Garrison Capital Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EX-32.2 - Garrison Capital Inc.	gars-ex322_9.htm
EX-32.1 - EX-32.1 - Garrison Capital Inc.	gars-ex321_8.htm
EX-31.2 - EX-31.2 - Garrison Capital Inc.	gars-ex312_7.htm
EX-31.1 - EX-31.1 - Garrison Capital Inc.	gars-ex311_6.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2020

☐	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 814-00878

Garrison Capital Inc.

(Exact name of registrant as specified in its charter)

Delaware

90-0900145

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1270 Avenue of the Americas, Suite 804

New York, New York 10020

(Address of principal executive offices)

(Registrant’s telephone number, including area code): (212) 372-9508

1290 Avenue of the Americas, Suite 914

New York, New York 10104

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

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	GARS	The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit 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	☐	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 Exchange Act). Yes ☐ No ☒

As of August 6, 2020 the Registrant had 16,049,352 shares of common stock, $0.001 par value, outstanding.

Table of Contents

		Page
Part I.	Financial Information

Item 1.	Financial Statements	1

	Consolidated Statements of Financial Condition as of June 30, 2020 (unaudited) and December 31, 2019	1

	Consolidated Schedules of Investments as of June 30, 2020 (unaudited) and December 31, 2019	2

	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2020 and June 30, 2019	20

	Consolidated Statements of Changes in Net Assets (unaudited) for the three and six months ended June 30, 2020 and June 30, 2019	21

	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2020 and June 30, 2019	22

	Notes to Consolidated Financial Statements (unaudited)	23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70

Item 4.	Controls and Procedures	70

Part II.	Other Information

Item 1.	Legal Proceedings	71

Item 1A.	Risk Factors	71

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78

Item 3.	Defaults Upon Senior Securities	78

Item 4.	Mine Safety Disclosures	78

Item 5.	Other Information	78

Item 6.	Exhibits	78

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Financial Condition

($ in thousands, except share and per share amounts)

Part I. Financial Information

Item 1. Financial Statements

	June 30, 2020			December 31, 2019
	(unaudited)
Assets
Cash	$	8,531		$	1,251
Restricted cash		7,955			39,056
Due from counterparties		219			1,413
Investments, at fair value
Non-control/non-affiliate investments (amortized cost of $380,164 and $433,940, respectively)		348,024			417,401
Non-control/affiliate investments (amortized cost of $3,623 and $3,663, respectively)		741			1,472
Accrued interest receivable		2,172			2,887
Other assets		646			969
Total assets	$	368,288		$	464,449

Liabilities
Due to counterparties	$	—		$	9,413
Debt (Note 4)		266,211			313,750
Management fee payable (Note 5)		143			1,516
Administrator fee payable (Note 5)		—			—
Accrued interest payable		732			1,734
Accrued expenses and other payables		575			1,483
Total liabilities	$	267,661		$	327,896

Commitments and contingencies (Note 9)

Net assets
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 16,758,779 shares issued and 16,049,352 shares outstanding as of both June 30, 2020 and December 31, 2019	$	17		$	17
Paid-in-capital in excess of par		249,124			249,124
Total distributable earnings/(loss)		(148,514	)		(112,588	)
Total net assets		100,627			136,553
Total liabilities and net assets	$	368,288		$	464,449

Shares of common stock outstanding		16,049,352			16,049,352
Net asset value per share	$	6.27		$	8.51

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Equity Investments
Aerospace and Defense
New Constellis Borrower LLC, Common Stock*	N/A	N/A	N/A	N/A		30,342	$	1,035	$	—		—	%
								1,035		—		—
Building Products
Valterra Products Holdings, LLC, Class A LLC Units	N/A	N/A	N/A	N/A		185,847		186		1,124		1.12
Valterra Products Holdings, LLC, Class B LLC Units	N/A	N/A	N/A	N/A		20,650		21		125		0.12
								207		1,249		1.24

Commercial Services and Supplies
Faraday Holdings, LLC, LLC Units	N/A	N/A	N/A	N/A		2,752		140		628		0.62
								140		628		0.62

Diversified Financial Services
Prosper Marketplace Inc., Series B Preferred Stock⁽¹⁾⁽²⁾	N/A	N/A	N/A	N/A		912,865		551		320		0.32
								551		320		0.32

Diversified Telecommunication Services
Fusion Connect, Inc., Common Stock*	N/A	N/A	N/A	N/A		121,871		2,602		2,147		2.13
								2,602		2,147		2.13

Healthcare Equipment and Services
Juniper TGX Investment Partners, LLC, LLC Units	N/A	N/A	N/A	N/A		3,146		671		1,945		1.93
								671		1,945		1.93

Household Products and Durables
Oneida Group Inc., Common Stock	N/A	N/A	N/A	N/A		1,085,565		4,160		795		0.79
								4,160		795		0.79

Internet Software and Services
Emtec Global Services Holdings, LLC, Preferred Stock	N/A	N/A	N/A	N/A		319,357		—		—		—
								—		—		—

Total Equity Investments							$	9,366	$	7,084		7.03	%

Debt Investments
Aerospace and Defense
McNally Industries, LLC, Term Loan	1.50%	5.75%	7.25%	8/9/2024		6,822	$	6,739	$	6,754		6.71	%
McNally Industries, LLC, Delayed Draw Term Loan	1.50%	5.75%	7.25%	8/9/2024		50		49		49		0.05
McNally Industries, LLC, Revolver	1.50%	5.75%	7.25%	8/9/2024		44		44		43		0.04
New Constellis Borrower LLC, Term Loan*⁽⁵⁾	1.00%	11.00%	12.00%	3/27/2025		481		481		78		0.08
Novetta Solutions LLC, Term Loan*	1.00%	5.00%	6.00%	10/17/2022		1,954		1,929		1,898		1.89
Peraton Corp. (fka MHVC Acquisition Corp.), Initial Term Loan (First Lien)*	1.00%	5.25%	6.25%	4/29/2024		1,309		1,306		1,247		1.24
								10,548		10,069		8.59

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Air Freight and Logistics
Gruden Acquisition, Inc., Term Loan (First Lien)*	1.00%	5.50%	6.50%	8/18/2022		2,427	$	2,414	$	2,239		2.23	%
Kane is Able, Inc., Term Loan*	1.50%	7.00%	8.50%	3/13/2024		6,463		6,358		6,398		6.36
								8,772		8,637		8.59
Auto Components
Challenge Mfg. Company, LLC, Term Loan B*	1.00%	8.50%	9.50%	4/20/2022		7,244		7,211		7,099		7.06
GC EOS Buyer, Inc., Initial Term Loan (First Lien)*	1.08%	4.50%	5.58%	8/1/2025		3,439		3,432		2,925		2.91
Holley Purchaser, Inc., Term Loan*	0.76%	5.00%	5.76%	10/24/2025		6,521		6,442		5,314		5.28
Shipston Equity Holdings, LLC, Term Loan*⁽³⁾⁽⁴⁾	1.44%	10.28%	11.72% PIK	9/28/2023		6,368		6,330		6,050		6.01
Winter Park Intermediate, Inc., Initial Term Loan (First Lien)*	0.71%	4.75%	5.46%	4/4/2025		2,611		2,590		2,354		2.34
								26,005		23,742		23.60

Building Products
CPG International LLC (fka CPG International Inc.), New Term Loan*	1.00%	3.75%	4.75%	5/5/2024		742		726		733		0.73
Global Integrated Flooring Systems Inc. (Camino Systems, Inc.), Term Loan⁽³⁾	1.44%	8.25%	4.84% Cash 4.85% PIK	2/15/2023		6,804		6,734		6,260		6.22
Janus International Group, LLC, Tranche B-2 Term Loan*	1.07%	4.50%	5.57%	2/12/2025		2,205		2,179		2,072		2.06
								9,639		9,065		9.01

Chemicals
Ascensus Specialties LLC, Term Loan (First Lien)*	0.17%	4.75%	4.92%	9/24/2026		1,712		1,705		1,670		1.66
Q Holding Company (fka Lexington Precision Corporation), Term B Loan (2019)*	1.00%	5.00%	6.00%	12/29/2023		2,391		2,381		2,080		2.07
								4,086		3,750		3.73

Commercial Services and Supplies
Allied Universal Holdco LLC (f/k/a USAGM Holdco, LLC), Initial Term Loan*	0.17%	4.25%	4.42%	7/10/2026		1,284		1,278		1,245		1.24
DMT Solutions Global Corporation, Initial Term Loan*	2.20%	6.00%	8.20%	7/2/2024		6,564		6,433		6,088		6.05
Interior Logic Group Inc., Initial Term Loan*	0.17%	4.00%	4.17%	5/30/2025		6,413		6,390		5,787		5.75
Staples, Inc., 2019 Refinancing New Term B-1 Loan*	0.69%	5.00%	5.69%	4/16/2026		2,970		2,946		2,562		2.55
USS Ultimate Holdings, Inc., Initial Term Loan (First Lien)*	1.00%	3.75%	4.75%	8/25/2024		1,281		1,270		1,200		1.19
VIP Cinema Holdings, Inc., Roll-Up Loan*⁽⁵⁾	3.25%	7.00%	10.25%	8/7/2020		593		593		34		0.03
VIP Cinema Holdings, Inc., DIP Loan*	3.25%	7.00%	10.25%	8/7/2020		197		197		176		0.17
								19,107		17,092		16.98

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Construction and Engineering
Brand Energy & Infrastructure Services, Inc., Term Loan*	1.20%	4.25%	5.45%	6/21/2024		1,968	$	1,914	$	1,796		1.78	%
GeoStabilization International LLC, Term Loan*	0.17%	5.25%	5.42%	12/19/2025		3,307		3,281		3,141		3.12
QualTek USA, LLC, Tranche B Term Loan*	1.00%	6.25%	7.25%	7/18/2025		5,735		5,654		5,114		5.08
								10,849		10,051		9.98

Containers and Packaging
Ball Metalpack Finco LLC, Term Loan*	0.36%	4.50%	4.86%	7/31/2025		540		538		494		0.49
Klockner Pentaplast of America, Inc., Term Loan*⁽¹⁾	1.00%	4.25%	5.25%	6/30/2022		4,559		4,483		4,256		4.23
								5,021		4,750		4.72
Diversified Financial Services
Acrisure, LLC, 2017-2 Refinancing Term Loan (First Lien)*	0.18%	3.50%	3.68%	2/16/2027		1,477		1,468		1,392		1.38
AIS Holdco, LLC, Term Loan*	0.76%	5.00%	5.76%	8/15/2025		2,596		2,587		2,207		2.19
PlanMember Financial Corporation, Term Loan*⁽¹⁾	3.00%	5.00%	8.00%	6/21/2024		1,069		1,061		1,059		1.05
								5,116		4,658		4.62

