 2016

 

Operating Activities:

    

Net increase (decrease) in net assets resulting from operations

   $ 31,305,658     $ (47,728,856

Adjustments to reconcile net increase (decrease) in net assets resulting from operations:

    

PIK interest and dividends

     (8,691,349     (5,871,337

Net amortization on investments

     (1,428,522     (2,589,214

Amortization of debt issuance costs

     967,138       839,161  

Net change in unrealized (appreciation) depreciation on investments

     (54,260,555     56,309,703  

Net change in unrealized (appreciation) depreciation on foreign currency translation

     (218,571     (435,215

Net realized (gain) loss on investments

     51,608,064       30,939,561  

Changes in operating assets:

    

Purchase of investments

     (136,386,584     (167,955,083

Proceeds from disposition of investments

     186,347,401       194,302,048  

Change in receivable for investments sold

     (449,878     588,327  

Change in interest, dividends and fees receivable

     505,919       2,952,383  

Change in prepaid expenses and other assets

     (973,615     (2,564,157

Changes in operating liabilities:

    

Change in interest payable

     (246,292     (4,722,077

Change in base management fees payable

     (721,267     (264,767

Change in accrued administrative services

     327,361       536,023  

Change in other accrued expenses and payables

     (265,871     322,326  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     67,419,037       54,658,826  
  

 

 

   

 

 

 

Financing Activities:

    

Distributions paid in cash

     (26,584,676     (28,840,325

Proceeds from debt

     255,182,615       322,323,250  

Repayments of debt

     (295,361,643     (337,000,000

Issuance of convertible notes

     4,337,631       —  

Purchases of treasury stock

     —       (16,093,205
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (62,426,073     (59,610,280
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     4,992,964       (4,951,454

Cash and cash equivalents, beginning of period

     10,707,834       12,414,200  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 15,700,798     $ 7,462,746  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information and non-cash financing activities:

    

Cash paid during period for:

    

Interest

   $ 7,835,059     $ 12,172,989  

Taxes

   $ 109,456     $ 271,103  

Distributions reinvested

   $ 1,782,691     $ 2,020,562  

 

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

 


 

6


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments

June 30, 2017

(Unaudited)

 

Portfolio Company   Industry   Interest Rate     Maturity    

Principal

Amount or

Number of

Shares/Units

    Cost(a)    

Fair

Value(b)

 

Senior Secured Notes—10.6%

         

Advanced Lighting Technologies, Inc., First Lien(d)(j)

  Capital

Equipment

   

12.50% (5.25%
Cash / 7.25%
PIK)
 
 
 
    6/1/19     $ 21,813,063     $ 5,162,151     $ 5,453,266  

AGY Holding Corp., Second Lien(f)(j)

  Chemicals,

Plastics, &

Rubber

    11.00%       11/15/18       21,762,500       21,493,618       21,436,063  

Wink Holdco, Inc., Second Lien(j)

  Insurance    

11.30% (L +

1000, 1.00%

Floor)

 

 

 

    9/30/22       37,500,000       36,894,346       37,500,000  
         

 

 

   

 

 

 

Total Senior Secured Notes

            63,550,115       64,389,329  
         

 

 

   

 

 

 

Unsecured Debt—19.8%

           

CB-HDT Holdings, Inc.(d)(g)(j)

  Aerospace &

Defense

    12.00% PIK       12/15/19       4,743,794       4,743,794       4,743,794  

Gordon Brothers Finance Company(g)(q)

  Finance    

12.00% (L +

1100, 1.00%

Floor)

 

 

 

    10/31/21       80,988,108       80,988,108       80,988,108  

SVP Worldwide Ltd.(d)(h)(k)

  Consumer

Goods: Durable

   

16.00% (2.50%

Cash / 13.50%

PIK)

 

 

 

    6/27/18       60,568,300       57,657,319       34,523,931  
         

 

 

   

 

 

 

Total Unsecured Debt

            143,389,221       120,255,833  
         

 

 

   

 

 

 

Subordinated Debt—4.9%

           

First Boston Construction Holdings, LLC(d)(g)(k)

  Finance     12.00%       12/31/20       29,600,000       29,600,000       29,600,000  
         

 

 

   

 

 

 

Total Subordinated Debt

            29,600,000       29,600,000  
         

 

 

   

 

 

 

 

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

 


 

7


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

Portfolio Company   Industry(a)   Interest Rate   Maturity  

Principal

Amount or

Number of

Shares/Units

    Cost(a)    

Fair

Value(b)

 

Senior Secured Loans—83.5%(e)

         

AGY Holding Corp., First Lien(f)

  Chemicals,

Plastics, &

Rubber

  12.00%   9/15/18   $ 24,021,390     $ 24,021,390     $ 24,021,390  

Bankruptcy Management Solutions, Inc., Revolver

  Services:

Business

  6.73% (L +

550)

  3/31/22     1,000,000       1,000,000       1,000,000  

Bankruptcy Management Solutions, Inc., First Lien

  Services:

Business

  6.73% (L +

550)

  3/31/22     16,957,500       16,957,500       16,957,500  

GSE Environmental, Inc., First Lien

  Environmental

Industries

  11.18% (L +

1000, 1.00%

Floor)

  8/11/21     36,536,471       36,536,471       36,536,471  

JLL Pioneer Inc., Second Lien

  Construction &

Building

  9.50% (L +

850, 1.00%

Floor)

  12/31/20     20,000,000       20,000,000       20,000,000  

K2 Pure Solutions Nocal, L.P., First Lien

  Chemicals,

Plastics, &

Rubber

  10.23% (L +

900, 1.00%

Floor)

  2/19/21     13,000,000       12,893,083       13,000,000  

Liberty Tire Recycling Holdco, LLC, First Lien

  Environmental

Industries

  9.30% (L +

800, 1.00%

Floor)

  7/7/20     19,600,000       19,125,572       19,600,000  

Loar Group Inc., Second Lien

  Aerospace &

Defense

  10.33% (L +

925, 1.00%

Floor)

  7/12/22     15,000,000       14,766,784       15,000,000  

MBS Group Holdings Inc., First Lien(d)(g)

  Services:

Business

  9.00% PIK   6/30/20     40,910,000       40,910,000       40,000,000  

Oxford Mining Company, LLC, First Lien(d)

  Metals &

Mining

  12.75% (L +

850, 0.75%

Floor Cash /

3.00% PIK)

  12/31/18     26,236,222       26,236,222       25,711,497  

Paragon Films, Inc., Second Lien

  Containers,

Packaging, &

Glass

  11.22% (L +

1000, 1.00%

Floor)

  6/9/23     20,000,000       20,000,000       20,000,000  

Pomeroy Group LLC, Second Lien

  Services:

Business

  11.64% (L +

1000, 1.00%

Floor)

  11/30/22     27,500,000       27,093,435       27,500,000  

Pre-Paid Legal Services, Inc., Second Lien

  Services:

Consumer

  10.25% (L +

900, 1.25%

Floor)

  7/1/20     32,000,000       31,839,193       32,000,000  

Recorded Books Inc., Second Lien

  Media:

Advertising,

Printing &

Publishing

  9.50% (L +

850, 1.00%

Floor)

  7/31/22     32,500,000       32,500,000       32,500,000  

 

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

 


 

8


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

Portfolio Company   Industry(a)   Interest Rate   Maturity  

Principal

Amount or

Number of

Shares/Units

    Cost(a)    

Fair

Value(b)

 

Red Apple Stores Inc., Second Lien(g)(h)(k)

  Retail   10.00%   7/24/20   $ 23,050,000     $ 23,050,000     $ 13,599,500  

SOURCEHOV, LLC, First Lien

  Services:

Business

  8.05% (L +

675, 1.00%
Floor)

  10/31/19     4,468,750       4,406,306       4,468,750  

SOURCEHOV, LLC, Second Lien

  Services:

Business

  11.80% (L +

1050, 1.00%

Floor)

  4/30/20     5,000,000       4,895,392       5,000,000  

Sur La Table, Inc., First Lien

  Retail   12.00%   7/28/20     30,000,000       30,000,000       30,000,000  

Tri-Anim Health Services, Inc., et al., Second Lien

  Healthcare &

Pharmaceuticals

  10.73% (L +

950,1.00%

Floor)

  7/28/22     25,000,000       24,609,383       25,000,000  

U.S. Well Services, LLC, Revolver(f)

  Energy: Oil &

Gas

  7.23% (L +

600, 1.00%

Floor)

  2/2/22     5,697,845       5,697,845       5,697,845  

U.S. Well Services, LLC, First Lien(d)(f)

  Energy: Oil &

Gas

  12.23% (L +

1100, 1.00%

Floor PIK)

  2/2/22     30,852,635       30,852,635       30,852,635  

Vertellus Holdings LLC, First Lien(f)

  Chemicals,

Plastics, &

Rubber

  10.23% (L +

900, 1.00%

Floor)

  4/30/18     22,461,298       22,461,298       22,236,685  

Vertellus Holdings LLC, Second Lien(f)

  Chemicals,

Plastics, &

Rubber

  13.23% (L +
1200, 1.00%
Floor)
  10/29/21     15,109,890       15,109,890       14,656,593  

Water Pik, Inc., Second Lien

  Consumer

Goods: Durable

  10.05% (L +
875, 1.00%
Floor)
  1/8/21     32,221,376       31,826,116       32,221,376  
         

 

 

   

 

 

 

Total Senior Secured Loans

            516,788,515       507,560,242  
         

 

 

   

 

 

 

Preferred Stock—9.3%

       

Advanced Lighting Technologies, Inc.(c)(j)

  Capital
Equipment
        931       —       —  

Advantage Insurance Inc.(f)(j)

  Insurance   8.00% PIK       750,000       9,962,731       8,550,000  

CB-HDT Holdings, Inc., Series L(c)(g)

  Aerospace &

Defense

        1,500,000       15,000,000       15,000,000  

Gordon Brothers Finance Company(g)(q)

  Finance   13.50%       20,497       20,497,135       20,497,135  

KAGY Holding Company, Inc. (AGY Holding Corp.)(f)

  Chemicals,

Plastics, &

Rubber

  20.00% PIK       22,960       8,176,821       12,437,279  

Red Apple Stores Inc.(c)(g)(h)(k)

  Retail         6,806,383       —       —  
         

 

 

   

 

 

 

Total Preferred Stock

            53,636,687       56,484,414  
         

 

 

   

 

 

 

 

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

 


 

9


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

Portfolio Company   Industry(a)   Interest Rate   Maturity    

Principal

Amount or

Number of

Shares/Units

    Cost(a)    

Fair

Value(b)

 

Common Stock—3.0%(c)

       

CB-HDT Holdings, Inc., Series A(g)

  Aerospace &

Defense

        744,723     $ 7,447,230     $ 7,864,288  

Gordon Brothers Finance Company(g)(q)

  Finance         10,598       10,598,300       10,598,300  

KAGY Holding Company, Inc. (AGY Holding Corp.)(f)

  Chemicals,

Plastics, &

Rubber

        3,131,292       —       —  

MBS Group Holdings Inc.(g)(p)

  Services:

Business

        8,500       1,000       —  

Red Apple Stores Inc.(g)(h)(i)(k)

  Retail         8,756,859       6,737,869       —  
         

 

 

   

 

 

 

Total Common Stock

            24,784,399       18,462,588  
         

 

 

   

 

 

 

Limited Partnership/Limited Liability Company Interests—15.9%

 

     

BCIC Senior Loan Partners, LLC(g)(j)(k)(r)

  Finance         56,392,619       56,392,619       56,392,619  

ECI Cayman Holdings, LP(c)(h)(j)(k)

  High Tech

Industries

        3,189       1,299,542       2,420,569  

ETX Energy, LLC(c)(f)(o)

  Energy: Oil &

Gas

        51,119       —       —  

ETX Energy Management Company, LLC(c)(f)

  Energy: Oil &

Gas

        53,815       —       —  

First Boston Construction Holdings, LLC(c)(g)(k)

  Finance         7,400,000       7,400,000       7,506,553  

Higginbotham Investment Holdings, LLC(c)

  Insurance         1,163       239,245       1,773,575  

Loar Group LLC(c)

  Aerospace &

Defense

        1,500,000       1,500,000       1,943,647  

Marsico Holdings, LLC(c)(j)

  Finance         91,445       1,848,077       5,487  

U.S. Well Services, LLC, Class A(c)(f)(j)(l)

  Energy: Oil &

Gas

        19,582,356       11,980,712       15,580,606  

U.S. Well Services, LLC, Class B(c)(f)(j)(l)

  Energy: Oil &

Gas

        7,157,374       4,378,964       1,097,250  

U.S. Well Services, LLC, Class D(c)(f)(j)(l)

  Energy: Oil &

Gas

        8,085       4,947       —  

V Global Holdings LLC(c)(f)(n)

  Chemicals,

Plastics, &

Rubber

        12,087,912       11,977,610       9,791,209  

Westward Dough Holdings, LLC, Class D(c)(m)

  Beverage, Food,

& Tobacco

        114,706       —       —  
         

 

 

   

 

 

 

Total Limited Partnership/Limited Liability Company Interests

 

      97,021,716       96,511,515  
         

 

 

   

 

 

 

 

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

 


 

10


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

Portfolio Company   Industry(a)   Interest Rate     Maturity    

Principal

Amount or

Number of

Shares/Units

    Cost(a)    

Fair

Value(b)

 

Equity Warrants/Options—0.0%(c)

         

Facet Investment, Inc.