Diversified Telecommunication Services
Fusion Connect, Inc., 1/20 Take Back Second Out*⁽³⁾	2.00%	8.00%	3.00% Cash 7.00% PIK	7/14/2025		2,862		2,862		1,860		1.85
KORE Wireless Group Inc., Term B Loan*	0.31%	5.50%	5.81%	12/20/2024		8,136		8,075		7,485		7.44
Onvoy, LLC, Term Loan*	1.00%	4.50%	5.50%	2/12/2024		2,938		2,933		2,764		2.75
U.S. Telepacific Corp., Term Loan B*	1.07%	5.00%	6.07%	5/2/2023		7,190		7,158		5,636		5.60
								21,028		17,745		17.64

Electrical Equipment
Energy Acquisition LP, Initial Term Loan (First Lien)*	0.17%	4.25%	4.42%	6/26/2025		4,912		4,898		3,832		3.81
Luminii LLC, Revolver*	1.45%	6.25%	7.70%	4/11/2023		515		517		507		0.50
Luminii LLC, Term Loan*	1.45%	6.25%	7.70%	4/11/2023		7,171		7,123		7,071		7.03
Verifone Systems, Inc., Term Loan*	0.38%	4.00%	4.38%	8/20/2025		1,970		1,970		1,636		1.63
								14,508		13,046		12.97

Energy Equipment and Services
BJ Services, LLC, Term Loan*	1.50%	7.00%	8.50%	1/3/2023		6,362		6,322		6,311		6.27
NGS US FinCo, LLC, Term Loan*	1.00%	4.25%	5.25%	10/1/2025		2,670		2,660		2,403		2.39
								8,982		8,714		8.66

Food Products
Mother's Market & Kitchen, Inc, Term Loan*⁽⁴⁾	1.25%	5.50%	6.75%	7/26/2023		7,048		6,983		6,978		6.93
								6,983		6,978		6.93

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Healthcare Equipment and Services
AC Merger Sub, Inc. (Analogic), Term Loan*	1.00%	5.25%	6.25%	6/24/2024		3,574	$	3,550	$	3,520		3.50	%
ActivStyle, Inc., Term Loan*	1.44%	7.50%	8.94%	7/9/2020		9,457		9,456		9,457		9.40
AG Parent Holdings, LLC, Initial Term Loan (First Lien)*	0.18%	5.00%	5.18%	7/31/2026		1,336		1,324		1,310		1.30
Community Care Health Network, LLC, Term Loan*	0.17%	4.75%	4.92%	2/18/2025		1,372		1,369		1,230		1.22
LifeScan Global Corp., Term Loan*	1.75%	6.00%	7.75%	10/1/2024		3,365		3,278		3,020		3.00
Maxor Acquisition, Inc., Revolver*	3.25%	4.50%	7.75%	11/22/2022		292		292		287		0.29
Maxor Acquisition, Inc., Term Loan*	1.00%	5.50%	6.50%	11/22/2023		8,536		8,488		8,365		8.31
SSC (Lux) Limited Sarl (Surgical Specialties), Term Loan*⁽¹⁾	1.07%	5.00%	6.07%	5/6/2025		4,363		4,328		3,840		3.82
Theragenics Corporation, Term Loan*	1.00%	8.00%	9.00%	5/31/2024		8,438		8,422		8,311		8.26
								40,507		39,340		39.10

Hotels, Restaurants and Leisure
CircusTrix Holdings, LLC, Term Loan B*⁽³⁾	1.00%	5.50%	6.50% PIK	12/16/2021		6,068		6,045		4,854		4.82
								6,045		4,854		4.82

Household Products and Durables
Brown Jordan International Inc., Term Loan*	1.00%	5.00%	6.00%	1/31/2023		5,669		5,650		4,819		4.79
CR Brands, Inc., Term Loan	1.00%	11.25%	12.25%	7/31/2020		7,244		7,244		6,877		6.83
NBG Acquisition Inc., Term Loan*	1.45%	5.50%	6.95%	4/26/2024		5,564		5,520		3,458		3.44
								18,414		15,154		15.06

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Internet Software and Services
BMC Software Finance, Inc., Initial Term Loan*	0.17%	4.25%	4.42%	10/2/2025		2,955	$	2,936	$	2,789		2.77	%
ConvergeOne Holdings, Inc., Initial Term Loan (First Lien)*	0.70%	5.00%	5.70%	1/4/2026		2,179		2,109		1,824		1.81
Corel Corporation (Corel Inc.), Initial Term Loan (First Lien)*⁽¹⁾	0.36%	5.00%	5.36%	7/2/2026		3,047		2,916		2,861		2.84
DCert Buyer, Inc., Initial Term Loan (First Lien)*	0.17%	4.00%	4.17%	10/16/2026		1,288		1,267		1,241		1.23
ECi Macola/MAX Holding, LLC, Initial Term Loan*	1.00%	4.25%	5.25%	9/27/2024		1,834		1,828		1,796		1.78
Emtec Global Services Holdings, LLC, Term Loan A	1.50%	8.50%	10.00%	8/31/2021		2,395		2,395		2,371		2.36
Emtec Global Services Holdings, LLC, Term Loan B⁽³⁾⁽⁵⁾	N/A	10.25% PIK	10.25% PIK	8/31/2021		1,648		1,476		1,500		1.49
Exela Intermediate LLC, 2018 Term Loan (First Lien)*⁽¹⁾	1.00%	6.50%	7.50%	7/12/2023		5,492		5,443		1,444		1.44
HDC/HW Intermediate Holdings, LLC, Revolver*	1.00%	7.50%	8.50%	12/21/2023		670		660		636		0.63
HDC/HW Intermediate Holdings, LLC, Term Loan*	1.00%	7.50%	8.50%	12/21/2023		6,614		6,522		6,283		6.24
Intermedia Holdings, Inc., New Term Loan (First Lien)*	1.00%	6.00%	7.00%	7/21/2025		2,709		2,693		2,636		2.62
Ivanti Software, Inc. (fka LANDesk Group, Inc.), Term Loan (First Lien)*	1.00%	4.25%	5.25%	1/20/2024		3,644		3,629		3,476		3.45
Newscycle Solutions, Inc., Delayed Draw Term Loan*	1.43%	7.00%	8.43%	12/29/2022		730		730		708		0.70
Newscycle Solutions, Inc., Revolver*	1.00%	7.00%	8.00%	12/29/2022		685		679		665		0.66
Newscycle Solutions, Inc., Term Loan*	1.00%	7.00%	8.00%	12/29/2022		7,982		7,902		7,742		7.69
Orbit Purchaser LLC (Orion), Delayed Draw Term Loan*	1.00%	4.50%	5.50%	10/21/2024		749		744		734		0.73
Orbit Purchaser LLC (Orion), Incremental Term Loan*	1.00%	4.50%	5.50%	10/21/2024		1,548		1,536		1,517		1.51
Orbit Purchaser LLC (Orion), Term Loan*	1.00%	4.50%	5.50%	10/21/2024		2,561		2,543		2,510		2.49
Perforce Software, Inc., Term Loan (First Lien) Retired 02/03/2020*	0.17%	3.75%	3.92%	7/1/2026		2,659		2,648		2,551		2.54
Quest Software US Holdings Inc., Term Loan*	0.76%	4.25%	5.01%	5/16/2025		2,243		2,230		2,148		2.13
RA Outdoors LLC (Active Network), Term Loan*	1.00%	4.75%	5.75%	9/11/2024		7,244		7,198		7,099		7.06
Travelport Finance (Luxembourg) S.Ã r.l., Term Loan*⁽¹⁾⁽⁵⁾	1.07%	5.00%	6.07%	5/29/2026		2,628		2,585		1,719		1.71
Vero Parent, Inc. (Sahara Parent, Inc.), Initial Term Loan (First Lien)*	0.36%	6.25%	6.61%	8/16/2024		4,804		4,758		4,403		4.38
								67,427		60,653		60.26

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Leisure Products
Bass Pro Group, LLC, Initial Term Loan*	1.07%	5.00%	6.07%	9/25/2024		7,065	$	7,037	$	6,780		6.74	%
Playpower, Inc., Initial Term Loan*	0.31%	5.50%	5.81%	5/8/2026		5,159		5,116		4,514		4.49
								12,153		11,294		11.23

Media
Project Sunshine IV Pty Ltd, 2017 Incremental Term Loan*⁽¹⁾	1.00%	7.00%	8.00%	8/22/2022		383		380		344		0.34
								380		344		0.34

Metals and Mining
Alchemy US Holdco 1, LLC (Kymera), Initial Term Loan*	0.18%	5.50%	5.68%	10/10/2025		2,122		2,098		1,979		1.97
								2,098		1,979		1.97

Pharmaceuticals
RiteDose Holdings I, Inc., Term Loan*	1.43%	6.50%	7.93%	9/13/2023		7,856		7,793		7,699		7.65
								7,793		7,699		7.65

Professional Services
Cure Borrower, LLC (fka Signify Health, LLC) (fka Chloe Ox Parent, LLC), Initial Term Loan*	1.00%	4.50%	5.50%	12/23/2024		1,847		1,835		1,705		1.69
Institutional Shareholder Services Inc., Initial Term Loan (First Lien)*	1.07%	4.50%	5.57%	3/5/2026		4,794		4,755		4,650		4.62
								6,590		6,355		6.31

Retail
Sundance Holdings Group, LLC, Term Loan*⁽⁴⁾	1.00%	6.41%	7.41%	5/1/2024		6,717		6,670		6,549		6.51
								6,670		6,549		6.51
Technology Hardware, Storage and Peripherals
Electronics For Imaging, Inc., Initial Term Loan (First Lien)*	1.45%	5.00%	6.45%	7/23/2026		2,193		2,099		1,710		1.70
Elo Touch Solutions, Inc., Term B Loan (First Lien)*	0.18%	6.50%	6.68%	12/15/2025		2,861		2,750		2,682		2.67
								4,849		4,392		4.37

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Textiles, Apparel and Luxury Goods
Centric Brands Inc., Term Loan (First Lien)*⁽¹⁾⁽³⁾⁽⁴⁾	1.50%	8.00%	9.50% PIK	10/30/2023		7,659	$	7,582	$	7,276		7.23	%
Centric Brands Inc., DIP Loan*⁽¹⁾⁽⁴⁾	1.00%	6.50%	7.50%	5/18/2021		532		532		532		0.53
Champ Acquisition Corp., Initial Term Loan (First Lien)*⁽⁴⁾	1.07%	5.50%	6.57%	12/19/2025		3,032		2,961		2,859		2.84
Keeco Holdings, LLC, Term Loan*⁽³⁾	1.75%	8.50%	9.50% Cash 0.75% PIK	3/15/2024		5,680		5,626		5,339		5.31
Triangle Home Fashions, LLC, Term Loan*⁽⁴⁾	1.00%	6.76%	7.76%	3/9/2023		10,500		10,401		10,448		10.38
								27,102		26,454		26.29