  Healthcare &

Pharmaceuticals

      expire 1/18/21       1,978     $ 250,000     $ —  

Marsico Parent Superholdco, LLC(j)

  Finance       expire 12/14/19       455       444,450       —  
         

 

 

   

 

 

 

Total Equity Warrants/Options

          694,450       —  
         

 

 

   

 

 

 

TOTAL INVESTMENTS—147.0%

        $ 929,465,103       893,263,921  
         

 

 

   

OTHER ASSETS & LIABILITIES (NET)—(47.0)%

 

        (285,750,703
           

 

 

 

NET ASSETS—100.0%

          $ 607,513,218  
           

 

 

 

 

(a) Represents amortized cost for fixed income securities and cost for preferred and common stock, limited partnership/limited liability company interests and equity warrants/options.
(b) Fair value is determined by or under the direction of the Company’s Board of Directors. See Note 2 for further details.
(c) Non-income producing equity securities at June 30, 2017.
(d) Interest may be paid in cash or payment-in-kind (“PIK”), or a combination thereof which is generally at the option of the borrower. PIK earned is included in the cost basis of the security. PIK represented approximately 14.1% of interest income earned for the six months ended June 30, 2017. In accordance with the Company’s policy, PIK may be recorded on an effective yield basis.
(e) Approximately 79% of the senior secured loans in the Company’s portfolio bear interest at a floating rate that may be determined by reference to the London Interbank Offered Rate (LIBOR) or other base rate (commonly the Federal Funds Rate or the Prime Rate), at the borrower’s option. In addition, 96% of such senior secured loans have floors of 0.75% to 1.25%. The borrower under a senior secured loan generally has the option to select from interest reset periods of one, two, three or six months and may alter that selection at the end of any reset period. The stated interest rate represents the weighted average interest rate at June 30, 2017 of all contracts within the specified loan facility.
(f) Transaction and other information for “non-controlled, affiliated” investments under the Investment Company Act of 1940, whereby the Company owns 5% or more (but not more than 25%) of the portfolio company’s outstanding voting securities.
(g) Transaction and other information for “controlled” investments under the Investment Company Act of 1940, whereby the Company owns more than 25% of the portfolio company’s outstanding voting securities.
(h) Non-U.S. company or principal place of business outside the U.S.
(i) Original purchase denominated in Canadian dollars.
(j) Security is exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. In the aggregate, these securities represent 25.2% of the Company’s net assets at June 30, 2017.
(k) Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act may be subject to change. The Company monitors the status of these assets on an ongoing basis.
(l) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of U.S. Well Services, LLC and thus a non-controlled, non-affiliated investment.
(m) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of Westward Dough Holdings, LLC and thus a non-controlled, non-affiliated investment.
(n) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of 5% or more (but not more than 25%) of the voting securities of V Global Holdings LLC and thus a non-controlled, affiliated investment.
(o) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of 5% or more (but not more than 25%) of the voting securities of ETX Energy, LLC and thus a non-controlled, affiliated investment.
(p) The Company is the sole stockholder of BCIC-MBS, LLC, a consolidated subsidiary, which is the beneficiary of more than 25% of the voting securities of MBS Group Holdings Inc. and thus a controlled investment.

 

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

 


 

11


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

(q) This investment is deemed significant under Regulation S-X Rule 4-08(g). Gordon Brothers Finance Company commenced operations on October 31, 2014. The summarized financial information of Gordon Brothers Finance Company for the three and six months ended June 30, 2017 and 2016 is shown below:

 

     June 30, 2017      December 31, 2016  

($ in millions)

     

Total assets

   $ 432.7      $ 414.2  

Total senior debt

   $ 281.6      $ 248.9  
     Three months
ended
June 30, 2017
    Three months
ended
June 30, 2016
    Six months
ended
June 30, 2017
    Six months
ended
June 30, 2016
 

Total revenue

   $ 10.9     $ 6.6     $ 21.3     $ 12.6  

Net change in owners’ equity resulting from operations

   $ (3.9   $ (3.7   $ (4.5   $ (5.5

Net change in owners’ equity resulting from operations, excluding origination costs, realized & unrealized on foreign currency, unrealized-available for sale assets & provision for loan loss

   $ (2.6   $ (1.9   $ (2.9   $ (2.9

Provision for loan loss reserves

   $ 0.3     $ 0.3     $ 0.5     $ 0.5  

Note:   Balance sheet amounts are as of period end

        

 

(r) This investment is deemed significant under Regulation S-X Rule 4-08(g). BCIC Senior Loan Partners, LLC was formed on June 23, 2016. See Note 5 for summarized financial information of BCIC Senior Loan Partners, LLC for the three and six months ended June 30, 2017.

 

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

 


 

12


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

                                 

Six Months Ended June 30, 2017

 
Non-controlled, Affiliated Investments  

Fair Value at

December 31,

2016

   

Gross

Additions

(Cost)*

   

Gross

Reductions

(Cost)**

   

Net

Unrealized

Gain (Loss)

   

Fair Value at

June 30,
2017

   

Net

Realized

Gain (Loss)

   

Interest

Income

   

Fee

Income

   

Dividend

Income

 

Advantage Insurance Inc.

                 

Preferred Stock

  $ 8,130,000     $ 380,153     $ —     $ 39,847     $ 8,550,000     $ —     $ —     $ —     $ 380,152  
AGY Holding Corp.:                  

Senior Secured Note

    21,109,625       96,754       —       229,684       21,436,063       —       1,293,692       —       —  

Senior Secured Loan

    24,021,390       —       —       —       24,021,390       —       1,449,291       —       —  

KAGY Holding Company, Inc. (AGY Holding Corp.):

                 

Preferred Stock

    6,422,056       85,993     —       5,929,230       12,437,279       —       —       —       85,993

Common Stock

    —       —       —       —       —       —       —       —       —  

ETX Energy, LLC

                 

Limited Liability Co. Interest

    —         —         —         —         —         —         —         —         —    

ETX Energy Management Company, LLC

                 

Limited Liability Co. Interest

    —         —         —         —         —         —         —         —         —    

U.S. Well Services, LLC:

                 

Revolver

    —         5,697,845       —         —         5,697,845 †      —         126,016       349,916       —    

Senior Secured Loan

    —         30,852,635       —         —         30,852,635 †      —         2,115,110       —         —    

Limited Liability Co. Interest, Class A

    —         11,980,712       —         3,599,894       15,580,606 †      —         —         —         —    

Limited Liability Co. Interest, Class B

    —         4,378,964       —         (3,281,714     1,097,250 †      —         —         —         —    

Limited Liability Co. Interest, Class D

    —         4,947       —         (4,947     —   †      —         —         —         —    

Vertellus Holdings LLC:

                 

Senior Secured Loan, First Lien

    22,461,298       —         —         (224,613     22,236,685       —         1,130,384       —         —    

Senior Secured Loan, Second Lien

    15,109,890       —         —         (453,297     14,656,593       —         988,325       —         —    

V Global Holdings LLC

                 

Limited Liability Co. Interest

    12,087,912       —         —         (2,296,703     9,791,209       —         —         —         —    
 

 

 

 

Totals

  $ 109,342,171     $ 53,478,003     $ —       $ 3,537,381     $ 166,357,555     $ —       $ 7,102,818       349,916     $ 466,145  
 

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
  Investment moved into the non-controlled, affiliated category from the non-controlled, non-affiliated category during the period.

The aggregate fair value of non-controlled, affiliated investments at June 30, 2017 represents 27.4% of the Company’s net assets.

 

 

 

 

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

 


 

13


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

June 30, 2017

(Unaudited)

 

                                 

Six Months Ended June 30, 2017

 
Controlled Investments  

Fair Value at

December 31,

2016

   

Gross

Additions

(Cost)*

   

Gross

Reductions

(Cost)**

   

Net

Unrealized

Gain (Loss)

   

Fair Value at

June 30,

2017

   

Net

Realized

Gain (Loss)

   

Interest

Income

   

Fee

Income

   

Dividend

Income

 

Bankruptcy Management Solutions, Inc.:

                 

Senior Secured Loan, First Lien, A

  $ 736,685     $ 3,806     $ (736,685   $ (3,806   $ —   †    $ —     $ 12,002     $ 25,000     $ —  

Senior Secured Loan, First Lien, B

    11,271,747       623,357       (11,271,747     (623,357     —   †      —       818,420       —       —  

Common Stock

    19,586,856       —       (16,654,505     (2,932,351     —   †      3,369,690       —       —       —  

Warrants

    117,358       —       (1,186,138     1,068,780       —   †      (994,155     —       —       —  

BCIC Senior Loan Partners, LLC

                 

Limited Liability Co. Interest

    41,675,575       13,866,523       —       850,521       56,392,619       —       —       —       1,604,307  

CB-HDT Holdings, Inc.:

                 

Unsecured Debt

    4,477,360       266,434       —         —         4,743,794       —         266,434       —         —    

Preferred Stock

    15,000,000       —         —         —         15,000,000       —         —         —         —    

Common Stock

    7,447,230       —         —         417,058       7,864,288       —         —         —         —    

First Boston Construction Holdings, LLC:

                 

Subordinated Debt

    28,800,000       800,000       —         —         29,600,000       —         1,737,867       —         —    

Limited Liability Co. Interest

    7,544,001       200,000       —         (237,448     7,506,553       —         —         —         512,952  

Gordon Brothers Finance Company:

                 

Unsecured Debt

    87,429,682       10,147,684       (16,589,258     —         80,988,108       —         4,998,407       —         —    

Preferred Stock

    20,497,135       —         —         —         20,497,135       —         —         —         1,391,243  

Common Stock

    10,598,300       —         —         —         10,598,300       —         —         —         —    

MBS Group Holdings Inc.:

                 

Senior Secured Loan

    40,000,000       910,000     —         (910,000     40,000,000       —         1,810,000       —         —    

Common Stock

    —         —         —         —         —         —         —         —         —    

Red Apple Stores Inc.:

                 

Senior Secured Loan

    14,291,000       —         —         (691,500     13,599,500       —         1,148,841       —         —    

Preferred Stock

    —         —         —         —         —         —         —         —         —    

Common Stock

    —         218,571       —         (218,571     —         —         —         —         —    
 

 

 

 

Totals

  $ 309,472,929     $ 27,036,375     $ (46,438,333   $ (3,280,674   $ 286,790,297     $ 2,375,535     $ 10,791,971     $ 25,000     $ 3,508,502  
 

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
  Investment no longer held as of June 30, 2017.

The aggregate fair value of controlled investments at June 30, 2017 represents 47.2% of the Company’s net assets.

 

 

 

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

 


 

14


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments

December 31, 2016

 

Portfolio Company   Industry(a)     Interest Rate   Maturity  

Principal

Amount or

Number of

Shares/Units

    Cost(b)    

Fair

Value(c)

 

Senior Secured Notes—10.7%

           

Advanced Lighting Technologies, Inc., First Lien(e)(k)

   

Capital

Equipment

 

 

  10.50%   6/1/19   $ 20,000,000     $ 18,682,622     $ 5,000,000  

AGY Holding Corp., Second Lien(g)(k)

   

Chemicals,

Plastics, &

Rubber

 

 

 

  11.00%   11/15/18     21,762,500       21,396,864       21,109,625  

Wink Holdco, Inc., Second Lien(k)

    Insurance     11.00% (L +

1000, 1.00%

Floor)

  9/30/22     37,500,000       36,837,191       37,500,000  
         

 

 

   

 

 

 

Total Senior Secured Notes

            76,916,677       63,609,625  
         

 

 

   

 

 

 

Unsecured Debt—21.3%

           

CB-HDT Holdings, Inc.(h)(k)(q)

   

Aerospace &

Defense

 

 

  12.00%
PIK
  12/15/19     4,477,360       4,477,360       4,477,360  

Gordon Brothers Finance Company(h)(r)

    Finance     12.00% (L +

1100, 1.00%

Floor)

  10/31/21     87,429,682       87,429,682       87,429,682  

SVP Worldwide Ltd.(i)(l)(q)

   

Consumer

Goods: Durable

 

 

  16.00%

(2.50% Cash /

13.50%
PIK)

  6/27/18     56,657,424       55,262,989       35,410,890  
         

 

 

   

 

 

 

Total Unsecured Debt

            147,170,031       127,317,932  
         

 

 

   

 

 

 

Subordinated Debt—4.8%

 

         

First Boston Construction Holdings, LLC(h)(l)(q)

    Finance     12.00%   12/31/20     28,800,000       28,800,000       28,800,000  
         

 

 

   

 

 

 

Total Subordinated Debt

            28,800,000       28,800,000  
         

 

 

   

 

 

 

 

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

 


 

15


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

Portfolio Company   Industry(a)   Interest Rate   Maturity  

Principal

Amount or

Number of

Shares/Units

    Cost(b)    

Fair

Value(c)

 

Senior Secured Loans—92.0%(f)

         

Accriva Diagnostics, Inc., First Lien

  Healthcare &

Pharmaceuticals

  12.25%   1/17/19   $ 18,900,000     $ 18,900,000     $ 18,900,000  

AGY Holding Corp., First Lien(g)

  Chemicals,

Plastics, &

Rubber

  12.00%   9/15/18     24,021,390       24,021,390       24,021,390  

Bankruptcy Management Solutions, Inc., Term Loan A, First Lien(h)

  Services:

Business

  4.50% (L +

350, 1.00%

Floor)