Trading Companies and Distributors
Cook & Boardman Group, LLC, The, Initial Term Loan*	1.00%	5.75%	6.75%	10/17/2025		3,649		3,621		3,293		3.27
LJ Ruby Holdings, LLC, Initial Term Loan (First Lien)*⁽¹⁾	0.31%	5.00%	5.31%	8/26/2026		3,055		3,002		2,536		2.52
								6,623		5,829		5.79

Transportation Services
Airxcel, Inc., Term Loan*	0.24%	4.50%	4.74%	4/28/2025		980		978		875		0.87
PS Holdco, LLC, Term Loan*	1.00%	4.75%	5.75%	3/13/2025		7,371		7,348		6,707		6.67
Sirva Worldwide, Initial Term Loan (First Lien)*	0.31%	5.50%	5.81%	8/4/2025		5,232		5,184		4,185		4.16
								13,510		11,767		11.70

Total Debt Investments							$	370,805	$	340,960		332.13	%

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments
Unfunded Commitments
Aerospace and Defense
McNally Industries, LLC, Revolver	N/A	0.50%	0.50%	8/9/2024		6	$	—		$	—			—	%
								—			—			—

Building Products
Global Integrated Flooring Systems Inc. (Camino Systems, Inc.), Revolver	N/A	0.75%	0.75%	2/15/2023		43		—			—			—
								—			—			—

Healthcare Equipment and Services
AC Merger Sub, Inc. (Analogic), Revolver*⁽⁶⁾	N/A	0.50%	0.50%	6/22/2023		202		—			(3	)		—
Maxor Acquisition, Inc., Revolver*⁽⁶⁾	N/A	0.50%	0.50%	11/22/2022		293		(3	)		(6	)		(0.01	)
								(3	)		(9	)		(0.01	)

Pharmaceuticals
RiteDose Holdings I, Inc., Revolver*⁽⁶⁾	N/A	0.50%	0.50%	9/13/2023		537		(4	)		(11	)		(0.01	)
								(4	)		(11	)		(0.01	)

Textiles, Apparel and Luxury Goods
Centric Brands Inc., DIP Loan*⁽¹⁾⁽⁶⁾	N/A	2.00%	2.00%	5/18/2021		537		—			—			—
								—			—			—

Total Unfunded Commitments							$	(7	)	$	(20	)	(0.02)%

Total Non-Control/Non-Affiliate Investments							$	380,164		$	348,024			339.14	%

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost			Fair Value			% of Net Assets
Non-Control/Affiliate Investments
Common Equity
Oil, Gas and Consumable Fuels
Cochon – MWS Holdings LLC (fka Rooster Energy Ltd.), LLC Units	N/A	N/A	N/A	N/A		99	$	3,623		$	741			0.74	%
								3,623			741			0.74

Total Common Equity							$	3,623		$	741			0.74	%

Total Non-Control/Affiliate Investments							$	3,623		$	741			0.74	%

Total Investments							$	383,787		$	348,765			339.88	%

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments - (continued)

June 30, 2020 (unaudited)

($ in thousands, except share amounts)

*	Denotes that all or a portion of the investment is held as collateral by Garrison Funding 2018-2 Ltd.

Base Rate = Our floating rate investments bear interest at a base rate plus a spread. Generally, the borrower has an option to choose whether the base rate is referenced to the London Interbank Offered Rate (“LIBOR”) or the prime rate. The spread may change as a result of the borrower’s choice of base rate. In addition, the floating rate investments that are referenced to LIBOR are generally indexed to 30-day or 90-day U.S. Dollar LIBOR and subject to a minimum LIBOR floor. The terms disclosed in the consolidated schedule of investments represent the actual base rate and spread in effect as of the reporting date.

All securities above were valued with significant unobservable inputs. Refer to Note 3 of our consolidated financial statements for additional disclosures regarding the unobservable inputs used in fair value measurement.

(1)

Not a qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, Garrison Capital Inc. (the “Company”) may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. As of June 30, 2020, 92.9% of the Company’s assets were qualifying assets.

(2)	Held through Garrison Capital Equity Holdings II LLC and net of non-controlling member’s interest of 17.5% pursuant to the Amended and Restated Limited Liability Company Agreement of Garrison Capital Equity Holdings II LLC.

(3)	Interest is payable in cash, and/or payment-in-kind (“PIK”), or a combination thereof.

(4)

Investment is structured as a unitranche loan in which the Company holds the last out component. As a result, in addition to the interest earned on the stated base rate and spread of this investment, the Company may receive additional interest during the six months ended June 30, 2020 due to an arrangement between the Company and certain other lenders to the portfolio company. The additional interest received during the quarter has been annualized and included in the spread disclosed for this investment.

(5)	Investment is currently not income producing and placed on non-accrual status.

(6)	The negative fair value is the result of the unfunded commitments being valued below par. These amounts may or may not be funded to the borrowing party currently or in the future.

As required by the 1940 Act, investments are classified by level of control. “Control Investments” are investments in those companies that the Company is deemed to control as defined in the 1940 Act. “Affiliate Investments” are investments in those companies that are affiliated companies, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

Generally, under the 1940 Act, the Company is deemed to control a company in which it has invested if it owns more than 25% of the voting securities of such company. The Company is deemed to be an affiliate of a company in which it has invested if it owns 5% or more of the voting securities of such company.

All debt investments were income producing as of June 30, 2020, unless otherwise noted. Common and preferred equity investments are non income-producing unless otherwise noted.

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Equity Investments
Building Products
Valterra Products Holdings, LLC, Class A LLC Units	N/A	N/A	N/A	N/A		185,847	$	186	$	1,125		0.82	%
Valterra Products Holdings, LLC, Class B LLC Units	N/A	N/A	N/A	N/A		20,650		21		125		0.09
								207		1,250		0.91

Commercial Services and Supplies
Faraday Holdings, LLC, LLC Units	N/A	N/A	N/A	N/A		2,752		140		750		0.55
								140		750		0.55

Diversified Financial Services
Prosper Marketplace, Inc., Series B Preferred Stock⁽¹⁾⁽²⁾	N/A	N/A	N/A	N/A		912,865		551		640		0.47
								551		640		0.47

Healthcare Equipment and Services
Juniper TGX Investment Partners, LLC, LLC Units	N/A	N/A	N/A	N/A		3,146		671		2,640		1.93
								671		2,640		1.93

Household Products and Durables
Oneida Group Inc., Common Stock	N/A	N/A	N/A	N/A		1,085,565		4,160		1,591		1.17
								4,160		1,591		1.17

Internet Software and Services
Emtec Global Services Holdings, LLC, Preferred Stock**	N/A	N/A	N/A	N/A		319,357		—		—		—
								—		—		—

Total Equity Investments							$	5,729	$	6,871		5.03	%

Debt Investments
Aerospace and Defense
Constellis Holdings, LLC, Term Loan*	1.93%	5.00%	6.93%	4/22/2024		3,338	$	3,297	$	1,836		1.34	%
McNally Industries, LLC, Delayed Draw Term Loan**	1.70%	5.75%	7.45%	8/9/2024		50		50		50		0.04
McNally Industries, LLC, Revolver**	1.70%	5.75%	7.45%	8/9/2024		6		6		6		—
McNally Industries, LLC, Term Loan**	1.70%	5.75%	7.45%	8/9/2024		6,874		6,779		6,778		4.96
Novetta Solutions, Term Loan*	1.80%	5.00%	6.80%	10/17/2022		1,964		1,933		1,926		1.41
Peraton Corp. (fka MHVC Acquisition Corp.), Initial Term Loan (First Lien)*	1.80%	5.25%	7.05%	4/29/2024		1,316		1,313		1,311		0.96
								13,378		11,907		8.71

Air Freight and Logistics
Gruden Acquisition, Inc., Term Loan (First Lien)*	1.94%	5.50%	7.44%	8/18/2022		2,440		2,424		2,437		1.78
Kane is Able, Inc., Term Loan**	1.89%	7.00%	8.89%	3/13/2024		6,504		6,389		6,385		4.68
								8,813		8,822		6.46

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Auto Components
Challenge Mfg. Company, LLC, Term Loan B*	1.80%	7.00%	8.80%	4/20/2022		7,461	$	7,417	$	7,461		5.46	%
GC EOS Buyer, Inc., Initial Term Loan (First Lien)*	1.80%	4.50%	6.30%	8/1/2025		3,456		3,449		3,358		2.46
Holley Purchaser, Inc., Term Loan*	1.93%	5.00%	6.93%	10/24/2025		6,554		6,467		6,128		4.49
Shipston Equity Holdings, LLC, Term Loan*⁽⁴⁾	2.10%	8.66%	10.76%	9/28/2023		5,847		5,803		5,801		4.25
Winter Park Intermediate, Inc., Initial Term Loan (First Lien)*	1.80%	4.75%	6.55%	4/4/2025		2,625		2,601		2,581		1.89
								25,737		25,329		18.55

Building Products
CPG International LLC (fka CPG International Inc.), New Term Loan*	2.18%	3.75%	5.93%	5/5/2024		1,287		1,270		1,286		0.94
Global Integrated Flooring Systems Inc. (Camino Systems, Inc.), Term Loan**	1.70%	8.25%	9.95%	2/15/2023		6,638		6,555		6,107		4.47
Janus International Group, LLC, Tranche B-2 Term Loan*	1.80%	4.50%	6.30%	2/12/2025		2,216		2,187		2,202		1.61
								10,012		9,595		7.02

Chemicals
Ascensus Specialties LLC, Term Loan (First Lien)*	1.69%	4.75%	6.44%	9/24/2026		1,721		1,713		1,712		1.25
PeroxyChem LLC, Initial Term Loan*	2.06%	5.00%	7.06%	10/1/2024		860		856		857		0.63
Q Holding Company (fka Lexington Precision Corporation), Term B Loan (2019)*	1.80%	5.00%	6.80%	12/29/2023		2,403		2,392		2,367		1.73
								4,961		4,936		3.61

Commercial Services and Supplies
Allied Universal Holdco LLC (f/k/a USAGM Holdco, LLC), Delayed Draw Term Loan*	1.80%	4.25%	6.05%	7/10/2026		116		116		117		0.09
Allied Universal Holdco LLC (f/k/a USAGM Holdco, LLC), Initial Term Loan*	1.80%	4.25%	6.05%	7/10/2026		1,174		1,169		1,180		0.86
DMT Solutions Global Corporation, Initial Term Loan*	2.04%	7.00%	9.04%	7/2/2024		6,746		6,595		6,448		4.72
Interior Logic Group, Initial Term Loan*	1.80%	4.00%	5.80%	5/30/2025		6,445		6,420		6,123		4.48
Staples, Inc., 2019 Refinancing New Term B-1 Loan*	1.69%	5.00%	6.69%	4/16/2026		2,985		2,958		2,930		2.15
USS Ultimate Holdings, Inc., Initial Term Loan (First Lien)*	1.93%	3.75%	5.68%	8/25/2024		1,287		1,275		1,290		0.94
VIP Cinema Holdings, Inc., Initial Term Loan (First Lien)*	1.91%	8.00%	9.91%	3/1/2023		4,869		4,859		2,824		2.07
								23,392		20,912		15.31

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Construction and Engineering
Brand Energy & Infrastructure Services, Inc., Term Loan*	1.99%	4.25%	6.24%	6/21/2024		1,978	$	1,917	$	1,971		1.44	%
GeoStabilization International, Term Loan*	1.80%	5.25%	7.05%	12/19/2025		3,323		3,295		3,307		2.42
QualTek USA, LLC, Term Loan*	1.93%	6.25%	8.18%	7/18/2025		5,810		5,720		5,658		4.14
								10,932		10,936		8.00

Containers and Packaging
Ball Metalpack Finco LLC, Term Loan*	1.91%	4.50%	6.41%	7/31/2025		543		541		477		0.35
Klockner Pentaplast of America, Inc., Term Loan*⁽¹⁾	1.93%	4.25%	6.18%	6/30/2022		4,583		4,487		4,115		3.01
								5,028		4,592		3.36
Diversified Financial Services
Acrisure, LLC, Term Loan*	1.94%	4.25%	6.19%	11/22/2023		1,481		1,472		1,483		1.09
AIS Holdco, LLC, Term Loan*	1.93%	5.00%	6.93%	8/15/2025		2,630		2,620		2,499		1.83
AqGen Ascensus, Inc. (fka JCF Ascensus Holdings, Inc.), Replacement Term Loan (First Lien)*	1.94%	4.00%	5.94%	12/5/2022		429		427		429		0.31
PlanMember Financial Corporation, Term Loan*⁽¹⁾	3.00%	5.00%	8.00%	6/21/2024		1,083		1,073		1,083		0.79
								5,592		5,494		4.02

Diversified Telecommunication Services
Fusion Connect, Inc., DIP Loan*⁽¹⁾	1.71%	10.00%	11.71%	1/14/2020		679		691		679		0.50
Fusion Connect, Inc., Tranche B Term Loan (First Lien)*⁽¹⁾⁽³⁾⁽⁵⁾	4.75%	6.50%	11.25% PIK	5/4/2023		8,091		7,410		5,414		3.96
KORE Wireless Group Inc., Term B Loan*	1.94%	5.50%	7.44%	12/20/2024		8,177		8,110		8,096		5.93
Onvoy, LLC, Term Loan*	1.80%	4.50%	6.30%	2/12/2024		2,954		2,947		2,644		1.94
U.S. Telepacific Corp., Term Loan B*	1.94%	5.00%	6.94%	5/2/2023		7,190		7,152		6,859		5.02
								26,310		23,692		17.35

Electrical Equipment
Energy Acquisition LP, Initial Term Loan (First Lien)*	1.94%	4.25%	6.19%	6/26/2025		4,937		4,922		4,542		3.33
Luminii LLC, Term Loan**	2.10%	6.25%	8.35%	4/11/2023		7,208		7,166		7,164		5.25
Verifone Systems, Inc., Term Loan*	1.90%	4.00%	5.90%	8/20/2025		1,980		1,980		1,950		1.43
								14,068		13,656		10.01

Energy Equipment and Services
BJ Services, LLC, Term Loan*	2.10%	7.00%	9.10%	1/3/2023		6,530		6,480		6,478		4.74
NGS US FinCo, LLC, Term Loan*	1.80%	4.25%	6.05%	10/1/2025		2,688		2,677		2,681		1.96
								9,157		9,159		6.70

Food Products
Mother's Market & Kitchen, Inc, Term Loan**⁽⁴⁾	1.80%	5.50%	7.30%	7/26/2023		7,142		7,066		6,785		4.97
Quirch Foods Holdings, LLC, Initial Term Loan*	1.90%	6.00%	7.90%	12/19/2025		4,533		4,493		4,510		3.30
US Salt, LLC, Initial Term Loan*⁽¹⁾	1.80%	4.75%	6.55%	1/16/2026		1,329		1,318		1,333		0.98
								12,877		12,628		9.25

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Healthcare Equipment and Services
AC Merger Sub, Inc. (Analogic), Revolver*	1.80%	6.00%	7.80%	6/22/2023		32	$	33	$	31		0.02	%
AC Merger Sub, Inc. (Analogic), Term Loan*	1.80%	6.00%	7.80%	6/24/2024		8,366		8,304		8,300		6.08
ActivStyle, Inc., Term Loan**	2.13%	7.50%	9.63%	7/9/2020		9,724		9,705		9,724		7.12
AG Parent Holdings, LLC, Initial Term Loan (First Lien)*	1.91%	5.00%	6.91%	7/31/2026		1,343		1,330		1,329		0.97
Azalea TopCo, Inc., Initial Term Loan (First Lien)*	1.80%	3.50%	5.30%	7/24/2026		1,288		1,267		1,294		0.95
Community Care Health Network, LLC, Term Loan*	1.80%	4.75%	6.55%	2/18/2025		1,379		1,376		1,358		0.99
LifeScan Global Corp., Term Loan*	2.06%	6.00%	8.06%	10/1/2024		3,497		3,397		3,320		2.43
Maxor Acquisition, Inc., Term Loan*	1.94%	5.50%	7.44%	11/22/2023		8,854		8,797		8,792		6.44
SSC (Lux) Limited Sarl (Surgical Specialties), Term Loan*⁽¹⁾	1.80%	5.00%	6.80%	5/6/2025		4,386		4,346		4,331		3.17
Theragenics Corporation, Term Loan**	1.91%	8.00%	9.91%	5/31/2024		8,663		8,624		8,663		6.34
								47,179		47,142		34.51

Hotels, Restaurants and Leisure
Bravo Brio Restaurant Group, Inc., Term Loan*⁽⁴⁾	1.80%	6.67%	8.47%	5/24/2023		8,302		8,218		4,981		3.65
CircusTrix Holdings, LLC, Term Loan B*	1.80%	5.50%	7.30%	12/16/2021		5,925		5,894		5,892		4.31
								14,112		10,873		7.96

Household Products and Durables
Brown Jordan International Inc., Term Loan*	1.80%	5.00%	6.80%	1/31/2023		5,698		5,675		5,442		3.99
Comfort Holding, LLC (Innocor, Inc.), Term Loan*	1.80%	4.75%	6.55%	2/5/2024		2,954		2,874		2,934		2.15
CR Brands, Inc., Term Loan⁽³⁾	1.70%	11.25%	12.95% PIK	1/31/2020		6,796		6,796		5,777		4.23
NBG Acquisition Inc., Term Loan*	1.94%	5.50%	7.44%	4/26/2024		5,639		5,588		4,276		3.13
								20,933		18,429		13.50

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Internet Software and Services
Aptos, Inc., Initial Term Loan (First Lien)*	2.20%	5.50%	7.70%	7/23/2025		7,736	$	7,675	$	7,613		5.58	%
BMC Software Finance, Inc., Initial Term Loan*	1.80%	4.25%	6.05%	10/2/2025		2,970		2,949		2,933		2.15
ConvergeOne Holdings, Inc., Initial Term Loan (First Lien)*	1.80%	5.00%	6.80%	1/4/2026		2,190		2,113		2,087		1.53
Corel Corporation (Corel Inc.), Initial Term Loan (First Lien)*⁽¹⁾	1.91%	5.00%	6.91%	7/2/2026		3,085		2,942		2,962		2.17
DCert Buyer, Inc., Initial Term Loan (First Lien)*	1.80%	4.00%	5.80%	10/16/2026		1,291		1,269		1,294		0.95
ECi Macola/MAX Holding, LLC, Initial Term Loan*	1.94%	4.25%	6.19%	9/27/2024		1,844		1,836		1,841		1.35
Emtec Global Services Holdings, LLC, Term Loan A**	1.80%	8.50%	10.30%	8/31/2021		2,395		2,395		2,395		1.75
Emtec Global Services Holdings, LLC, Term Loan B**⁽³⁾⁽⁵⁾	N/A	10.25%	10.25% PIK	8/31/2021		1,577		1,476		1,476		1.08
Exela Intermediate LLC, 2018 Term Loan (First Lien)*⁽¹⁾	1.88%	6.50%	8.38%	7/12/2023		5,642		5,584		3,103		2.27
HDC/HW Intermediate Holdings, LLC, Revolver*	1.94%	7.50%	9.44%	12/21/2023		670		659		656		0.48
HDC/HW Intermediate Holdings, LLC, Term Loan*	1.95%	9.50%	11.45%	12/21/2023		6,630		6,525		6,498		4.76
Hyland Software, Inc., 2018 Refinancing Term Loan (First Lien)*	1.80%	3.50%	5.30%	7/1/2024		1,247		1,243		1,252		0.92
Intermedia Holdings, Inc., Term Loan*	1.80%	6.00%	7.80%	7/21/2025		2,723		2,705		2,722		1.99
Ivanti Software, Inc. (fka LANDesk Group, Inc.), Term Loan (First Lien)*	1.72%	4.25%	5.97%	1/20/2024		3,662		3,645		3,657		2.68
Newscycle Solutions, Inc., Delayed Draw Term Loan*	1.69%	7.00%	8.69%	12/29/2022		761		761		751		0.55
Newscycle Solutions, Inc., Revolver*	1.80%	7.00%	8.80%	12/29/2022		603		603		595		0.44
Newscycle Solutions, Inc., Term Loan*	1.80%	7.00%	8.80%	12/29/2022		8,206		8,108		8,099		5.93
Orbit Purchaser LLC (Orion), Delayed Draw Term Loan*	1.95%	4.50%	6.45%	10/21/2024		753		747		747		0.55
Orbit Purchaser LLC (Orion), Incremental Term Loan*	1.95%	4.50%	6.45%	10/21/2024		1,556		1,542		1,542		1.13
Orbit Purchaser LLC (Orion), Term Loan*	1.95%	4.50%	6.45%	10/21/2024		2,574		2,554		2,554		1.87
Perforce Software, Inc., Term Loan (First Lien)*	1.80%	4.50%	6.30%	7/1/2026		2,672		2,660		2,671		1.96
Quest Software US Holdings Inc., Term Loan*	1.93%	4.25%	6.18%	5/16/2025		2,254		2,240		2,230		1.63
RA Outdoors LLC (Active Network), Term Loan*	1.80%	4.75%	6.55%	9/11/2024		7,299		7,248		7,246		5.31
Travelport Finance (Luxembourg) S.Ã r.l., Term Loan*⁽¹⁾	1.94%	5.00%	6.94%	5/29/2026		2,641		2,594		2,462		1.80
Vero Parent, Inc. (fka Syncsort Incorporated), Initial Term Loan (First Lien)*	1.91%	6.25%	8.16%	8/16/2024		4,829		4,777		4,708		3.45
								76,850		74,094		54.28