  6/27/17     736,685       732,879       736,685  

Bankruptcy Management Solutions, Inc., Term Loan B, First Lien(h)

  Services:

Business

  7.00% (L +

600,1.00%

Floor)

  6/27/18     11,271,747       10,648,390       11,271,747  

GSE Environmental, Inc., First Lien

  Environmental

Industries

  11.00% (L +

1000, 1.00%

Floor)

  8/11/21     36,566,118       36,566,118       36,566,118  

JLL Pioneer Inc., Second Lien

  Construction &

Building

  9.50% (L+

850, 1.00%

Floor)

  12/31/20     20,000,000       20,000,000       20,000,000  

K2 Pure Solutions Nocal, L.P., First Lien

  Chemicals,

Plastics, &

Rubber

  10.00% (L+

900, 1.00%

Floor)

  2/19/21     13,000,000       12,878,533       13,000,000  

Liberty Tire Recycling Holdco, LLC, First Lien

  Environmental

Industries

  9.00% (L +

800,1.00%

Floor)

  7/7/20     19,700,000       19,144,826       19,700,000  

Loar Group Inc., Second Lien

  Aerospace &

Defense

  10.25% (L +

925,1.00%

Floor)

  7/12/22     15,000,000       14,743,818       15,000,000  

MBS Group Holdings Inc., First Lien(h)

  Services:

Business

  9.00%   6/30/20     40,000,000       40,000,000       40,000,000  

Oxford Mining Company, LLC, First Lien(q)

  Metals &

Mining

  12.45% (L+

850, 0.75%

Floor Cash /

3.00% PIK)

  12/31/18     25,946,053       25,946,053       25,686,593  

Paragon Films, Inc., Second Lien

  Containers,

Packaging, &

Glass

  11.00% (L +

1000, 1.00%

Floor)

  6/9/23     20,000,000       20,000,000       20,000,000  

Pomeroy Group LLC, Second Lien

  Services:

Business

  11.64% (L +

1000, 1.00%

Floor)

  11/30/22     27,500,000       27,056,251       27,500,000  

Pre-Paid Legal Services, Inc., Second Lien

  Services:

Consumer

  10.25% (L +

900, 1.25%

Floor)

  7/1/20     32,000,000       31,812,661       32,000,000  

 

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

 


 

16


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

Portfolio Company   Industry(a)   Interest Rate     Maturity    

Principal

Amount or

Number of

Shares/Units

    Cost(b)    

Fair

Value(c)

 

Recorded Books Inc., Second Lien

  Media:

Advertising,

Printing &

Publishing

   

9.50% (L +

850, 1.00%

Floor)

 

 

 

    7/31/22     $ 32,500,000     $ 32,500,000     $ 32,500,000  

Red Apple Stores Inc., Second Lien(h)(i)(l)

  Retail     10.00%       7/24/20       23,050,000       23,050,000       14,291,000  

Shoreline Energy LLC, Second Lien(e)(q)(s)

  Energy: Oil &

Gas

   

16.00% (Base +

825, 2.25%

Floor Cash /

2.00%

PIK)

 

 

 

 

 

    3/30/19       28,240,003       27,236,933       —  

SOURCEHOV, LLC, First Lien

  Services:

Business

   

7.75% (L +

675, 1.00%

Floor)

 

 

 

    10/31/19       4,593,750       4,515,865       4,065,468  

SOURCEHOV, LLC, Second Lien

  Services:

Business

   

11.50% (L +

1050, 1.00%

Floor)

 

 

 

    4/30/20       5,000,000       4,877,098       3,250,000  

Sur La Table, Inc., First Lien

  Retail     12.00%       7/28/20       30,000,000       30,000,000       30,000,000  

Tri-Anim Health Services, Inc., et al., Second Lien

  Healthcare &

Pharmaceuticals

   

10.50% (L +

950,1.00%

Floor)

 

 

 

    7/28/22       25,000,000       24,571,248       25,000,000  

U.S. Anesthesia Partners, Inc., Second Lien

  Healthcare &

Pharmaceuticals

   


10.25% (L +

925, 1.00%
Floor)

 


 

    9/24/20       20,000,000       19,685,726       20,000,000  

U.S. Well Services, LLC, First Lien(q)(s)

  Energy: Oil &

Gas

   

14.11% (L +

1150, 0.50%

Floor PIK)

 

 

 

    5/2/19       50,083,741       50,083,741       43,572,855  

Vertellus Holdings LLC, First Lien(g)

  Chemicals,

Plastics, &

Rubber

   

10.00% (L +

900, 1.00%

Floor)

 

 

 

    4/30/18       22,461,298       22,461,298       22,461,298  

Vertellus Holdings LLC, Second Lien(g)

  Chemicals,

Plastics, &

Rubber

   

13.00% (L +

1200, 1.00%

Floor)

 

 

 

    10/29/21       15,109,890       15,109,890       15,109,890  

Water Pik, Inc., Second Lien

  Consumer

Goods: Durable

   

9.75% (L +

875, 1.00%

Floor)

 

 

 

    1/8/21       33,882,271       33,407,686       33,882,271  
         

 

 

   

 

 

 

Total Senior Secured Loans

          589,950,404       548,515,315  
         

 

 

   

 

 

 

Preferred Stock—9.7%

 

     

Advantage Insurance Inc.(g)(k)

  Insurance     8.00% PIK         750,000       9,582,578       8,130,000  

CB-HDT Holdings, Inc., Series L(d)(h)

  Aerospace &

Defense

        1,500,000       15,000,000       15,000,000  

Gordon Brothers Finance Company(h)(r)

  Finance     13.50%         20,497       20,497,135       20,497,135  

 

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

 


 

17


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

Portfolio Company   Industry(a)   Interest Rate   Maturity    

Principal

Amount or

Number of

Shares/Units

    Cost(b)    

Fair

Value(c)

 

KAGY Holding Company, Inc. (AGY Holding Corp.)(g)

  Chemicals,

Plastics, &

Rubber

  20.00% PIK       22,960     $ 8,090,828     $ 6,422,056  

Red Apple Stores Inc.(d)(h)(i)(l)

  Retail         6,806,383       —       —  

USI Senior Holdings, Inc. (United Subcontractors)(d)

  Construction &

Building

        260,798       5,374,318       7,823,936  
         

 

 

   

 

 

 

Total Preferred Stock

            58,544,859       57,873,127  
         

 

 

   

 

 

 

Common Stock—6.3%(d)

 

     

Bankruptcy Management Solutions, Inc.(h)

  Services:

Business

        370,122       16,654,505       19,586,856  

CB-HDT Holdings, Inc., Series A(h)

  Aerospace &

Defense

        744,723       7,447,230       7,447,230  

Gordon Brothers Finance Company(h)(r)

  Finance         10,598       10,598,300       10,598,300  

KAGY Holding Company, Inc. (AGY Holding Corp.)(g)

  Chemicals,

Plastics, &

Rubber

        3,131,292       —       —  

MBS Group Holdings Inc.(h)(p)

  Services:

Business

        8,500       1,000       —  

Red Apple Stores Inc.(h)(i)(j)(l)

  Retail         8,756,859       6,519,298       —  
         

 

 

   

 

 

 

Total Common Stock

            41,220,333       37,632,386  
         

 

 

   

 

 

 

Limited Partnership/Limited Liability Company Interests—11.3%

 

     

BCIC Senior Loan Partners, LLC(h)(k)(l)

  Finance         42,526,097       42,526,097       41,675,575  

ECI Cayman Holdings, LP(d)(i)(k)(l)

  High Tech

Industries

        3,189       2,238,811       2,842,546  

ETX Energy, LLC(d)(g)

  Energy: Oil &

Gas

        51,119       —       —  

ETX Energy Management Company, LLC(d)(g)

  Energy: Oil &

Gas

        53,815       —       —  

First Boston Construction Holdings, LLC(d)(h)(l)

  Finance         7,200,000       7,200,000       7,544,001  

Higginbotham Investment Holdings, LLC(d)

  Insurance         1,163       239,245       1,418,348  

Loar Group LLC(d)

  Aerospace &

Defense

        1,500,000       1,500,000       1,683,878  

Marsico Holdings, LLC(d)(k)

  Finance         91,445       1,848,077       5,487  

U.S. Well Services, LLC(k)(m)

  Energy: Oil &
Gas
  8.00% PIK       8,085       9,572,495       —  

V Global Holdings LLC(d)(g)(o)

  Chemicals,

Plastics, &

Rubber

        12,087,912       11,977,610       12,087,912  

 

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

 


 

18


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

Portfolio Company   Industry(a)     Interest Rate     Maturity    

Principal

Amount or

Number of

Shares/Units

    Cost(b)    

Fair

Value(c)

 

Westward Dough Holdings, LLC, Class D(d)(n)

   

Beverage, Food,

& Tobacco

 

 

        114,706     $ —     $ —  
         

 

 

   

 

 

 

Total Limited Partnership/Limited Liability Company Interests

 

      77,102,335       67,257,747  
         

 

 

   

 

 

 

Equity Warrants/Options—0.0%(d)

 

         

Bankruptcy Management Solutions, Inc., Tranche A(h)

   

Services:

Business

 

 

      expire 6/27/18       28,464       375,040       117,358  

Bankruptcy Management Solutions, Inc., Tranche B(h)

   

Services:

Business

 

 

      expire 6/27/19       30,654       342,295       —  

Bankruptcy Management Solutions, Inc., Tranche C(h)

   

Services:

Business

 

 

      expire 6/27/20       45,981       468,803       —  

Facet Investment, Inc.

   

Healthcare &

Pharmaceuticals

 

 

      expire 1/18/21       1,978       250,000       —  

Marsico Parent Superholdco, LLC(k)

    Finance         expire 12/14/19       455       444,450       —  
         

 

 

   

 

 

 

Total Equity Warrants/ Options

            1,880,588       117,358  
         

 

 

   

 

 

 

TOTAL INVESTMENTS—156.1%

 

        $ 1,021,585,227       931,123,490  
         

 

 

   

OTHER ASSETS & LIABILITIES (NET)—(56.1)%

 

        (334,803,121
           

 

 

 

NET ASSETS—100.0%

 

          $ 596,320,369  
           

 

 

 

 

(a) Unaudited.
(b) Represents amortized cost for fixed income securities and cost for preferred and common stock, limited partnership/limited liability company interests and equity warrants/options.
(c) Fair value is determined by or under the direction of the Company’s Board of Directors. See Note 2 for further details.
(d) Non-income producing equity securities at December 31, 2016.
(e) Non-accrual status at December 31, 2016 and therefore non-income producing. At December 31, 2016, the aggregate fair value and amortized cost of the Company’s debt investments on non-accrual status represents 0.7% and 5.4%, respectively.
(f) Approximately 77% of the senior secured loans in the Company’s portfolio bear interest at a floating rate that may be determined by reference to the London Interbank Offered Rate (LIBOR) or other base rate (commonly the Federal Funds Rate or the Prime Rate), at the borrower’s option. In addition, 100% of such senior secured loans have floors of 0.50% to 2.25%. The borrower under a senior secured loan generally has the option to select from interest reset periods of one, two, three or six months and may alter that selection at the end of any reset period. The stated interest rate represents the weighted average interest rate at December 31, 2016 of all contracts within the specified loan facility.
(g) Transaction and other information for “non-controlled, affiliated” investments under the Investment Company Act of 1940, whereby the Company owns 5% or more (but not more than 25%) of the portfolio company’s outstanding voting securities.
(h) Transaction and other information for “controlled” investments under the Investment Company Act of 1940, whereby the Company owns more than 25% of the portfolio company’s outstanding voting securities.
(i) Non-U.S. company or principal place of business outside the U.S.
(j) Original purchase denominated in Canadian dollars.
(k) Security is exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. In the aggregate, these securities represent 20.2% of the Company’s net assets at December 31, 2016.

 

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

 


 

19


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

(l) Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act may be subject to change. The Company monitors the status of these assets on an ongoing basis.
(m) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of U.S. Well Services, LLC and thus a non-controlled, non-affiliated investment.
(n) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of less than 5% of the voting securities of Westward Dough Holdings, LLC and thus a non-controlled, non-affiliated investment.
(o) The Company is the sole stockholder of BKC ASW Blocker, Inc., a consolidated subsidiary, which is the beneficiary of 5% or more (but not more than 25%) of the voting securities of V Global Holdings LLC and thus a non-controlled, affiliated investment.
(p) The Company is the sole stockholder of BCIC-MBS, LLC, a consolidated subsidiary, which is the beneficiary of more than 25% of the voting securities of MBS Group Holdings Inc. and thus a controlled investment.
(q) Interest may be paid in cash or payment-in-kind (“PIK”), or a combination thereof which is generally at the option of the borrower. PIK earned is included in the cost basis of the security. PIK represented approximately 8.6% of interest income earned for the year ended December 31, 2016. In accordance with the Company’s policy, PIK may be recorded on an effective yield basis.

 

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

 


 

20


Table of Contents

BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

                                  For the Year Ended December 31, 2016  
Non-controlled, Affiliated Investments  

Fair Value at

December 31,

2015

   

Gross

Additions

(Cost)*

   

Gross

Reductions

(Cost)**

   

Net

Unrealized

Gain (Loss)

   

Fair Value at

December 31,

2016

   

Net

Realized

Gain (Loss)

   

Interest

Income

   

Fee

Income

   

Dividend

Income

 

Advantage Insurance Inc.

                 

Preferred Stock

  $ 8,872,757     $ 709,821     $ —     $ (1,452,578   $ 8,130,000     $ —     $ —     $ —     $ 709,821  
AGY Holding Corp.:                  

Senior Secured Note

    21,327,250       334,527       —       (552,152     21,109,625       —       2,728,403       —       —  

Senior Secured Loan

    19,763,384       4,258,006       —       —       24,021,390       —       2,492,602       —       —  

KAGY Holding Company, Inc. (AGY Holding Corp.):

                 

Preferred Stock

    9,376,565       1,159,948       —       (4,114,457     6,422,056       —       —       —       1,159,948  

Common Stock

    —       —       —       —       —       —       —       —       —  

ETX Energy, LLC

                 

Limited Liability Co. Interest

    —       —       —       —       —    †      —       —       —       —  

ETX Energy Management Company, LLC

                 

Limited Liability Co. Interest

    —       —       —       —       —    †      —       —       —       —  

USI Senior Holdings, Inc.

                 

Preferred Stock

    7,823,940       —       (7,823,940     —       —    ††      —       —       —       —  

Vertellus Holdings LLC:

                 

Senior Secured Loan, First Lien

    —       22,461,298       —       —       22,461,298 †      —       386,833       —       —  

Senior Secured Loan, Second Lien

    —       15,109,890       —       —       15,109,890 †      —       338,294       —       —  

V Global Holdings LLC

                 

Limited Liability Co. Interest

    —       11,977,610       —       110,302       12,087,912 †      —       —       —       —  
 

 

 

 

Totals

  $ 67,163,896     $ 56,011,100     $ (7,823,940   $ (6,008,885   $ 109,342,171     $ —     $ 5,946,132     $ —     $ 1,869,769  
 

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
  Investment moved into the non-controlled, affiliated category from the non-controlled, non-affiliated category.
  †† Investment moved out of the non-controlled, affiliated category into the non-controlled, non-affiliated category.

The aggregate fair value of non-controlled, affiliated investments at December 31, 2016 represents 18.3% of the Company’s net assets.

 

 

 

  (r) This investment is deemed significant under Regulation S-X Rule 4-08(g). Gordon Brothers Finance Company commenced operations on October 31, 2014. The summarized financial information of Gordon Brothers Finance Company for the years ending December 31, 2016 and 2015 is shown below:

 

     Year ended
December 31, 2016
    Year ended
December 31, 2015
 
($ in millions)             

Total assets

   $ 414.2     $ 270.5  

Total senior debt

   $ 248.9     $ 135.5  

Total revenue

   $ 31.4     $ 28.7  

Net change in owners’ equity resulting from operations

   $ (7.5   $ (4.8

Net change in owners’ equity resulting from operations, excluding origination costs, realized & unrealized on foreign currency, unrealized-available for sale assets & provision for loan loss

   $ (4.7   $ 0.4  

Provision for loan loss reserves

   $ 0.5     $ 0.0  

 

  Note: Balance sheet amounts are as of period end

 

  (s) All-in rate includes 2.00% default interest

 

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

 


 

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BlackRock Capital Investment Corporation

Consolidated Schedules of Investments—(Continued)

December 31, 2016

 

                                  For the Year Ended December 31, 2016  
Controlled Investments  

Fair Value at

December 31,

2015

   

Gross

Additions

(Cost)*

   

Gross

Reductions

(Cost)**

   

Net

Unrealized

Gain (Loss)

   

Fair Value at

December 31,

2016

   

Net

Realized

Gain (Loss)

   

Interest

Income

   

Fee

Income

   

Dividend

Income

 

Bankruptcy Management Solutions, Inc.:

                 

Senior Secured Loan, First Lien, A

  $ 1,168,176     $ 16,028     $ (455,331   $ 7,812     $ 736,685     $ —     $ 55,254     $ 100,000     $ —  

Senior Secured Loan, First Lien, B

    10,289,082       450,000       (289,018     821,683       11,271,747       —       1,264,867       —       —  

Common Stock

    32,087,254       —       —       (12,500,398     19,586,856       —       —       —       —  

Warrants

    2,474,818       —       —       (2,357,460     117,358       —       —       —       —  

BCIC Senior Loan Partners, LLC

                 

Limited Liability Co. Interest

    —       42,526,097       —       (850,522     41,675,575       —       —       29,268       83,230  

CB-HDT Holdings, Inc.:

                 

Unsecured Debt

    —       4,477,360       —       —       4,477,360       —       24,885       —       —  

Preferred Stock

    —       15,000,000       —       —       15,000,000 ††      —       —       —       —  

Common Stock

    —       7,500,000       (52,770     —       7,447,230 ††      (52,770     —       —       —  

First Boston Construction Holdings, LLC:

                 

Subordinated Debt

    17,500,000       11,300,000       —       —       28,800,000       —       2,920,400       —       —  

Limited Liability Co. Interest

    4,375,000       2,825,000       —       344,001       7,544,001       —       —       —       291,667  

Gordon Brothers Finance Company:

                 

Unsecured Debt

    64,739,544       34,690,877       (12,000,739     —       87,429,682       —       9,577,284       162,372       —  

Preferred Stock

    17,460,098       3,037,037       —       —       20,497,135       —       —       —       2,569,439  

Common Stock

    10,598,300       —       —       —       10,598,300       —       —       —       —  

MBS Group Holdings Inc.:

                 

Senior Secured Loan

    40,000,000       —       —       —       40,000,000       —       3,660,000       —       —  

Common Stock

    3,933,465       —       —       (3,933,465     —       —       —       —       —  

Red Apple Stores Inc.:

                 

Senior Secured Loan

    18,440,000       —       —       (4,149,000     14,291,000       —       2,292,112       —       —  

Preferred Stock

    —       621,649       (1,479,254     857,605       —    †      (1,479,254     —       —       621,648  

Preferred Stock

    —       —       —       —       —       —       —       —       —  

Common Stock

    —       443,097       (235,122     (207,975     —       —       —       —       —  
 

 

 

 

Totals

  $ 223,065,737     $ 122,887,145     $ (14,512,234   $ (21,967,719   $ 309,472,929     $ (1,532,024   $ 19,794,802     $ 291,640     $ 3,565,984  
 

 

 

 

 

 

  * Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
  ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
  Investment no longer held as of December 31, 2016.
  †† Investment moved into the controlled category from the non-controlled, non-affiliated category.

The aggregate fair value of controlled investments at December 31, 2016 represents 51.9% of the Company’s net assets.

 

 

 

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

 


 

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BlackRock Capital Investment Corporation

Notes to Consolidated Financial Statements (Unaudited)

1. Organization

BlackRock Capital Investment Corporation (together with its subsidiaries, the “Company”), was organized as a Delaware corporation on April 13, 2005 and was initially funded on July 25, 2005. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes the Company has qualified and has elected to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986 (the “Code”).

The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in middle-market companies in the form of senior and junior secured and unsecured debt securities and loans, each of which may include an equity component, and by making direct preferred, common and other equity investments in such companies.

2. Significant accounting policies

Unaudited Interim Consolidated Financial Statements

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services-Investment Company (“ASC 946”).

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission (“SEC”) on March 8, 2017.

The interim financial information at June 30, 2017 and for the three and six months ended June 30, 2017 and 2016 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Basis of Presentation

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ and such differences could be material.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, which were established to hold certain investments of the Company. The Company owns 100% of each subsidiary and, as such, the subsidiaries are consolidated into the Company’s consolidated financial statements. The subsidiaries hold investments which are treated as pass through entities for tax purposes. By investing through these 100% owned subsidiaries, the Company is able to benefit from corporate tax treatment for these entities and thereby create a tax structure that is more advantageous with respect to the RIC status of the Company. Transactions between the Company and subsidiaries, to the extent they occur, are eliminated in consolidation.

Expenses are recorded on an accrual basis.

 

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Investments

Security transactions are accounted for on the trade date unless there are substantial conditions to the purchase. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost of the investment. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses on the disposition of investments are calculated using the specific identification method.

Investments for which market quotations are readily available are valued at such market quotations unless they are deemed not to represent fair value. The Company obtains market quotations, when available, from an independent pricing service or one or more broker-dealers or market makers and utilizes the average of the range of bid and ask quotations. Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by or under the direction of the Company’s Board of Directors.

Because the Company expects that there will not be a readily available market for substantially all of the investments in its portfolio, the Company expects to value substantially all of its portfolio investments at fair value as determined in good faith by or under the direction of the Board of Directors using a consistently applied valuation process in accordance with a documented valuation policy that has been reviewed and approved by the Board of Directors. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that the Company may ultimately realize.

In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of the Company’s investments than on the fair values of the Company’s investments for which market quotations are not readily available. Market quotations may be deemed not to represent fair value in certain circumstances where BlackRock Advisors, LLC, the Company’s investment advisor (the “Advisor”), believes that facts and circumstances applicable to an issuer, a seller or purchaser or the market for a particular security cause current market quotations to not reflect the fair value of the security. Examples of these events could include cases where a security trades infrequently causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid-ask spread.

With respect to the Company’s investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value, the Board of Directors has approved a multi-step valuation process applied each quarter, as described below:

(i) The quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals of the Advisor responsible for the portfolio investment;

(ii) The investment professionals provide recent portfolio company financial statements and other reporting materials to independent valuation firms engaged by the Board of Directors, such firms conduct independent appraisals each quarter and their preliminary valuation conclusions are documented and discussed with senior management of the Advisor;

(iii) The Audit Committee of the Board of Directors reviews the preliminary valuations prepared by the independent valuation firms; and

(iv) The Board of Directors discusses valuations and determines the fair value of each investment in the portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the Audit Committee.

 

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Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in determining the fair value of its investments include, as relevant and among other factors: 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, (e.g. non-performance risk), its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, the Company’s principal market (as the reporting entity) and enterprise values.

Until the end of the second calendar quarter following its acquisition, each unquoted investment in a new portfolio company generally is held at amortized cost, which the Advisor believes approximates fair value under the circumstances. As of that date, an independent valuation firm conducts an initial independent appraisal of the investment.

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), issued by the FASB, defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. See Note 10 for further details.

Cash and Cash Equivalents

Cash equivalents include short-term liquid overnight investments with original maturities of three months or less and may not be insured by the FDIC or may exceed federally insured limits.

Revenue recognition

Interest income is recorded on an accrual basis and includes amortization of discounts and accretion of premiums. Discounts and premiums to par value on securities purchased are amortized/accreted into interest income over the life of the respective security. Discounts and premiums are determined based on the cash flows expected to be received for a particular investment upon maturity.

Dividend income is recorded on the ex-dividend date and is adjusted to the extent that the Company expects to collect such amounts. For loans and securities with payment-in-kind (“PIK”) income, which represents contractual interest or dividends accrued and added to the principal balance and generally due at maturity, such income is accrued only to the extent that the Advisor believes that the PIK income is likely to be collected. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of distributions, even though the Company has not yet collected the cash.

Fee income, such as structuring fees, origination, closing, commitment and other upfront fees are generally non-recurring and are recognized as revenue when earned. In instances where the Company does not perform significant services in connection with the related investment, fees paid to the Company may be deferred and amortized over the estimated life of the investment. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment and other upfront fees are recorded as income.

U.S. Federal 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 continue to qualify for the tax treatment applicable to RICs.

 

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In order to qualify for favorable tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, we must distribute annually at least 98% of our ordinary income and 98.2% of net capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay regular federal income taxes or a 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required.

Distributions from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return.

Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

The final tax characterization of distributions is determined after the fiscal year and is reported on Form 1099 and in the Company’s annual report to shareholders. Distributions can be characterized as ordinary income, capital gains and/or return of capital. To the extent that distributions exceed the Company’s current and accumulated earnings and profits, the excess may be treated as a non-taxable return of capital. Distributions that exceed a Company’s taxable income but do not exceed the Company’s current and accumulated earnings and profits, may be classified as ordinary income which is taxable to shareholders.

ASC 740-10, Income Taxes (“ASC 740-10”) clarifies the accounting for income taxes by prescribing the minimum recognition threshold an uncertain tax position is required to meet before tax benefits associated with such uncertain tax position are recognized in the consolidated financial statements. Based on its analysis of its tax position, the Company has concluded that it does not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10.

The Company files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Company’s U.S. federal income tax returns remains open for each of the four years ended December 31, 2016. The statute of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

At December 31, 2016, the Company had a net capital loss carryforward of $123,978,507, which can be used to offset future capital gains. If not utilized against future gains, $32,937,589 of this amount is due to expire on December 31, 2018.

Distributions to Common Stockholders

Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Board of Directors. Net realized capital gains, if any, generally 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 that provides for reinvestment of distributions on behalf of stockholders, unless a stockholder elects to receive cash. As a result, if the Board of Directors authorizes, and the Company declares, a cash distribution, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of Common Stock, rather than receiving the cash distributions.

 

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Foreign Currency

Foreign currency amounts are translated into United States dollars on the following basis:

 

  (i) market value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and

 

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

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.

Debt Issuance Costs

Debt issuance costs are amortized over the term of the related debt using the straight line method, which approximates the effective interest rate method.

Equity Offering Expenses

The Company records registration expenses related to its shelf registration statement and related SEC filings as prepaid assets. These expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946.

Non-Accrual Loans

Loans or debt securities are placed on non-accrual status, as a general matter, when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the effect on its consolidated financial statements.