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Leisure Products
Bass Pro Group, LLC, Initial Term Loan*	1.80%	5.00%	6.80%	9/25/2024		7,102	$	7,070	$	7,075		5.18	%
Playpower, Inc., Initial Term Loan*	1.96%	5.50%	7.46%	5/8/2026		5,263		5,215		5,197		3.81
								12,285		12,272		8.99

Machinery
Pueblo Mechanical and Controls, LLC, Term Loan**	2.10%	6.00%	8.10%	12/21/2022		4,975		4,929		4,929		3.61
								4,929		4,929		3.61

Media
Project Sunshine IV Pty Ltd, 2017 Incremental Term Loan*⁽¹⁾	1.80%	7.00%	8.80%	8/22/2022		1,179		1,170		1,173		0.86
								1,170		1,173		0.86

Metals and Mining
Alchemy US Holdco 1, LLC (Kymera), Initial Term Loan*	1.75%	5.50%	7.25%	10/10/2025		2,150		2,123		2,108		1.54
								2,123		2,108		1.54

Pharmaceuticals
Akorn, Inc., Loan*⁽¹⁾⁽³⁾	1.81%	9.25% Cash + 0.75% PIK	11.06% Cash + 0.75% PIK	4/16/2021		2,022		2,005		1,918		1.40
RiteDose Holdings I, Inc., Term Loan*	2.10%	6.50%	8.60%	9/13/2023		7,896		7,823		7,846		5.75
								9,828		9,764		7.15

Professional Services
Guidehouse LLP, Initial Term Loan (First Lien)*	1.80%	4.50%	6.30%	5/1/2025		1,287		1,275		1,275		0.93
Institutional Shareholder Services Inc., Initial Term Loan (First Lien)*	1.94%	4.50%	6.44%	3/5/2026		4,818		4,776		4,722		3.46
Signify Health, LLC (fka Chloe Ox Parent, LLC), Term Loan*	1.94%	4.50%	6.44%	12/23/2024		1,856		1,843		1,845		1.35
								7,894		7,842		5.74

Retail
Sundance Holdings Group, LLC, Term Loan*⁽⁴⁾	1.91%	6.03%	7.94%	5/1/2024		6,717		6,664		6,661		4.88
								6,664		6,661		4.88

Semiconductors and Semiconductor Equipment
Ultra Clean Holdings, Inc., Term B Loan*⁽¹⁾	1.80%	4.50%	6.30%	8/27/2025		2,327		2,299		2,321		1.70
								2,299		2,321		1.70

Technology Hardware, Storage and Peripherals
Electronics For Imaging, Inc., Initial Term Loan (First Lien)*	1.94%	5.00%	6.94%	7/23/2026		2,204		2,101		2,043		1.50
Elo Touch Solutions, Inc., Term B Loan (First Lien)*	1.74%	6.50%	8.24%	12/15/2025		2,882		2,760		2,850		2.09
								4,861		4,893		3.59

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost		Fair Value		% of Net Assets
Non-Control/Non-Affiliate Investments
Debt Investments (continued)
Textiles, Apparel and Luxury Goods
Centric Brands Inc., Term Loan*⁽¹⁾⁽⁴⁾	1.93%	6.00%	7.93%	10/30/2023		7,677	$	7,587	$	7,582		5.55	%
Champ Acquisition Corp., Initial Term Loan (First Lien)*⁽⁴⁾	1.94%	5.50%	7.44%	12/19/2025		3,071		2,992		3,060		2.24
Keeco Holdings, LLC, Term Loan*	1.80%	7.75%	9.55%	3/15/2024		5,674		5,615		5,615		4.11
Triangle Home Fashions, LLC, Term Loan**⁽⁴⁾	1.80%	6.71%	8.51%	3/9/2023		10,500		10,383		10,500		7.69
								26,577		26,757		19.59

Trading Companies and Distributors
Cook & Boardman Group, LLC, The, Initial Term Loan*	1.92%	5.75%	7.67%	10/17/2025		3,668		3,637		3,484		2.55
LJ Ruby Holdings, LLC, Initial Term Loan (First Lien)*⁽¹⁾	1.94%	5.00%	6.94%	8/26/2026		3,070		3,012		2,978		2.18
								6,649		6,462		4.73

Transportation Services
Airxcel, Inc., Term Loan*	1.80%	4.50%	6.30%	4/28/2025		985		983		963		0.71
PS Holdco, LLC, Term Loan*	1.80%	4.75%	6.55%	3/13/2025		7,408		7,383		6,982		5.11
Sirva Worldwide, Term Loan*	1.87%	5.50%	7.37%	8/4/2025		5,304		5,251		5,224		3.83
								13,617		13,169		9.65

Total Debt Investments							$	428,227	$	410,547		300.63	%

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost			Fair Value			% of Net Assets
Non-Control/Non-Affiliate Investments
Unfunded Commitments
Aerospace and Defense
McNally Industries, LLC, Revolver**⁽⁶⁾	N/A	0.50%	0.50%	8/9/2024		44	$	—		$	(1	)		—	%
								—			(1	)		—

Building Products
Global Integrated Flooring Systems Inc. (Camino Systems, Inc.), Revolver	N/A	0.75%	0.75%	2/15/2023		43		—			—			—
								—			—			—

Electrical Equipment
Luminii LLC, Revolver*⁽⁶⁾	N/A	0.50%	0.50%	4/11/2023		515		1			(4	)		—
								1			(4	)		—

Healthcare Equipment and Services
AC Merger Sub, Inc. (Analogic), Revolver*⁽⁶⁾	N/A	0.50%	0.50%	6/22/2023		286		—			(2	)		—
Maxor Acquisition, Inc., Revolver*⁽⁶⁾	N/A	0.50%	0.50%	11/22/2022		585		(4	)		(4	)		—
								(4	)		(6	)		—

Internet Software and Services
Newscycle Solutions, Inc., Revolver*⁽⁶⁾	N/A	0.50%	0.50%	12/29/2022		82		(8	)		(1	)		—
								(8	)		(1	)		—

Pharmaceuticals
RiteDose Holdings I, Inc., Revolver*⁽⁶⁾	N/A	0.50%	0.50%	9/13/2023		537		(5	)		(5	)		—
								(5	)		(5	)		—

Total Unfunded Commitments							$	(16	)	$	(17	)	(0)%

Total Non-Control/Non-Affiliate Investments							$	433,940		$	417,401			305.66	%

Security Description	Base Rate	Spread	All In Rate	Maturity	Par / Shares		Cost			Fair Value			% of Net Assets
Non-Control/Affiliate Investments
Common Equity
Oil, Gas and Consumable Fuels
Cochon – MWS Holdings LLC (fka Rooster Energy Ltd.), LLC Units	N/A	N/A	N/A	N/A		99	$	3,663		$	1,472			1.08	%
								3,663			1,472			1.08

Total Common Equity							$	3,663		$	1,472			1.08	%

Total Non-Control/Affiliate Investments							$	3,663		$	1,472			1.08	%

Total Investments							$	437,603		$	418,873			306.74	%

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Schedule of Investments – (continued)

December 31, 2019

($ in thousands, except share amounts)

*	Denotes that all or a portion of the investment is held as collateral by Garrison Funding 2018-2 Ltd.

**	Denotes that all or a portion of the loan is held as collateral by Garrison Capital SBIC LP.

Base Rate = Our floating rate investments bear interest at a base rate plus a spread. Generally, the borrower has an option to choose whether the base rate is referenced to LIBOR or the prime rate. The spread may change as a result of the borrower’s choice of base rate. In addition, the floating rate investments that are referenced to LIBOR are generally indexed to 30-day or 90-day U.S. Dollar LIBOR and subject to a minimum LIBOR floor. The terms disclosed in the consolidated schedule of investments represent the actual base rate and spread in effect as of the reporting period date.

(1)

Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2019, 90.9% of the Company’s assets were qualifying assets.

(2)	Held through Garrison Capital Equity Holdings II LLC and net of non-controlling member’s interest of 17.5% pursuant to the Amended and Restated Limited Liability Company Agreement of Garrison Capital Equity Holdings II LLC.

(3)	Interest is payable in cash, and/or PIK, or a combination thereof.

(4)

Investment is structured as a unitranche loan in which the Company holds the last out component. As a result, in addition to the interest earned on the stated base rate and spread of this investment, the Company may receive additional interest for the year ended December 31, 2019 due to an arrangement between the Company and certain other lenders to the portfolio company. The additional interest received during the quarter has been annualized and included in the spread disclosed for this investment.

(5)	Investment is currently not income producing and placed on non-accrual status.

(6)	The negative fair value is the result of the unfunded commitments being valued below par. These amounts may or may not be funded to the borrowing party currently or in the future.

All debt investments were income producing as of December 31, 2019, unless otherwise noted. Common and preferred equity investments are non income-producing unless otherwise noted.

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

($ in thousands, except share and per share amounts)

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Investment income
From non-control/non-affiliate investments
Interest income	$	6,225		$	9,796		$	13,891		$	19,522
Payment-in-kind		1,131			791			1,404			1,030
Other income		85			117			185			381
Total investment income		7,441			10,704			15,480			20,933

Expenses
Interest expense		2,197			3,860			5,201			7,588
Management fee		1,143			1,680			2,443			3,303
Incentive fee		—			543			—			832
Professional fees		490			308			639			705
Directors' fees		163			77			246			159
Administrator expenses		641			329			1,386			700
Other expenses		1,033			433			1,391			925
Total expenses		5,667			7,230			11,306			14,212
Net investment income		1,774			3,474			4,174			6,721

Realized and unrealized losses
Net realized loss on investments
Non-control/non-affiliate investments		(8,671	)		(2,365	)		(17,425	)		(9,498	)
Non-control/affiliate investments		—			—			—			—
Net change in unrealized (loss)/gain on investments
Non-control/non-affiliate investments		5,049			284			(15,614	)		6,700
Non-control/affiliate investments		152			—			(691	)		(120	)
Net realized and unrealized loss on investments		(3,470	)		(2,081	)		(33,730	)		(2,918	)
Loss on extinguishment of debt		(1,014	)		—			(1,556	)		—
Net realized and unrealized losses		(4,484	)		(2,081	)		(35,286	)		(2,918	)

Net (decrease)/increase in net assets resulting from operations	$	(2,710	)	$	1,393		$	(31,112	)	$	3,803

Net investment income per common share	$	0.11		$	0.22		$	0.26		$	0.42
Net (decrease)/increase in net assets resulting from operations per common share	$	(0.17	)	$	0.09		$	(1.94	)	$	0.24
Basic weighted average common shares outstanding		16,049,352			16,049,352			16,049,352			16,049,352

Dividends and distributions declared per common share	$	0.15		$	0.23		$	0.30		$	0.46

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

($ in thousands, except share and per share amounts)

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019

(Decrease)/increase in net assets from operations:
Net investment income	$	1,774		$	3,474		$	4,174		$	6,721
Net realized loss on investments		(8,671	)		(2,365	)		(17,425	)		(9,498	)
Net change in unrealized gain/(loss) on investments		5,201			284			(16,305	)		6,580
Net loss on extinguishment of debt		(1,014	)		—			(1,556	)		—
Net (decrease)/increase in net assets resulting from operations		(2,710	)		1,393			(31,112	)		3,803