 

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In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which amends and clarifies the current guidance to reduce diversity in practice of the classification of certain cash receipts and payments in the statement of cash flows. The Company is currently evaluating the impact of adopting ASU 2016-15, which is effective for the Company on January 1, 2018 with early adoption permitted. The Company must apply the guidance retrospectively to all periods presented. The Company is currently evaluating the effect on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (“ASU 2017-08”). The amendments in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. The Company is currently evaluating the effect on its consolidated financial statements, however, we do not expect ASU 2017-08 to have a material impact on the consolidated financial statements.

3. Agreements and related party transactions

Investment management agreement

At a Special Meeting of the Company’s Stockholders, held on February 18, 2015, the Company’s stockholders approved a new investment management agreement (“Management Agreement”) between the Company and BlackRock Advisors, LLC to permit the Advisor to serve as the Company’s investment adviser following the completion of the sale of certain assets related to managing the Company from the Company’s previous investment adviser, 52nd Street Capital Advisors LLC, formerly BlackRock Kelso Capital Advisors LLC (the “Previous Advisor,” “BKCA” or “52nd Street”), to the Advisor (the “Transaction”). The Transaction was completed on March 6, 2015 and, pursuant to the new investment management agreement, dated as of March 6, 2015, the Company’s investment activities are currently managed by the Advisor. Prior to the consummation of the Transaction, the Company had entered into an investment management agreement with the Company’s previous adviser, which is referred to as the “Previous Agreement”. The Company’s current investment management agreement had the same management and incentive fee terms as the Previous Agreement until March 6, 2017 and thereafter has different management and incentive fees terms.

Base Management Fee

Under the current investment management agreement, the Advisor, subject to the overall supervision of the Board of Directors, manages the day-to-day operations and provides the Company with investment advisory services. For providing these services, the Advisor received, until March 6, 2017, a base management fee at an annual rate of 2.0% of total assets, including any assets acquired with the proceeds of leverage, payable quarterly in arrears. After March 6, 2017, the Advisor receives a base management fee at an annual rate of 1.75% of total assets (excluding cash), including any assets acquired with the proceeds of leverage, payable quarterly in arrears based on the asset valuation as of the end of the prior quarter, and prorated for any period of less than a quarter.

The investment management agreement became effective on March 6, 2015. Unless earlier terminated, the investment management agreement will remain in effect for a period of two years from the date it first became effective and will remain in effect from year-to-year thereafter if approved annually by the Board of Directors or by the affirmative vote of the holders of a majority of outstanding voting securities, including, in either case, approval by a majority of the directors who are not interested persons.

For the three and six months ended June 30, 2017, the Advisor earned $4,139,347 and $8,663,204, respectively, in base management fees under the investment management agreement. For the three and six

 

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months ended June 30, 2016, the Advisor earned $5,721,689 and $11,412,179, respectively, in base management fees under the investment management agreement.

Incentive Management Fee Until March 6, 2017

The current investment management agreement provides that the Advisor or its affiliates may be entitled to an incentive management fee (the “Incentive Fee”) as described below under certain circumstances until March 6, 2017. The Incentive Fee was calculated in the same manner as the Incentive Fee in the previous investment management agreement. The determination of the Incentive Fee, as described in more detail below, will result in the Advisor or its affiliates receiving no Incentive Fee payments if returns to stockholders do not meet an 8.0% annualized rate of return during the applicable fee measurement period, and will result in the Advisor or its affiliates receiving less than the full amount of the Incentive Fee percentage until returns to stockholders exceed an approximate 13.3% annualized rate of return during such period. Annualized rate of return in this context is computed by reference to net asset value and does not take into account changes in the market price of the common stock.

The Advisor will be entitled to receive the Incentive Fee if the performance exceeds a “hurdle rate” during different measurement periods: trailing four quarters’ periods (which apply only to the portion of the Incentive Fee based on income) and annual periods (which apply only to the portion of the Incentive Fee based on capital gains). The “trailing four quarters’ periods” for purposes of determining the income portion of the Incentive Fee payable for the three months ended June 30, 2017 and 2016 was determined by reference to the four quarter periods ended on June 30, 2017 and 2016, respectively, however, the periods utilized different incentive management fee calculations, both of which are described in more detail below. The term “annual period” means the period beginning on July 1 of each calendar year and ending on June 30 of the next calendar year.

The hurdle rate for each measurement period is 2.0% multiplied by net asset values at the beginning of each calendar quarter during the measurement period, calculated after giving effect to any distributions that occurred during the measurement period. A portion of the Incentive Fee is based on income and a portion is based on capital gains. Each portion of the Incentive Fee is described below.

Quarterly Incentive Fee Based on Income Until March 6, 2017

For each trailing four quarters’ period, the Company will pay the Advisor an Incentive Fee based on the amount by which (A) aggregate distributions and amounts distributable out of taxable net income (excluding any capital gain and loss), during the period less the amount, if any, by which net unrealized capital depreciation exceeds net realized capital gains / losses during the period, is in excess of (B) the hurdle rate for the period. The amount of the excess of (A) over (B) described in this paragraph for each period is referred to as the excess income amount.

It should be noted that net realized capital gains / losses during the period are calculated as the proceeds received upon disposition less the fair market value as of the beginning of the measurement period. Since this calculation is not cumulative, but rather performed on a trailing four quarters period, fluctuations in fair market values are captured in net unrealized appreciation and depreciation of prior measurement periods.

The portion of the Incentive Fee based on income for each period will equal 50% of the period’s excess income amount, until the cumulative Incentive Fee payments for the period equal 20% of the period’s income amount distributed or distributable to stockholders as described in clause (A) of the preceding paragraph. Thereafter, the portion of the Incentive Fee based on income for the period will equal 20% of the period’s amount distributed or distributable to stockholders.

For the three months ended June 30, 2016, the Advisor earned zero in Incentive Fees based on income from the Company.

 

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Annual Incentive Fee Based on Capital Gains Until March 6, 2017

The portion of the Incentive Fee based on capital gains is calculated and paid on an annual basis beginning on July 1 of each annual period and ending on June 30 of the next calendar year. The portion of Incentive Fee based on capital gains is calculated in the same manner as such portion of the Incentive Fee in the prior investment management agreement. For each annual period, the Company pays the Advisor an Incentive Fee on capital gains based on the amount by which (A) net realized capital gains, if any, exceeds gross unrealized capital depreciation, if any, occurring during the period in excess of (B) the amount, if any, by which the period’s hurdle rate exceeds the amount of income used in the determination of the Incentive Fee based on income for the period. The amount of the excess of (A) over (B) described in this paragraph is referred to as the excess gain amount.

It should be noted that net realized capital gains during the period are calculated as the proceeds received upon disposition in excess of the lower of each security’s amortized cost or the fair market value as of the beginning of the measurement period. Since this calculation is not cumulative, but rather performed on an annual period commencing each July 1, any unrealized depreciation on a security, if any, will be captured in the gross unrealized depreciation of a prior period.

The portion of the Incentive Fee based on capital gains for each period will equal 50% of the period’s excess gain amount, until such payments equal 20% of the period’s capital gain amount distributed or distributable to stockholders. Thereafter, the portion of the Incentive Fee based on capital gains for the period equals an amount such that the portion of the Incentive Fee payments to the Advisor based on capital gains for the period equals 20% of the period’s capital gain amount distributed or distributable to stockholders. The result of this formula is that, if the portion of the Incentive Fee based on income for the period exceeds the period’s hurdle, then the portion of the Incentive Fee based on capital gains will be capped at 20% of the capital gain amount.

In calculating whether the portion of the Incentive Fee based on capital gains is payable with respect to any period, we account for assets on a security-by-security basis. In addition, the Company uses the “period-to-period” method pursuant to which the portion of the Incentive Fee based on capital gains for any period is based on realized capital gains for the period reduced by realized capital losses and gross unrealized capital depreciation for the period. Based on current interpretations of Section 205(b)(3) of the Investment Advisers Act of 1940 by the SEC and its staff, the calculation of unrealized depreciation for each portfolio security over a period is based on the fair value of the security at the end of the period compared to the fair value at the beginning of the period. Incentive Fees earned in any of the periods described above are not subject to modification or repayment based upon performance in a subsequent period.

The Company is required under GAAP to accrue a hypothetical capital gains Incentive Fee based upon net realized capital gains and unrealized capital appreciation and depreciation on investments held at the end of each period. The accrual of this hypothetical capital gains incentive fee assumes all unrealized capital appreciation and depreciation is realized in order to reflect a hypothetical capital gains Incentive Fee that would be payable at each measurement date. If such amount is positive at the end of the period, then we record a capital gains incentive fee equal to 20% of such amount, less the amount of capital gains related Incentive Fees already accrued in prior periods. If the resulting amount is negative, the accrual for GAAP in a given period may result in the reduction of an expense. There can be no assurance that such unrealized capital appreciation will be realized in the future. However, it should be noted that a fee so calculated and accrued would not be payable under the Advisers Act or the investment management agreement. Amounts actually paid will be consistent with the Advisers Act which specifically excludes consideration of unrealized capital appreciation.

The capital gains Incentive Fee due to the Advisor as calculated under the investment management agreement as described above, at June 30, 2017 and 2016 was zero. In accordance with GAAP, the hypothetical liquidation for the three months ended June 30, 2017 and 2016, resulted in a capital gains incentive fee accrual/(reversal) of zero. The total cumulative accrued balances at June 30, 2017 and 2016 were zero.

 

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Quarterly Incentive Fee Based on Income After March 6, 2017

After March 6, 2017, the investment management agreement provides that the Advisor or its affiliates may be entitled to an incentive management fee under certain circumstances. The Incentive Fee has two parts. The first portion is based on income other than capital gains and is calculated separately for each calendar quarter and will be paid on a quarterly basis. The Company will pay the Advisor the portion of the Incentive Fee based on income for each period as follows:

 

  (i) No Incentive Fee based on income other than capital gains for any calendar quarter in which the Pre-Incentive Fee Net Investment Income does not exceed 1.75% (7.00% annualized) of net assets attributable to common stock at the beginning of such quarter.

 

  (ii) 100% of the Pre-Incentive Fee Net Investment Income in any calendar quarter with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, for such calendar quarter, that exceeds 1.75% (7.00% annualized) of net assets attributable to common stock at the beginning of such quarter but is less than 2.1875% (8.75% annualized).

 

  (iii) 20% of the Pre-Incentive Fee Net Investment Income, if any, for any calendar quarter that exceeds 2.1875% (8.75% annualized) of net assets attributable to common stock at the beginning of such quarter.

The calculations described above will be appropriately prorated for any period of less than a quarter and adjusted for the net proceeds from any common stock issuances and the cost of any common stock repurchases during such quarter.

The payment of any such Incentive Fee based on income otherwise earned by the Advisor will be deferred if, for the most recent four full calendar quarter period ending on or prior to the date such payment is to be made, the Annualized Rate of Return is less than 7.0% of net assets attributable to common stock at the beginning of such four quarter period as adjusted for the net proceeds from any common stock issuances and the cost of any common stock repurchases during such four full calendar quarter period, with any deferred Incentive Fees to be carried over for payment in subsequent quarterly calculation periods to the extent such payment can then be made in accordance with the investment management agreement.

For the three months ended June 30, 2017, the Advisor earned $2,773,859 in Incentive Fees based on income from the Company. For the period after March 6, 2017 to June 30, 2017, the Advisor earned $3,583,042 in Incentive Fees based on income from the Company.

On March 7, 2017, the Company’s investment advisor, in consultation with the Company’s Board of Directors, agreed to waive incentive fees based on income after March 6, 2017 to December 31, 2018 or approximately 21 months. The start date of the fee waiver coincides with the change to the fee calculation mentioned above. The waivers for incentive fees based on income for the three months ended June 30, 2017 and the period after March 6, 2017 to June 30, 2017 are also $2,773,859 and $3,583,042, respectively, resulting in zero net Incentive Fees based on income earned by the Company.

Annual Incentive Fee Based on Capital Gains After March 6, 2017

The second portion of the Incentive Fee is based on capital gains and is calculated separately for each Annual Period. The Advisor will be entitled to receive an Incentive Fee based on capital gains for each Annual Period in an amount equal to 20% of the amount by which (1) net realized capital gains occurring during the period, if any, exceeds (2) gross unrealized capital depreciation, if any, occurring during the period. In calculating the portion of the Incentive Fee based on capital gains payable for any period, investments are accounted for on a security-by-security basis. In addition, the portion of the Incentive Fee based on capital gains is determined using the “period-to-period” method pursuant to which the portion of the Incentive Fee based on capital gains for any period will be based on realized capital gains for the period reduced by realized capital losses for the period and unrealized capital depreciation for the period.

 

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For purposes of calculating the Incentive Fee, (i) “Annual Period” means the period beginning on July 1 of each calendar year, including the calendar year prior to the year in which the investment management agreement became effective, and ending on June 30 of the next calendar year; (ii) “Annualized Rate of Return” is computed by reference to the sum of (i) the aggregate distributions to common stockholders for the period in question and (ii) the change in net assets attributable to common stock (before taking into account any Incentive Fees otherwise payable during such period); (iii) “net assets attributable to common stock” means total assets less indebtedness and preferred stock; and (iv) “Pre-Incentive Fee Net Investment Income” means net investment income (as determined in accordance with United States generally accepted accounting principles) accrued by the Company during the calendar quarter excluding any accruals for or payments in respect of the Incentive Fee.

Advisor Reimbursements

The investment management agreement provides that the Company will reimburse the Advisor for costs and expenses incurred by the Advisor for administrative or operating services, office space rental, office equipment and utilities allocable to the Advisor under the investment management agreement, as well as any costs and expenses incurred by the Advisor relating to any non-investment advisory, administrative or operating services provided by the Advisor to us. For the three and six months ended June 30, 2017, the Company incurred $87,501 and $175,001, respectively, for such investment advisor expenses under the Management Agreement. For the three and six months ended June 30, 2016, the Company incurred $87,500 and $175,000, respectively, for such investment advisor expenses under the Management Agreement.

From time to time, the Advisor may pay amounts owed by the Company to third party providers of goods or services. The Company will subsequently reimburse the Advisor for such amounts paid on its behalf. Reimbursements to the Advisor for such purposes during the three and six months ended June 30, 2017 were zero and zero, respectively. Reimbursements to the Advisor for such purposes during the three and six months ended June 30, 2016 were zero and $5,921 respectively.

No person who is an officer, director or employee of the Advisor and who serves as a director of the Company receives any compensation from the Company for such services. Directors who are not affiliated with the Advisor receive compensation for their services and reimbursement of expenses incurred to attend meetings.

Administration

The Company also has entered into an administration agreement with BlackRock Financial Management, Inc. (the “Administrator”) under which the Administrator provides certain administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Company’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including rent and the Company’s allocable portion of the cost of certain of the Company’s officers and their respective staffs. For the three and six months ended June 30, 2017, the Company incurred $303,782 and $631,459, respectively, for administrative services expenses payable to the Administrator under the administration agreement. For the three and six months ended June 30, 2016, the Company incurred $285,940 and $755,940, respectively, for administrative services expenses payable to the Administrator under the administration agreement.

Advisor Stock Transactions

Effective upon completion of the Transaction, BlackRock Advisors, LLC assumed the role as investment adviser to the Company. BlackRock Advisors, LLC does not own any shares of the Company at June 30, 2017 and December 31, 2016.

At June 30, 2017 and December 31, 2016, other entities affiliated with the Administrator and Advisor beneficially owned approximately 471,000 and 490,000 shares, respectively, of the Company’s common stock, representing approximately 0.6% and 0.7%, respectively, of the total shares outstanding. An entity affiliated with the Administrator had ownership and financial interests in the Previous Advisor.

 

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4. Earnings (Loss) per share

The following information sets forth the computation of basic and diluted net increase (decrease) in net assets from operations per share (earnings (loss) per share) for the three and six months ended June 30, 2017 and 2016.

 

    Three months
ended
June 30,
2017
    Three months
ended
June 30,
2016
    Six months
ended
June 30,
2017
    Six months
ended
June 30,
2016
 

Earnings (Loss) per share – basic:

       

Net increase (decrease) in net assets resulting from operations

  $ 16,975,375     $ (9,554,087   $ 31,305,658     $ (47,728,856

Weighted-average shares outstanding – basic

    72,929,346       72,700,685       72,867,332       72,903,681  

Earnings (Loss) per share – basic:

  $ 0.23     $ (0.13   $ 0.43     $ (0.65

Earnings (Loss) per share – diluted:

       

Net increase (decrease) in net assets resulting from operations, before adjustments

  $ 16,975,375     $ (9,554,087   $ 31,305,658     $ (47,728,856

Adjustments for interest on unsecured convertible senior notes

    2,246,666       —       4,078,409       —  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations, as adjusted

  $ 19,222,041     $ (9,554,087   $ 35,384,067     $ (47,728,856

Weighted-average shares outstanding – diluted(1)

    86,187,472       72,700,685       84,454,044       72,903,681  

Earnings (Loss) per share – diluted:

  $ 0.22     $ (0.13   $ 0.42     $ (0.65

 

(1) Due to a net decrease in net assets from operations for the 2016 periods, zero incremental shares are included because the effect would be antidilutive.

5. Investments

Purchases of investments, including PIK, for the three and six months ended June 30, 2017 totaled $22,750,749 and $145,077,933, respectively. Purchases of investments, including PIK, for the three and six months ended June 30, 2016 totaled $76,302,523 and $173,826,420, respectively. Proceeds from sales, repayments and other exits of investments for the three and six months ended June 30, 2017 totaled $71,978,563 and $186,347,401, respectively. Proceeds from sales, repayments and other exits of investments for the three and six months ended June 30, 2016 totaled $161,396,378 and $194,302,048, respectively.

At June 30, 2017, investments consisted of the following:

 

     Cost      Fair Value  
  

 

 

 

Senior secured notes

       $ 63,550,115      $ 64,389,329  

Unsecured debt

     143,389,221        120,255,833  

Subordinated debt

     29,600,000        29,600,000  

Senior secured loans:

     

First lien

     271,098,322        270,082,773  

Second/other priority lien

     245,690,193        237,477,469  
  

 

 

 

Total senior secured loans

     516,788,515        507,560,242  
  

 

 

 

Preferred stock

     53,636,687        56,484,414  

Common stock

     24,784,399        18,462,588  

Limited partnership/limited liability company interests

     97,021,716        96,511,515  

Equity warrants/options

     694,450        —  
  

 

 

 

Total investments

       $ 929,465,103      $ 893,263,921  
  

 

 

 

 

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Table of Contents

At December 31, 2016, investments consisted of the following:

 

     Cost      Fair Value  
  

 

 

 

Senior secured notes

       $ 76,916,677      $ 63,609,625  

Unsecured debt

     147,170,031        127,317,932  

Subordinated debt

     28,800,000        28,800,000  

Senior secured loans:

     

First lien

     295,899,093        289,982,154  

Second/other priority lien

     294,051,311        258,533,161  
  

 

 

 

Total senior secured loans

     589,950,404        548,515,315  
  

 

 

 

Preferred stock

     58,544,859        57,873,127  

Common stock

     41,220,333        37,632,386  

Limited partnership/limited liability company interests

     77,102,335        67,257,747  

Equity warrants/options

     1,880,588        117,358  
  

 

 

 

Total investments

       $ 1,021,585,227      $ 931,123,490  
  

 

 

 

Industry Composition

The industry composition of the portfolio at fair value at June 30, 2017 and December 31, 2016 was as follows:

 

Industry    June 30, 2017     December 31, 2016  

Finance

     23.0     21.1

Chemicals, Plastics, & Rubber

     13.2       12.3  

Services: Business

     10.6       11.4  

Consumer Goods: Durable

     7.5       7.4  

Environmental Industries

     6.3       6.0  

Energy: Oil & Gas

     6.0       4.7  

Insurance

     5.3       5.1  

Aerospace & Defense

     5.0       4.7  

Retail

     4.9       4.8  

Media: Advertising, Printing & Publishing

     3.6       3.5  

Services: Consumer

     3.6       3.4  

Metals & Mining

     2.9       2.8  

Healthcare & Pharmaceuticals

     2.8       6.9  

Construction & Building

     2.2       3.0  

Containers, Packaging, & Glass

     2.2       2.1  

Capital Equipment

     0.6       0.5  

High Tech Industries

     0.3       0.3  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

 

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The geographic composition of the portfolio at fair value at June 30, 2017 was United States 94.3%, Bermuda 3.9%, Canada 1.5% and the Cayman Islands 0.3%, and at December 31, 2016 was United States 94.4%, Bermuda 3.8%, Canada 1.5% and the Cayman Islands 0.3%. The geographic composition is determined by several factors including the location of the corporate headquarters of the portfolio company.

Market and Credit Risk

In the normal course of business, the Company invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Company may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Company; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Company may be exposed to counterparty credit risk, or the risk that an entity with which the Company has unsettled or open transactions may fail to or be unable to perform on its commitments. The Company manages counterparty risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Company to market, issuer and counterparty credit risks, consist principally of investments in portfolio companies. The extent of the Company’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the consolidated statements of assets and liabilities. The Company is also exposed to credit risk related to maintaining all of its cash at a major financial institution.

The Company has investments in lower rated and comparable quality unrated senior and junior secured, unsecured and subordinated debt securities and loans, which are subject to a greater degree of credit risk than more highly rated investments. The risk of loss due to default by the issuer is significantly greater for holders of such securities and loans, particularly in cases where the investment is unsecured or subordinated to other creditors of the issuer.

BCIC Senior Loan Partners, LLC

On June 23, 2016, the Company and Windward Investments LLC (“Windward”) entered into an agreement to create BCIC Senior Loan Partners, LLC (“Senior Loan Partners”), a joint venture. Senior Loan Partners is structured as an unconsolidated Delaware limited liability company, and is expected to make loans to and other investments in portfolio companies. All portfolio and other material decisions regarding Senior Loan Partners must be submitted to its board of directors, which is comprised of four members, two of whom were selected by the Company and two of whom were selected by Windward, and must be approved by at least one member appointed by the Company and one appointed by Windward. In addition, certain matters may be approved by Senior Loan Partners’ investment committee, which is comprised of one member appointed by the Company and one member appointed by Windward.

The Company does not consolidate its non-controlling interests in Senior Loan Partners because the entity is not considered a substantially wholly owned investment company subsidiary, as provided under ASC 946. Senior Loan Partners is a joint venture for which shared power exists relating to the decisions that most significantly impact the economic performance of the entity.

The Company and Windward have committed to provide an aggregate of $100.0 million of equity to Senior Loan Partners, with the Company providing $85.0 million and Windward providing $15.0 million. As of June 30, 2017, Senior Loan Partners had called and received $66.1 million of combined equity capital, of which the Company funded $56.2 million and Windward funded $9.9 million. As of June 30, 2017, Senior Loan Partners had received $0.2 million and $1.3 million of contributions in advance from the Company and Windward, respectively, which is recorded as a liability in Senior Loan Partners’ Consolidated Statements of Assets and Liabilities, as shown in the selected balance sheet information below. As a result, remaining

 

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commitments from the Company and Windward as of June 30, 2017 were $28.6 million and $3.8 million, respectively. Capital contributions have been used to make investments and to fund certain start-up expenses of Senior Loan Partners.

On June 24, 2016, Senior Loan Partners as Seller and Collateral Manager, and BCIC Senior Loan Funding, LLC (“Senior Loan Funding”), a newly formed Delaware limited liability company consolidated by Senior Loan Partners, as Borrower, entered into a $200.0 million Loan and Security Agreement (the “LSA” or the “Senior Facility”) with Citibank, N.A. (“Citi”) acting as Administrative Agent and The Bank of New York Mellon Trust Company (“BoNY”) as Collateral Agent. The Senior Facility is scheduled to mature on June 24, 2021. Senior Loan Partners and Senior Loan Funding, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including collateral maintenance, reporting requirements, usual and customary events of default and other customary requirements for similar facilities. Senior Loan Partners and Senior Loan Funding were not in default with any covenants or requirements thereunder as of June 30, 2017.

As of June 30, 2017, $106.6 million was drawn on the Senior Facility, and subject to compliance with applicable covenants and borrowing base limitations, the remaining amount available was $93.4 million. The average outstanding debt balance during the three and six months ended June 30, 2017 was $79.7 million and $49.4 million, respectively. The maximum amount borrowed during the three and six months ended June 30, 2017 was $106.6 million and $106.6 million, respectively. During the three and six months ended June 30, 2017, $0.7 million and $1.4 million, respectively, of interest expense and other debt related expenses were incurred under the Senior Facility.

As of June 30, 2017, Senior Loan Partners had total investments at fair value of $169.3 million, comprised of senior secured first lien loans, delayed draw term loans and two undrawn revolving loans to a total of 17 borrowers. As of June 30, 2017, none of these loans were on non-accrual status. Proceeds from investment sales, prepayments or exits for the three and six months ended June 30, 2017 were $0.5 million and $1.3 million, respectively. Additionally, Senior Loan Partners had unfunded commitments to three borrowers totaling $6.7 million. The aggregate fair value of the unfunded commitments at June 30, 2017 was $6.7 million. The weighted average yield of the portfolio at its current cost basis as of June 30, 2017 was 6.53%. Below is a summary of Senior Loan Partners’ portfolio as of June 30, 2017:

 

Portfolio Company   Industry  

Interest

Rate(1)

  Maturity  

Principal

Amount

    Cost    

Fair

Value(2)

 

Senior Secured Term & Delayed Draw Loans

       

Alaska Communications Systems Holdings, Inc., Term Loan A-1, First Lien

  Telecommunications   6.23%
(L + 500,

1.00% Floor)

  3/13/22   $ 3,000,000     $ 3,000,000     $ 2,962,500  

Alaska Communications Systems Holdings, Inc., Term Loan A-2, First Lien

  Telecommunications   8.23%

(L + 700,

1.00% Floor)

  3/13/23     5,000,000       5,000,000       4,912,500  

AP Exhaust Acquisition, LLC, First Lien

  Automotive   6.00%

(L + 500,

1.00% Floor)

  5/10/24     13,750,000       13,480,485       13,480,485  

AP Gaming I, LLC, First Lien

  Hotel,
Gaming, & Leisure
  6.58%

(L + 550,

1.00% Floor)

  2/15/24     10,000,000       9,975,185       9,975,185  

AP Plastics Group, LLC, Term Loan B, First Lien

  Chemicals,

Plastics, & Rubber

  7.32%

(L + 625,

1.00% Floor)

  8/1/22     10,517,105       10,430,099       10,517,105  

Digital Room LLC, First Lien

  Media:

Advertising,

Printing &

Publishing

  7.23%

(L + 600,

1.00% Floor)

  11/21/22     9,750,000       9,570,009       9,652,500  

 