Dividends and distributions to stockholders:
From net investment income		(2,407	)		(3,691	)		(4,814	)		(7,382	)
Total dividends and distributions to stockholders		(2,407	)		(3,691	)		(4,814	)		(7,382	)

Total decrease in net assets		(5,117	)		(2,298	)		(35,926	)		(3,579	)
Net assets at beginning of period		105,744			167,631			136,553			168,912
Net assets at end of period	$	100,627		$	165,333		$	100,627		$	165,333
Net asset value per share	$	6.27		$	10.30		$	6.27		$	10.30
Shares of common stock outstanding at end of period		16,049,352			16,049,352			16,049,352			16,049,352

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

($ in thousands, except share and per share amounts)

	Six Months Ended
	June 30, 2020			June 30, 2019
Cash flows from operating activities
Net (decrease)/increase in net assets resulting from operations	$	(31,112	)	$	3,803
Adjustments to reconcile net (decrease)/increase in net assets resulting from operations to net cash provided by/(used in) operating activities:
Net accretion of discounts on investments		(511	)		(627	)
Payment-in-kind		(1,396	)		(1,030	)
Amortization of deferred debt issuance costs and discounts on notes payable		182			251
Net realized loss on investments		17,425			9,498
Loss on extinguishment of debt		1,265			—
Net change in unrealized loss/(gain) on investments		16,305			(6,580	)
Purchases of investments		(2,099	)		(81,500	)
Paydowns of investments		23,797			30,459
Sales of investments		16,590			17,052
Changes in operating assets and liabilities:
Decrease/(increase) in due from counterparties		1,194			(2,160	)
Decrease/(increase) in accrued interest receivable		716			(728	)
Decrease in other assets		226			88
Decrease in due to counterparties		(9,413	)		(17,495	)
(Decrease)/increase in payables to affiliates		(1,372	)		2,183
Decrease in accrued interest payable		(1,001	)		(871	)
Decrease in accrued expenses and other payables		(908	)		(199	)
Net cash provided by/(used in) operating activities		29,888			(47,856	)

Cash flows from financing activities
Distributions paid to stockholders		(4,814	)		(7,382	)
Repayments of short-term borrowings		(2,015	)		—
Net proceeds from senior secured revolving note		—			39,500
Repayments of Garrison SBIC borrowings		(46,880	)		—
Net cash (used in)/provided by financing activities		(53,709	)		32,118

Net decrease in cash and restricted cash		(23,821	)		(15,738	)
Cash and restricted cash at beginning of period		40,307			45,722
Cash and restricted cash at end of period	$	16,486		$	29,984

Supplemental disclosure of cash flow information
Cash paid for interest expense	$	6,300		$	8,213
Non-cash restructuring of portfolio investments	$	7,523		$	10,211

See accompanying notes to consolidated financial statements.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

1. Organization

Garrison Capital Inc. (“GARS” and, collectively with its subsidiaries, the “Company”, “we”, “us” or “our”) is a Delaware corporation and is an externally managed, closed-end, non-diversified management investment company that has filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, GARS has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for the period beginning October 9, 2012 and intends to qualify annually thereafter. GARS’ shares trade on the Nasdaq Global Select Market under the symbol “GARS”.

Our investment objective is to generate current income and capital appreciation by assembling a broad portfolio of loans and debt securities in U.S. based companies. The companies to which we typically extend credit to are moderately leveraged and have been rated below investment grade by national rating agencies. For companies that have not been rated, we believe that they would typically receive a rating below investment grade. In addition, our investments typically range in maturity from one to seven years. However, we may make investments in securities with any maturity or duration. We invest opportunistically in loans and debt securities that we believe have attractive risk adjusted returns. We also, to a lesser extent, may make select minority equity investments (usually in conjunction with a concurrent debt investment) in non-investment grade companies.

The Company’s business and affairs are managed and controlled by the Company’s board of directors (the “Board”). The majority of the members of the Board are independent of the Company and its affiliates. Our investment activities and day-to-day operations are managed by Garrison Capital Advisers, LLC (the “Investment Adviser”), and Garrison Capital Administrator, LLC (the “GARS Administrator”) provides the Company with certain administrative services necessary to conduct our day-to-day operations. We are organized as a holding company and conduct our business primarily through our various subsidiaries.

Proposed Merger with Portman Ridge Finance Corporation

On June 24, 2020, GARS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Acquisition Sub”), and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN (“Sierra Crest”). The transaction is the result of the Board’s previously announced review of strategic alternatives.

The Merger Agreement provides that (i) Acquisition Sub will merge with and into GARS (the “Merger”), with GARS continuing as the surviving corporation and as a wholly owned subsidiary of PTMN, and (ii) immediately after the effectiveness of the Merger, GARS will merge with and into PTMN (the “Second Merger” and, together with the Merger, the “Mergers”), with PTMN continuing as the surviving corporation.

The boards of directors of each of PTMN and Acquisition Sub, and the managing member of Sierra Crest, have each unanimously approved the Merger Agreement and the transactions contemplated thereby. The Board, on the unanimous recommendation of a special committee thereof comprised solely of the independent directors of GARS (the “Special Committee”), has unanimously approved the Merger Agreement and the transactions contemplated thereby.

At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of GARS (“GARS Common Stock”) issued and outstanding immediately prior to the Effective Time (other than shares owned by PTMN or GARS or any wholly owned subsidiary of PTMN or GARS (other than shares held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties) and all treasury shares (collectively, “Cancelled Shares”)) will be converted into the right to receive (i) an amount in cash equal to (A) $19.1 million divided by (B) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (as defined below) (excluding any Cancelled Shares), and (ii) a number of shares of common stock, par value $0.01 per share, of PTMN (“PTMN Common Stock”) equal to the Exchange Ratio (as defined below), plus any cash in lieu of fractional shares.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

1. Organization – (continued)

Proposed Merger with Portman Ridge Finance Corporation – (continued)

Two days prior to the Closing Date (as defined in the Merger Agreement) (such date, the “Determination Date”), each of the Company and PTMN will deliver to the other a calculation of its estimated net asset value as of 5:00 pm New York City time on the day prior to the Closing Date (such calculation with respect to the Company, the “Closing GARS Net Asset Value” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case using a pre-agreed set of assumptions, methodologies and adjustments. The Company and PTMN will update and redeliver the Closing GARS Net Asset Value or the Closing PTMN Net Asset Value, respectively, in the event of a material change to such calculation between the Determination Date and the Closing Date and if needed to ensure that the calculation is determined within two days (excluding Sundays and holidays) prior to the Effective Time. Based on such calculations, the parties will calculate the “GARS Per Share NAV”, which will be equal to (i) (A) the Closing GARS Net Asset Value minus (B) $19,100,000 divided by (ii) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and the “PTMN Per Share NAV”, which will be equal to (I) the Closing PTMN Net Asset Value divided by (II) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. The “Exchange Ratio” will be equal to (i) the GARS Per Share NAV divided by (ii) the PTMN Per Share NAV.

In connection with the transactions contemplated by the Merger Agreement, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000.

The Merger Agreement contains customary representations and warranties of the Company, PTMN and Sierra Crest. Additionally, the Merger Agreement contains customary pre-closing covenants, including covenants requiring each party (i) to use reasonable best efforts to cause the consummation of the transactions contemplated by the Merger Agreement, (ii) to conduct its business in the ordinary course and (iii) to refrain from taking certain actions prior to the consummation of the Merger without the other party’s consent.

The Merger Agreement also contains customary non-solicitation provisions that prohibit the Company from soliciting or initiating discussions or negotiations with third parties regarding other proposals to acquire the Company and limit its ability to engage with third parties that make unsolicited proposals. In addition, the Merger Agreement provides that (i) the Company must call and hold a special meeting of its stockholders solely for the purpose of seeking the adoption of the Merger Agreement and the approval of the Mergers by the holders of at least a majority of the outstanding shares of GARS Common Stock entitled to vote thereon at such meeting (the “GARS Stockholder Approval”), (ii) the Company must include, in the proxy statement that is sent to the Company’s stockholders relating to such special meeting, the recommendation of the Board that the Company’s stockholders adopt the Merger Agreement and approve the Mergers and (iii) subject to limited exceptions, the Board must not withhold or withdraw, or modify or qualify in a manner adverse to PTMN, such recommendation. Similarly, the Merger Agreement provides that PTMN (i) must call and hold a special meeting of its stockholders solely for the purpose of seeking the approval of the issuance of shares of PTMN Common Stock in connection with the Merger by the holders of at least a majority of the outstanding shares of PTMN Common Stock represented and voting at such special meeting and (ii) must include, in the proxy statement that is sent to PTMN’s stockholders relating to such special meeting, the recommendation of the board of directors of PTMN that the stockholders of PTMN approve the issuance of shares of PTMN Common Stock in connection with the Merger.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

1. Organization – (continued)

Proposed Merger with Portman Ridge Finance Corporation – (continued)

The consummation of the Mergers is subject to the satisfaction or (to the extent permitted by law) waiver of certain customary mutual closing conditions, including (i) requisite approval of the Company’s stockholders and (ii) requisite approval of PTMN’s stockholders. The obligation of each party to consummate the Mergers is also conditioned upon, among other things, (A) the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), (B) the other party having performed in all material respects its obligations under the Merger Agreement required to be performed by it at or prior to the closing of the Mergers and (C) such party’s receipt of an opinion that the Mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In addition, the obligation of PTMN to consummate the Mergers is conditioned on the satisfaction of certain conditions relating to the Company’s $420.0 million collateralized loan obligation (the “CLO”) that closed on October 18, 2018.

The Merger Agreement contains customary termination rights. In particular, at any time prior to receipt of the adoption of the Merger Agreement and approval of the GARS Stockholder Approval, the Company may terminate the Merger Agreement in order to simultaneously enter into a binding definitive agreement providing for the consummation of a Superior Proposal (as defined in the Merger Agreement), subject to the Company’s compliance with notice and other specified conditions contained in the non-solicitation covenants, including giving PTMN the opportunity to propose revisions to the terms of the transactions contemplated by the Merger Agreement during a period following notice, and provided that the Company has not otherwise materially breached any provision of the non-solicitation covenants.

If the Merger Agreement is terminated by the Company as provided in the foregoing paragraph or is terminated under certain other circumstances, the Company must pay PTMN a termination fee equal to $2,375,448 minus any amounts that the Company previously paid to PTMN in the form of expense reimbursement.

2. Significant Accounting Policies and Recent Updates

Basis of Presentation

The Company is an investment company as defined in the accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC Topic 946”).