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Table of Contents
Portfolio Company   Industry  

Interest

Rate(1)

  Maturity    

Principal

Amount

    Cost    

Fair

Value(2)

 

Dunn Paper, Inc., First Lien

  Containers,

Packaging & Glass

  5.79%

(L + 475,

1.00% Floor)

    8/26/22     $ 8,334,783     $ 8,255,923     $ 8,334,783  

Edgewood Partners Insurance Center, First Lien

  Insurance   6.23%

(L + 500,

1.00% Floor)

    3/16/23       10,000,000       9,975,597       9,975,597  

ENC Holding Corporation, First Lien

  Transportation:
Cargo
  7.73%

(L + 650,

1.00% Floor)

    2/8/23       9,975,000       9,880,489       9,875,250  

Entertainment Partners, LLC, First Lien

  Media: Diversified
& Production
  6.81%

(L + 575,

1.00% Floor)

    5/8/23       11,500,000       11,500,000       11,500,000  

Highline Aftermarket Acquisition, LLC, First Lien

  Automotive   5.56%

(L + 425,

1.00% Floor)

    3/24/24       9,975,000       9,926,656       9,926,656  

MHE Intermediate Holdings, LLC, Delayed Draw

  Services: Business   6.30%

(L + 500,

1.00% Floor)

    3/10/24       488,092       483,365       483,211  

MHE Intermediate Holdings, LLC, First Lien

  Services: Business   6.30%

(L + 500,

1.00% Floor)

    3/10/24       6,365,121       6,303,938       6,301,470  

National Spine and Pain Centers, LLC, First Lien

  Healthcare &

Pharmaceuticals

  5.56%

(L + 450,

1.00% Floor)

    6/2/24       10,000,000       9,950,431       9,950,431  

NSM Sub Holdings Corp., Delayed Draw

  Healthcare &

Pharmaceuticals

  6.23%

(L + 500,

1.00% Floor)

    10/3/22       623,229       623,229       623,229  

NSM Sub Holdings Corp., First Lien

  Healthcare &

Pharmaceuticals

  6.29%

(L + 500,

1.00% Floor)

    10/3/22       7,300,315       7,236,074       7,300,315  

O2 Partners, LLC, First Lien

  Consumer Goods:

Non-Durable

  6.23%

(L + 500,

1.00% Floor)

    10/7/22       9,925,000       9,836,859       9,925,000  

Pasternack Enterprises, Inc., First Lien

  Wholesale   6.23%

(L + 500,

1.00% Floor)

    5/27/22       11,411,177       11,370,558       11,382,650  

Pretium Packaging, LLC, First Lien

  Containers,
Packaging & Glass
  6.93%

(L + 575,

1.00% Floor)

    11/14/22       12,500,000       12,379,776       12,379,776  

Q Holding Company, Term Loan B, First Lien

  Chemicals, Plastics,
& Rubber
  6.30%

(L + 500,

1.00% Floor)

    12/18/21       9,923,664       9,833,199       9,824,427  
         

 

 

   

 

 

 

Total Senior Secured Term & Delayed Draw Loans

      $ 169,011,872     $ 169,283,070  
         

 

 

   

 

 

 

 

(1) 100% of the senior secured loans in BCIC Senior Loan Partners’ portfolio bear interest at a floating rate that may be determined by reference to the London Interbank Offered Rate (LIBOR) or other base rate (commonly the Federal Funds Rate or the Prime Rate), at the borrower’s option. In addition, 100% of such senior secured loans have floors of 1.00%. The borrower under a senior secured loan generally has the option to select from interest reset periods of one, two, three or six months and may alter that selection at the end of any reset period. The stated interest rate represents the weighted average interest rate at June 30, 2017 of all contracts within the specified loan facility.
(2) Represents 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.

 

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Below is certain summarized financial information for Senior Loan Partners as of June 30, 2017 and December 31, 2016, respectively, and for the three and six months then ended:

Selected Balance Sheet Information

 

     June 30,
2017
     December 31,
2016
 

($’s in thousands)

     

Investments, at fair value (cost $169,012 and $53,099)

   $ 169,283      $ 53,162  

Cash and cash equivalents

     2,928        2,029  

Other assets

     2,693        2,408  
  

 

 

    

 

 

 

Total assets

   $ 174,904      $ 57,599  
  

 

 

    

 

 

 

Debt

     106,610        7,020  

Interest and credit facility fees payable

     271        85  

Contributions received in advance

     1,500        1,195  

Distribution payable

     682        —    

Other accrued expenses and payables

     243        149  
  

 

 

    

 

 

 

Total liabilities

   $ 109,306      $ 8,449  
  

 

 

    

 

 

 

Members’ equity

     65,598        49,150  
  

 

 

    

 

 

 

Total liabilities and members’ equity

   $ 174,904      $ 57,599  
  

 

 

    

 

 

 

Selected Statement of Operations Information

 

     Three months
ended
June 30,
2017
     Six months
ended
June 30,
2017
 

($’s in thousands)

     

Interest income

   $ 2,243      $ 3,357  

Fee income

     300        425  
  

 

 

    

 

 

 

Total investment income

   $ 2,543      $ 3,782  
  

 

 

    

 

 

 

Interest and credit facility fees

     732        1,449  

Other fees and expenses

     132        294  
  

 

 

    

 

 

 

Total expenses

   $ 864      $ 1,743  
  

 

 

    

 

 

 

Net investment income (loss)

     1,678        2,038  
  

 

 

    

 

 

 

Unrealized appreciation (depreciation)

     (44      271  
  

 

 

    

 

 

 

Net increase (decrease) in members’ capital

   $ 1,634      $ 2,310  
  

 

 

    

 

 

 

 

Amounts may not foot due to rounding

For the three and six months ended June 30, 2017, the Company’s share of investment income from Senior Loan Partners was $1.4 million and $0.2 million, respectively, which amounts are included in dividend income from controlled investments on the Company’s Consolidated Statements of Operations. As of June 30, 2017 and December 31, 2016, $0.6 million and zero, respectively, was included in interest, dividends and fees receivable on the Company’s Consolidated Statements of Assets and Liabilities.

 

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6. Derivatives

Foreign Currency

The Company may enter into forward foreign currency contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies or to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date (usually the security transaction settlement date) at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled. The Company’s forward foreign currency contracts generally have terms of approximately three months. The volume of open contracts at the end of each reporting period is reflective of the typical volume of transactions during each calendar quarter. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit this risk by dealing with only creditworthy counterparties. There were no open forward foreign currency contracts at June 30, 2017 and December 31, 2016.

Warrants and Options

The Company holds warrants and options in certain portfolio companies in an effort to achieve additional investment return. In purchasing warrants and options, the Company bears the risk of an unfavorable change in the value of the underlying equity interest. The aggregate fair value of warrants and options as of June 30, 2017 and December 31, 2016 represents zero and 0.02%, respectively, of the Company’s net assets.

The Company may enter into other derivative instruments and incur other exposures with other counterparties in the future. The derivative instruments held as of June 30, 2017 and December 31, 2016 reflect the volume of derivative activity throughout the periods presented.

7. Debt

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, calculated pursuant to the 1940 Act, is at least 200% after such borrowing. As of June 30, 2017, the Company’s asset coverage was 300%.

On February 19, 2016, the Company entered into an Amended and Restated Senior Secured Revolving Credit Facility (the “Credit Facility”) which has an initial aggregate principal amount of up to $440,000,000, a stated commitment termination date of February 19, 2020, and a stated maturity date of February 19, 2021. The interest rate applicable to Eurocurrency borrowings thereunder is generally LIBOR plus an applicable margin of either 1.75% or 2.00% based on a pricing grid using the borrowing base as a multiple of the combined debt amount. The interest rate applicable to ABR borrowings thereunder is generally the prime rate in effect plus an applicable margin of either 0.75% or 1.00% based on a pricing grid using the borrowing base as a multiple of the combined debt amount. The Credit Facility’s commitment may increase in size, under certain circumstances, up to a total of $750,000,000. From the commitment termination date to the stated maturity date, the Company is required to repay outstanding principal amounts under the Credit Facility on a monthly basis in an amount equal to 1/12th of the outstanding amount at the commitment termination date. On June 5, 2017, the Company entered into a Second Amendment to the Second Amended and Restated Senior Secured Revolving Credit Facility which extends the maturity date on the Credit Facility from February 19, 2021 to June 5, 2022.

On February 19, 2016, the Company entered into an Amended and Restated Senior Secured Term Loan Credit Agreement (the “Term Loan”) which has a principal amount of $15,000,000. The Term Loan has a stated maturity date of March 27, 2019. The interest rate applicable to borrowings thereunder is generally LIBOR plus an applicable margin of 3.25%. On June 22, 2017, the Company repaid the aggregate $15,000,000 principal amount of the Term Loan, plus accrued and unpaid interest, as well as a $192,005 make-whole premium, using proceeds from the Credit Facility.

 

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On January 18, 2011, the Company closed a private placement issuance of $158,000,000 in aggregate principal amount of five-year, senior secured notes with a fixed interest rate of 6.50% and a maturity date of January 18, 2016 and $17,000,000 in aggregate principal amount of seven-year, senior secured notes with a fixed interest rate of 6.60% and a maturity date of January 18, 2018 (collectively, the “Senior Secured Notes”). The $158,000,000 five-year, senior secured notes matured on January 18, 2016 and were repaid using proceeds from the Company’s Credit Facility. On April 17, 2017, the Company redeemed the $17,000,000 aggregate principal amount of 6.60% senior secured notes due 2018, using proceeds from the Credit Facility. The notes were prepaid at 100% of the principal amount, plus accrued and unpaid interest through the prepayment date, as well as $651,472 make-whole premium.

The Senior Secured Notes were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on January 18 and July 18, commencing on July 18, 2011.

On February 19, 2013, the Company closed a private offering of $100,000,000 in aggregate principal amount of 5.50% unsecured convertible senior notes due 2018 (the “Convertible Notes”). The initial purchasers of the Convertible Notes fully exercised their overallotment option and purchased an additional $15,000,000 in aggregate principal amount of the Convertible Notes. The closing of the overallotment option took place on March 4, 2013. With the exercise of the overallotment option, a total of $115,000,000 in aggregate principal amount of the Convertible Notes was sold. Net proceeds to the Company from the offering, including the exercise of the overallotment option, were approximately $111,300,000. The Convertible Notes were only offered to qualified institutional buyers as defined in the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Rule 144A under the Securities Act.

The Convertible Notes are unsecured and bear interest at a rate of 5.50% per year, payable semi-annually in arrears. In certain circumstances and during certain periods, the Convertible Notes are convertible into cash, shares of BlackRock Capital Investment Corporation’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion rate of 86.0585 shares of common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $11.62 per share of the Company’s common stock, subject to defined anti-dilution adjustments. The Company does not have the right to redeem the Convertible Notes prior to maturity. The Convertible Notes mature on February 15, 2018, unless repurchased or converted in accordance with their terms prior to such date.

On June 13, 2017, the Company issued $143,750,000 in aggregate principal amount ($125,000,000 of the initial offering and $18,750,000 of the underwriters’ exercise of the overallotment option) of 5.00% Convertible Notes due 2022 (the “2022 Convertible Notes”) under an indenture, dated as of June 13, 2017. Net proceeds to the Company from the offering, including the exercise of the overallotment option, were approximately $139,800,000. The 2022 Convertible Notes will mature on June 15, 2022, unless previously converted, repurchased or redeemed in accordance with their terms. The interest rate on the notes is 5.00% per year, payable semiannually in arrears on June 15 and December 15 of each year, commencing on December 15, 2017. Holders may convert their notes at their option prior to the close of business on the business day immediately preceding December 15, 2021, in integral multiples of $1,000 principal amount, only under certain circumstances. Upon conversion of a note, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election at an initial conversion rate of 118.2173 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $8.46 per share of the Company’s common stock. On or after December 23, 2021, the Company may redeem the 2022 Convertible Notes for cash, in whole or from time to time in part, at its option in accordance with their terms.

The 2022 Convertible Notes are accounted for in accordance with ASC 470-20, Debt – Debt with Conversion and Other Options (“ASC 470-20”). The Company has determined that the embedded conversion options in the 2022 Convertible Notes are not required to be separately accounted for as a derivative under U.S. GAAP. In accounting for the 2022 Convertible Notes, at the time of issuance the Company estimated separate

 

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debt and equity components, and an original issue discount equal to the equity component was recorded in additional paid in capital in the accompanying Consolidated Balance Sheet.