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications consisting solely of normal accruals that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

2. Significant Accounting Policies and Recent Updates – (continued)

Principles of Consolidation

The consolidated financial statements include the accounts of GARS and its subsidiaries. The accounts of the subsidiaries are prepared using consistent accounting policies and as of the same reporting period as GARS. Under ASC Topic 946, the Company is generally precluded from consolidating any entity other than another investment company. Accordingly, the Company consolidates any investment company when it owns 100% of its equity units or 100% of the economic equity interest. ASC Topic 946 also provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

As a result, GARS has consolidated the results of Garrison Funding 2018-2 Ltd. (“GF 2018-2”), Garrison Funding 2018-2 LLC, Garrison Capital SBIC LP (“Garrison SBIC”), Garrison Capital PL Holdings LLC, GIG Rooster Holdings I LLC and a series of limited liability companies that GARS created primarily to provide specific tax treatment for the equity and other investments held in these limited liability companies to the extent such entity was in existence as of June 30, 2020 and December 31, 2019, respectively. Garrison Capital PL Holdings LLC and Garrison SBIC were dissolved on June 13, 2020 and June 24, 2020, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures in the consolidated financial statements, including the estimated fair values of investments and the amount of income and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

As of June 30, 2020 and December 31, 2019, cash held in designated bank accounts with Deutsche Bank Trust Company Americas (the “Custodian”) was $8.4 million and $1.2 million, respectively. Cash held in designated bank accounts with other major financial institutions was $0.1 million and $0.1 million as of June 30, 2020 and December 31, 2019, respectively. At times, these balances may exceed federally insured limits and this potentially subjects the Company to a concentration of credit risk. The Company believes it is not exposed to any significant credit risk associated with the Custodian.

The Company defines cash equivalents as highly liquid financial instruments with original maturities of three months or less, including those held in overnight sweep bank deposit accounts.

As of both June 30, 2020 and December 31, 2019, the Company held no cash equivalents.

Cash and Cash Equivalents, Restricted

Restricted cash as of June 30, 2020 included $8.0 million of cash held by GF 2018-2 in designated bank accounts with the Custodian. As of December 31, 2019, restricted cash included $39.1 million held by GF 2018-2 and Garrison SBIC in designated bank accounts with the Custodian. Our CLO (as defined in Note 1) is required to use a portion of its cash to pay interest expense, reduce borrowings at the end of the investment period and following certain other events and to pay other amounts in accordance with the terms of the indenture governing our CLO. Cash held with Garrison SBIC was typically restricted to funding eligible small business investment company (“SBIC”) investments and the payment of the principal and interest expense of the U.S. Small Business Administration (“SBA”) debentures. As a result, funds held by GF 2018-2 and Garrison SBIC as of June 30, 2020 and December 31, 2019 were not available for general use by the Company.

As of both June 30, 2020 and December 31, 2019, the Company held no restricted cash equivalents.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

2. Significant Accounting Policies and Recent Updates – (continued)

Revenue Recognition

In general, we generate revenue on our investments that primarily consists of interest income, fee income, dividend income and gains and losses.

Interest income: Interest income is comprised of cash interest, PIK interest, original issue discounts or premiums as well as any loan origination, facility and commitment fees. Cash and PIK interest income is accrued based on the outstanding principal amount and interest terms outlined in the respective contractual agreement that governs that investment. The Company records interest income if it expects that it ultimately will be able to collect such income. Loan origination fees and any original issue or purchase discounts or premiums received by the Company are initially capitalized and deferred and reduce or increase the cost basis of the investment. They are subsequently accreted into interest income over the stated term of the loan.

Similarly, commitment fees are based upon the undrawn portion committed by the Company and are accrued over the life of the loan. Upon the prepayment of a loan or debt security, any unamortized fees, discounts or premiums are recorded into income.

Fee and dividend income: Fee income is generally comprised of amendment, forbearance, prepayment, syndication, structuring, diligence, consulting and possible fees for providing managerial assistance to a portfolio company and may be received in the form of cash or PIK. Amendment and forbearance fees are generally received in connection with loan amendments or waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. We record prepayment premiums on loans and debt securities into income when we receive such amounts.

Structuring, diligence fees, consulting and managerial assistance fees for periodically providing services to a portfolio company or third party are recognized when such services have been completed and the fees are generally receivable. Any such fee income received is recorded and classified as other income and included in investment income on the consolidated statements of operations. As these fees are generally paid and recognized in connection with specific loan event or the performance of a service, there may be significant fluctuations from period to period in the amount and size of such fees, and they are typically non-recurring in nature.

In addition, the Company may receive periodic dividends or distributions from our preferred or equity investments. Such amounts are recorded and classified as other income. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

To the extent distributions are received from a limited liability company or limited partnership investment, we will evaluate the distribution to determine if it should be recorded as income or return of capital. Generally, we will not record such distributions as income unless there is sufficient accumulated tax-basis earnings and profits prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.

Investment gains and losses: Realized gains and losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to any previously recognized unrealized changes in the investments’ fair value. Net changes in unrealized gains and losses on investments reflect the current period changes in the fair value of our investments, including the reversal of previously recorded unrealized gains and losses on investments that are realized. Both realized and changes in unrealized gains and losses are recorded using the specific identification method on the consolidated statement of operations.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

2. Significant Accounting Policies and Recent Updates – (continued)

Non-accrual loans: The Company records interest income, fee income and dividends based on the contractual interest terms of its investments if it expects that it will ultimately be able to collect it. Generally, when management believes that the issuer of the loan will not be able to service the loan, the Investment Adviser will place the loan on non-accrual status and the Company will cease recognizing interest income on that loan. However, the Company remains contractually entitled to this interest. The Company may restore an investment to accrual status when past due principal and interest payments are made or if the interest income is otherwise deemed to be collectible by the Investment Adviser. The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2020, the Company had four investments on non-accrual status. As of December 31, 2019, the Company had two investments on non-accrual status.

Investments, at Fair Value

The Company records its investment transactions on a trade date basis, which is the date when management has determined that all material legal terms have been contractually defined for the transactions. These transactions generally settle on a subsequent date which may depend on the type of transaction. Any amounts related to purchase, sale and principal paydowns that have traded but not settled are reflected as either a due to or due from counterparty on our consolidated statement of financial condition. All related revenue and expenses attributable to these transactions are reflected on the consolidated statement of operations commencing on the trade date unless otherwise specified by the transaction documents.

Fair Value Measurements

The Company values its investments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC Topic 820’s definition of fair value focuses on exit price of an orderly transaction in the principal, or most advantageous, market between willing participants with reasonable knowledge of the relevant facts customary of such transactions. ASC Topic 820 also prioritizes the use of market-based inputs over entity-specific inputs when measuring fair value.

ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

•

Level 1 — Unadjusted quoted prices in active markets for identical investments as of the reporting date.

•

Level 2 — Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for identical or similar instruments where multiple price quotes can be obtained, and other observable inputs, such as interest rates, yield curves, credit risks, and default rates.

•

Level 3 — Pricing inputs are unobservable and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation including, in certain instances, the Investment Adviser’s own assumptions about how market participants would price the financial instrument.

Our investments generally include debt investments (both funded and unfunded, “Senior Secured Investments”) and equity investments (both preferred and common, “Equity Investments”). The Company’s portfolio is primarily comprised of relatively illiquid investments that are privately held. Inputs into the determination of fair value of the Company’s portfolio investments require significant management judgment or estimation. This means that the Company’s portfolio valuations are based on unobservable inputs and the Investment Adviser’s own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value of the Company’s investments may differ materially from the values that would have been used if a ready market for these investments existed.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

2. Significant Accounting Policies and Recent Updates – (continued)

Fair Value Measurements (continued)

Net assets could be materially affected if the determinations regarding the fair value of the investments were materially higher or lower than the values that are ultimately realized upon the disposal of such investments.

Valuation Techniques

The following is a description of the various valuation techniques the Company utilizes when valuing its investments.

Bid quotations: Certain of the Company’s debt investments may be traded in public markets where quoted market prices are generally not readily available. The fair value of these investments may be determined based on bid quotations from unaffiliated market makers or independent third-party pricing services or the price activity of comparable instruments. The Company will generally supplement the bid quotations for these investments by also performing a comparable yield approach outlined below.

Comparable yield approach: This valuation technique determines the fair value of an investment by assessing the expected market yield of other debt investments with similar credit structures, leverage statistics, interest rates and time to maturity. The Company generally uses this approach for its debt investments that have not been deemed to be credit-impaired and where a market rate of recovery is expected.

Market comparable companies: This valuation technique determines the total enterprise value of a company by assessing the expected multiple that a market participant would apply to that company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue or other collateral that secures the investment. These valuation multiples are typically determined based on reviewing market comparable transactions or other comparable publicly traded companies, if any. The resulting enterprise value will dictate whether or not the Company’s debt investment has adequate enterprise value coverage. In instances where the enterprise value is inadequate, the market comparable companies approach may be used to estimate a recovery value for our credit-impaired debt investments and the fair value of our equity investments. With respect to equity investments, when an external event, such as a purchase transaction, public offering or subsequent sale of equity occurs, the pricing indicated by that external event will be utilized to corroborate our valuation.

Discounted cash flows: This valuation technique determines the fair value of an investment by projecting the expected cash flows based on contractual terms calculating the present value of such cash flows as of the valuation date using a discount rate.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

2. Significant Accounting Policies and Recent Updates – (continued)

Valuation Process

The Board is responsible for determining, within the meaning of the 1940 Act, in good faith the fair value of the Company’s assets for which market quotations are not readily available, using a documented valuation policy and consistently applied valuation process. The valuation process is a multi-step process conducted at the end of each fiscal quarter as described below:

•

The Company’s valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Investment Adviser responsible for credit monitoring.

•

At least once annually, the valuation for each portfolio investment that does not have a readily available quotation, including an external pricing event, is reviewed by an independent valuation firm, subject to certain exceptions described below.

•

Preliminary valuation conclusions are then documented, compared to the range of prices provided by an independent valuation firm where applicable, and discussed with our senior management and the Investment Adviser.

•

The Investment Adviser submits these preliminary valuations to the Valuation Committee of the Board.

•

The Board discusses valuations and determines, within the meaning of the 1940 Act, the fair value of each investment in the Company’s portfolio for which market quotations are not readily available in good faith.

However, the Board does not, and does not intend to, have investments independently reviewed that (1) have closed within the two most recent quarters or (2) are de minimis investments that are less than 0.5% of the Company’s total assets (up to an aggregate of 10.0% of the Company’s total assets).

Deferred Debt Issuance Costs

In connection with executing or refinancing its various debt facilities, the Company may incur debt issuance costs or issue debt at a price below par, referred to as an original issue discount. These debt issuance costs and discounts are generally included as a reduction to the carrying amount of the corresponding liability on the consolidated statements of financial condition. However, based on the nature of the debt facilities, costs associated with revolving credit facilities are recorded within the other assets line item on our consolidated statements of financial condition. These costs are generally amortized over the stated maturity of the related liability. In the event that we extinguish our debt facilities before the stated maturity, the Company will deduct any unamortized deferred debt issuance costs from the carrying amount of extinguished debt and recognize a gain or loss on the consolidated statement of operations.