The Company’s outstanding debt as of June 30, 2017 and December 31, 2016 was as follows:

 

    As of  
  June 30, 2017     December 31, 2016  
  Total
Aggregate
Principal
Amount
Available(1)
    Principal
Amount
Outstanding
    Carrying Value     Total
Aggregate
Principal
Amount
Available(1)
    Principal
Amount
Outstanding
    Carrying Value  

Credit Facility

  $ 440,000,000 (2)    $ 46,000,000     $ 46,000,000     $ 440,000,000 (2)    $ 190,000,000     $ 190,000,000  

Senior Secured Notes

    —       —       —   (5)      17,000,000       17,000,000       16,973,708 (5) 

Convertible Notes

    115,000,000       115,000,000       114,359,852 (3)      115,000,000       115,000,000       113,856,080 (4) 

2022 Convertible Notes

    143,750,000       143,750,000       135,129,021 (7)      —       —       —  

Term Loan

    —       —       —   (6)      15,000,000       15,000,000       14,838,118 (6) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 698,750,000     $ 304,750,000     $ 295,488,873     $ 587,000,000     $ 337,000,000     $ 335,667,906  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Subject to borrowing base and leverage restrictions.
(2) Provides for a feature that allows the Company, under certain circumstances, up to a total of $750,000,000.
(3) Represents the aggregate principal amount outstanding of the Convertible Notes less an unaccreted discount initially recorded upon issuance and unamortized debt issuance costs of $155,474 and $484,674, respectively, as of June 30, 2017.
(4) Represents the aggregate principal amount outstanding of the Convertible Notes less an unaccreted discount initially recorded upon issuance and unamortized debt issuance costs of $277,828 and $866,092, respectively, as of December 31, 2016.
(5) Represents the aggregate principal amount outstanding of the Senior Secured Notes less unamortized debt issuance costs of $26,292 at December 31, 2016. No longer outstanding at June 30, 2017.
(6) Represents the aggregate principal amount outstanding of the Term Loan less unamortized debt issuance costs of $161,882 at December 31, 2016. No longer outstanding at June 30, 2017.
(7) Represents the aggregate principal amount outstanding of the 2022 Convertible Notes less an unaccreted discount initially recorded upon issuance and unamortized debt issuance costs of $4,302,284 and $4,318,695, respectively, as of June 30, 2017.

At June 30, 2017, the Company had $46,000,000 drawn on the Credit Facility versus $190,000,000 at December 31, 2016. Subject to compliance with applicable covenants and borrowing base limitations, the remaining amount available under the Credit Facility was $394,000,000 at June 30, 2017 and $250,000,000 at December 31, 2016. The Company’s average outstanding debt balance during the three and six months ended June 30, 2017 was $334,668,593 and $329,257,489, respectively, and during the three and six months ended June 30, 2016 was $408,391,544 and $399,816,998, respectively. The maximum amounts borrowed during the three and six months ended June 30, 2017 were $412,247,365 and $412,247,365, respectively, and during the three and six months ended June 30, 2016 were $452,539,653 and $452,539,653, respectively.

Amortization of $575,102 and $967,138 related to debt issuance costs are included in interest expense within the consolidated statements of operations for the three and six months ended June 30, 2017. Amortization of $406,646 and $839,161 related to debt issuance costs are included in interest expense within the consolidated statements of operations for the three and six months ended June 30, 2016.

The weighted average annual interest cost for the three and six months ended June 30, 2017 was 6.01% and 5.36%, respectively, exclusive of commitment fees of $250,031 and $497,063, respectively. The weighted average annual interest cost for the three and six months ended June 30, 2016 was 3.91% and 4.23%,

 

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respectively, exclusive of commitment fees of $168,896 and $359,167, respectively. With respect to any unused portion of the commitments under the Credit Facility, the Company incurs an annual commitment fee of 0.375%.

Under the Credit Facility, the Company is required to comply with various affirmative and restrictive covenants, reporting requirements and other customary requirements for similar debt facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on distributions and certain other restricted payments, (d) certain restrictions on subsidiaries and fundamental changes thereto, (e) maintaining a certain minimum shareholders’ equity, (f) maintaining an asset coverage ratio of not less than 2.0:1.0, (g) limitations on certain transactions with affiliates, (h) limitations on pledging certain unencumbered assets, and (i) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. These covenants are subject to important limitations and exceptions that are described in the governing documents. Further, amounts available to borrow under the Credit Facility (and the incurrence of certain other permitted debt) are also subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio that are pledged as collateral. The Credit Facility is secured by a lien on substantially all of the assets of the Company and its subsidiaries.

The Convertible Notes and 2022 Convertible Notes contain certain covenants, including covenants requiring the Company to reserve shares of common stock for the purpose of satisfying all obligations to issue the underlying securities upon conversion of the securities and to furnish to holders of the securities upon request, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

At June 30, 2017, the Company was in compliance with all covenants required under the Credit Facility, Convertible Notes and 2022 Convertible Notes.

8. Capital stock

During April 2016, the Board of Directors approved an increase to the remaining amount of shares authorized to be repurchased to a total of 2,500,000 shares, and an extension to the plan until the earlier of June 30, 2017 or such time that all of the authorized shares have been repurchased. During May 2017, the Board of Directors approved an increase to the remaining amount of shares authorized to be repurchased, effective July 1, 2017, to a total of 2,500,000 shares, and an extension to the plan until the earlier of June 30, 2018 or such time that all of the authorized shares have been repurchased. During the three and six months ended June 30, 2016, the Company purchased a total of 541,851 and 1,904,064 shares, respectively, of its common stock on the open market for $4,083,719 and $16,093,205, respectively, including brokerage commissions. No such shares were purchased for the three and six months ended June 30, 2017. Since inception of the repurchase plan through June 30, 2017, the Company has purchased 4,551,965 shares of its common stock on the open market for $36,302,821, including brokerage commissions. At June 30, 2017, the total number of remaining shares authorized for repurchase was 1,958,149. The Company currently holds the shares it repurchased in treasury.

9. Guarantees, commitments and contingencies

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. There were no such guarantees outstanding at June 30, 2017 and December 31, 2016. In addition, from time to time, the Company may provide for a commitment to a portfolio company for investment in an existing or new security. At June 30, 2017 and December 31, 2016, the Company was obligated to existing portfolio companies for unfunded commitments of $35.2 million and $43.5 million, respectively. Of the $35.2 million and $43.5 million total unfunded commitments at June 30, 2017 and December 31, 2016, respectively, $28.6 million and $42.5 million was on our aggregate $85.0 million equity commitment to BCIC Senior Loan Partners, LLC (See Note 5). The aggregate fair value of unfunded commitments at June 30, 2017 and December 31, 2016 was $35.2 million and $42.6 million, respectively. We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.

 

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In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

From time to time, we and the Advisor may be a party to certain legal proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. Further, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we cannot predict the outcome of these legal proceedings with certainty, we do not expect that these proceedings will have a material effect on our consolidated financial statements.

10. Fair value of financial instruments

Fair Value Measurements and Disclosure

ASC 820-10 defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. ASC 820-10 defines fair value as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. ASC 820-10 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on unadjusted quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation.

Transfers between levels, if any, represent the value as of the beginning of the period of any investment where a change in the pricing level occurred from the beginning to the end of the period.

The Company’s valuation policy and fair value disclosures are consistent with ASC 820-10. The Company evaluates the source of inputs, including any markets in which its investments are trading, in determining fair value and categorizes each investment within the fair value hierarchy pursuant to ASC 820-10.

Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled non-affiliated, non-controlled affiliated and controlled investments is contained in the accompanying consolidated schedules of investments and consolidated financial statements. The information in the tables below is presented on an aggregate portfolio basis, without segregating the non-controlled non-affiliated, non-controlled affiliated and controlled investment categories.

 

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The carrying values of the Company’s financial instruments approximate fair value. The carrying values of receivables, other assets, accounts payable and accrued expenses approximate fair value due to their short maturities. The fair value of the Company’s Credit Facility, Senior Secured Notes, Convertible Notes, 2022 Convertible Notes and Term Loan is derived by taking the average of the high and low quotes as obtained from a broker. The fair value of the Credit Facility, Senior Secured Notes, Convertible Notes, 2022 Convertible Notes and Term Loan would be classified as Level 2 with respect to the fair value hierarchy.

The carrying and fair values of the Company’s outstanding debt as of June 30, 2017 and December 31, 2016 were as follows:

 

     June 30, 2017      December 31, 2016  
     Carrying Value      Fair Value      Carrying Value      Fair Value  

Credit Facility

   $ 46,000,000      $ 43,470,000      $ 190,000,000      $ 179,550,000  

Senior Secured Notes

     —        —        16,973,708        17,752,420  

Convertible Notes

     114,359,852        117,428,528        113,856,080        118,163,837  

2022 Convertible Notes

     135,129,021        142,846,754        —        —  

Term Loan

     —        —        14,838,118        15,093,750  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 295,488,873      $ 303,745,282      $ 335,667,906      $ 330,560,007  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables summarize the fair values of the Company’s investments and cash and cash equivalents based on the inputs used at June 30, 2017 and December 31, 2016 in determining such fair values:

 

            Fair Value Inputs at June 30, 2017  
     Fair Value
at June 30,
2017
     Price
Quotations
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Senior secured notes

   $ 64,389,329      $ —      $           —      $ 64,389,329  

Unsecured debt

     120,255,833        —        —        120,255,833  

Subordinated debt

     29,600,000        —        —        29,600,000  

Senior secured loans

     507,560,242        —        —        507,560,242  

Preferred stock

     56,484,414        —        —        56,484,414  

Common stock

     18,462,588        —        —        18,462,588  

Limited partnership/limited liability company interests

     96,511,515        —        —        96,511,515  

Equity warrants/options

     —        —        —       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

     893,263,921        —        —        893,263,921  

Cash and cash equivalents

     15,700,798        15,700,798        —       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 908,964,719      $ 15,700,798      $ —      $ 893,263,921  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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            Fair Value Inputs at December 31, 2016  
     Fair Value
at December 31,
2016
     Price
Quotations
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Senior secured notes

   $ 63,609,625      $    $           —      $ 63,609,625  

Unsecured debt

     127,317,932             —        127,317,932  

Subordinated debt

     28,800,000             —        28,800,000  

Senior secured loans

     548,515,315             —        548,515,315  

Preferred stock

     57,873,127             —        57,873,127  

Common stock

     37,632,386             —        37,632,386  

Limited partnership/limited liability company interests

     67,257,747             —        67,257,747  

Equity warrants/options

     117,358             —        117,358  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

     931,123,490             —        931,123,490  

Cash and cash equivalents

     10,707,834        10,707,834        —        —  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 941,831,324      $ 10,707,834      $ —      $ 931,123,490  
  

 

 

    

 

 

    

 

 

    

 

 

 

The valuation techniques used at June 30, 2017 and December 31, 2016 in determining the fair values of the Company’s investments for which significant unobservable inputs were used were the market approach, income approach or both using third party valuation firms or broker quotes for identical or similar assets. The total fair market value using the market or income approach or both using third party valuation firms was $893,263,921 and $931,123,490 as of June 30, 2017 and December 31, 2016, respectively. Any remaining balance was determined using broker quotes for identical or similar assets.

The following is a reconciliation for the three months ended June 30, 2017 of investments for which Level 3 inputs were used in determining fair value:

 

    Fair Value at
March 31,
2017
    Amortization
of Premium/
Discount - Net
    Net
Realized
Gain (Loss)
    Net Change in
Unrealized
Appreciation or
Depreciation
    Purchases     Sales or
Repayments
    Net Transfers
in and/or
out of
Level 3
    Fair Value at
June 30,
2017
 

Senior secured notes

  $ 65,033,438     $ 77,379     $ —     $ (883,639   $ 162,151     $ —       $ —       $ 64,389,329  

Unsecured debt

    127,754,735       —         —         (1,817,049     7,377,776       (13,059,629     —         120,255,833  

Subordinated debt

    28,800,000       —         —         —         800,000       —         —         29,600,000  

Senior secured loans

    564,090,631       471,190       —         (1,295,898     3,213,253       (58,918,934     —         507,560,242  

Preferred stock

    52,459,434       —         —         3,747,862       277,118       —         —         56,484,414  

Common stock

    18,614,930       —         —         (297,618     145,276       —         —         18,462,588  

Limited partnership/LLC Interest

    82,092,281       —         —         3,498,783       10,920,451       —         —         96,511,515  

Equity warrants/options

    —         —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investments

  $ 938,845,449     $ 548,569     $ —       $ 2,952,441     $ 22,896,025     $ (71,978,563   $ —       $ 893,263,921  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

45


Table of Contents

The following is a reconciliation for the six months ended June 30, 2017 of investments for which Level 3 inputs were used in determining fair value:

 

    Fair Value at
December 31,
2016
    Amortization
of Premium/
Discount - Net
    Net
Realized
Gain (Loss)
    Net Change in
Unrealized
Appreciation or
Depreciation
    Purchases     Sales or
Repayments
    Net Transfers
in and/or
out of
Level 3
    Fair Value at
June 30,
2017
 

Senior secured notes

  $ 63,609,625     $ 153,909     $ (13,682,622   $ 14,146,266     $ 5,162,151     $ (5,000,000   $  —       $ 64,389,329  

Unsecured debt

    127,317,932       —         —         (3,281,289     12,808,448       (16,589,258     —         120,255,833  

Subordinated debt

    28,800,000       —         —         —         800,000       —         —         29,600,000  

Senior secured loans

    548,515,315       1,274,613       (34,071,371     32,206,815       95,344,104       (135,709,234     —         507,560,242  

Preferred stock

    57,873,127       —         2,449,618       3,519,460       466,145       (7,823,936     —         56,484,414  

Common stock

    37,632,386       —         3,369,690       (2,733,864     218,571       (20,024,195     —         18,462,588  

Limited partnership/LLC Interest

    67,257,747       —         (9,638,439     9,334,387       30,497,089       (939,269     —         96,511,515  

Equity warrants/options

    117,358       —         (994,155     1,068,780       —         (191,983     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investments

  $ 931,123,490     $ 1,428,522     $ (52,567,279   $ 54,260,555     $ 145,296,508     $ (186,277,875   $ —       $ 893,263,921  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following is a reconciliation for the three months ended June 30, 2016 of investments for which Level 3 inputs were used in determining fair value:

 

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