Interest Expense

Interest expense is recorded on an accrual basis and is comprised of cash interest, deferred debt issuance costs, original issue discounts or premiums as well as any loan origination, facility and commitment fees.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

2. Significant Accounting Policies and Recent Updates – (continued)

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend or distribution is determined by the Board each quarter and is generally based upon the earnings estimated by management. The earnings estimates provided to the Board are determined by management in accordance with U.S. GAAP, which may differ from those amounts determined in accordance with U.S. federal income tax regulations. Net realized capital gains, if any, are distributed at least annually, in accordance with the applicable requirements included within the 1940 Act.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies and eliminates certain disclosure requirements for fair value measurements. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. We adopted ASU 2018-13 on January 1, 2020, and it did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. The Company is currently evaluating the adoption of ASU 2020-04 but does not expect the standard to have a material impact on our consolidated financial statements and disclosures.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

3. Investments

As of June 30, 2020, we held 113 investments across 92 portfolio companies with a fair value of $348.8 million. As of December 31, 2019, we held 123 investments across 105 portfolio companies with a fair value of $418.9 million.

The composition of the Company’s portfolio by industry at fair value as of June 30, 2020 and December 31, 2019 was as follows:

	Fair Value of Investments
Industry ($ in thousands)	As of June 30, 2020				As of December 31, 2019
Internet Software and Services	$	60,653	17.4	%	$	74,093	17.5	%
Healthcare Equipment and Services		41,276	11.8			49,776	11.9
Textiles, Apparel and Luxury Goods		26,454	7.6			26,757	6.4
Auto Components		23,742	6.8			25,329	6.0
Diversified Telecommunication Services		19,892	5.7			23,692	5.7
Commercial Services and Supplies		17,720	5.1			21,662	5.2
Household Products and Durables		15,949	4.5			20,020	4.8
Electrical Equipment		13,046	3.6			13,652	3.3
Transportation Services		11,767	3.4			13,169	3.1
Leisure Products		11,294	3.2			12,272	2.9
Building Products		10,314	3.0			10,845	2.6
Aerospace and Defense		10,069	2.9			11,906	2.8
Construction and Engineering		10,051	2.9			10,936	2.6
Energy Equipment and Services		8,714	2.5			9,159	2.2
Air Freight and Logistics		8,637	2.5			8,822	2.1
Pharmaceuticals		7,688	2.2			9,759	2.3
Food Products		6,978	2.0			12,628	3.0
Retail		6,549	1.9			6,661	1.6
Professional Services		6,355	1.8			7,842	1.9
Trading Companies and Distributors		5,829	1.7			6,462	1.5
Diversified Financial Services		4,978	1.4			6,134	1.5
Hotels, Restaurants and Leisure		4,854	1.4			10,873	2.6
Containers and Packaging		4,750	1.4			4,592	1.1
Technology Hardware, Storage and Peripherals		4,392	1.3			4,893	1.2
Chemicals		3,750	1.1			4,936	1.2
Metals and Mining		1,979	0.6			2,108	0.5
Oil, Gas and Consumable Fuels		741	0.2			1,472	0.4
Media		344	0.1			1,173	0.3
Machinery		-	-			4,929	1.2
Semiconductors and Semiconductor Equipment		-	-			2,321	0.6
	$	348,765	100.0	%	$	418,873	100.0	%

Refer to the consolidated schedules of investments for a detailed disaggregation of the Company’s investments by industry.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

3. Investments – (continued)

The following tables summarize the valuation of the Company’s investments measured at fair value based on the fair value hierarchy, as detailed in Note 2, as of June 30, 2020 and December 31, 2019:

	As of June 30, 2020
($ in thousands)	Level 1		Level 2		Level 3		Total
Senior Secured Investments⁽¹⁾	$	—	$	—	$	340,940	$	340,940
Equity Investments⁽²⁾		—		—		7,825		7,825
	$	—	$	—	$	348,765	$	348,765

(1) Included in senior secured loans are loans structured as first lien last out loans. These loans may in certain cases be subordinated in payment priority to other senior secured lenders.

(2) Includes preferred and common equity investments.

	As of December 31, 2019
($ in thousands)	Level 1		Level 2		Level 3		Total
Senior Secured Investments⁽¹⁾	$	—	$	—	$	410,530	$	410,530
Equity Investments⁽²⁾		—		—		8,343		8,343
	$	—	$	—	$	418,873	$	418,873

(1) Included in senior secured loans are loans structured as first lien last out loans. These loans may in certain cases be subordinated in payment priority to other senior secured lenders.

(2) Includes preferred and common equity investments.

The net change in unrealized (loss)/gain attributable to the Company’s Level 3 assets for the six months ended June 30, 2020 and 2019 included in the net change in unrealized (loss)/gain on investments in the Company’s consolidated statements of operations was $16.3 million and $6.6 million, respectively.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

3. Investments – (continued)

The following table presents the change in investments measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2020:

	Six Months Ended June 30, 2020
	Senior Secured			Equity
($ in thousands)	Investments			Investments⁽¹⁾			Total
Fair value, beginning of period	$	410,530		$	8,343		$	418,873
Total net realized and unrealized (loss)/gain on investments⁽²⁾		(29,616	)		(4,114	)		(33,730	)
Total net accretion of discounts on investments		511			—			511
Purchases/issuances⁽³⁾		7,380			3,636			11,016
Paydowns⁽³⁾		(31,315	)		—			(31,315	)
Sales		(16,550	)		(40	)		(16,590	)
Fair value, end of period	$	340,940		$	7,825		$	348,765

(1)	Includes preferred and common equity investments.

(2)	Net change in unrealized loss on investments attributable to our Level 3 assets still held at June 30, 2020 totaled $25.0 million, consisting of the following: Senior Secured Investments of $20.9 million and Equity Investments of $4.1 million.

(3)	Includes non-cash restructurings of portfolio investments of $7.5 million.

The following table presents the change in investments measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2019:

	Six Months Ended June 30, 2019
	Senior Secured			Equity			Financial
($ in thousands)	Investments			Investments⁽¹⁾			Assets			Total
Fair value, beginning of period	$	445,393		$	8,352		$	232		$	453,977
Total net realized and unrealized (loss)/gain on investments⁽²⁾		(3,006	)		79			9			(2,918	)
Total net accretion of discounts on investments		627			—			—			627
Purchases/issuances⁽³⁾		71,079			11,451			—			82,530
Paydowns⁽³⁾		(30,218	)		—			(241	)		(30,459	)
Sales		(17,022	)		(30	)		—			(17,052	)
Fair value, end of period	$	466,853		$	19,852		$	—		$	486,705

(1)	Includes preferred and common equity investments.

(2)	Net change in unrealized loss on investments attributable to our Level 3 assets still held at June 30, 2019 totaled $3.0 million, consisting of the following: Senior Secured Investments of $3.1 million, offset by unrealized gains on Equity Investments of $0.1 million.

(3)	Includes non-cash restructurings of portfolio investments of $10.2 million.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

3. Investments – (continued)

The following table summarizes the significant unobservable inputs that were used in determining fair value of the majority of the Company’s investments categorized within Level 3 as of June 30, 2020. This table is not intended to be all-inclusive, but rather provide information on the significant unobservable inputs relevant to the determination of fair value.

		Quantitative Information about Level 3 Fair Value Measurements
		Fair Value as of		Valuation	Unobservable	Range						Weighted
($ in thousands)		June 30, 2020		Technique	Input	Low			High			Average⁽¹⁾
Senior Secured Investments	$		340,940	Comparable yield approach	Discount rate^⁽²⁾		4.7	%		28.5	%		9.4	%
				Market comparable companies	Comparable multiple⁽³⁾		2.0	x		19.2	x		8.4	x

Equity Investments⁽⁴⁾			7,825	Market comparable companies	Comparable multiple⁽³⁾		5.0	x		10.0	x		6.8	x
					Origination fees multiple⁽³⁾		1.7	x		1.7	x		1.7	x
				Discounted cash flows	Recovery rate		0.0	%		20.2	%		20.2	%

Total	$		348,765

(1)	Unobservable inputs were weighted based on the fair value of the investments included in the range.

(2)	Discount rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.

(3)	Expected multiple that a market participant would apply to that company’s EBITDA, revenue or other collateral that secures the investment.

(4)	Includes preferred and common equity.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

3. Investments – (continued)

The following table summarizes the significant unobservable inputs that were used in determining fair value of the majority of the Company’s investments categorized within Level 3 as of December 31, 2019. This table is not intended to be all-inclusive, but rather provide information on the significant unobservable inputs relevant to the determination of fair value.

		Quantitative Information about Level 3 Fair Value Measurements
		Fair Value as of		Valuation	Unobservable	Range						Weighted
($ in thousands)		December 31, 2019		Technique	Input	Low			High			Average⁽¹⁾
Senior Secured Investments	$		410,530	Comparable yield approach	Discount rate⁽²⁾		5.2	%		31.3	%		8.8	%
				Market comparable companies	Comparable multiple⁽³⁾		2.0	x		18.6	x		7.5	x

Equity Investments⁽⁴⁾			8,343	Market comparable companies	Comparable multiple⁽³⁾		6.5	x		10.8	x		10.4	x
					Origination fees multiple⁽³⁾		3.5	x		3.5	x		3.5	x
				Discounted cash flows	Recovery rate		0.0	%		40.1	%		40.1	%

Total	$		418,873

(1)	Unobservable inputs were weighted based on the par value of the investments included in the range.

(2)	Discount rate is calculated based on the fair value of the investments and interest expected to be received using the current rate of interest at the balance sheet date to maturity, excluding the effects of future scheduled principal amortizations.

(3)	Expected multiple that a market participant would apply to that company’s EBITDA, revenue or other collateral that secures the investment.

(4)	Includes preferred and common equity.

Unobservable inputs used in the fair value measurement of the Company’s investments include multiples of market comparable companies, relative comparable yields, discount rates and recovery rates. Significant decreases (increases) in market comparables could result in lower (higher) fair value measurements. Significant increases (decreases) in comparable yields could result in lower (higher) fair value measurements. Significant increases (decreases) in discount rates could result in lower (higher) fair value measurements. Significant increases (decreases) in recovery rates could result in lower (higher) fair value measurements. Generally, a change in the assumption used for relative comparable yields is accompanied by a directionally opposite change in the assumptions used for pricing.

The terms of our debt investments may include provisions that require us to extend additional credit or provide funding to a borrower for any unfunded portion of such debt investments at the request of the borrower. This exposes us to potential future liabilities that are not reflected on the consolidated statements of financial condition. As of June 30, 2020 and December 31, 2019, the Company had $1.6 million and $2.1 million of unfunded commitments, respectively. As of June 30, 2020 and December 31, 2019, the fair value of the unfunded commitments was $0.1 and $0.1 million, respectively.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

4. Financing

The table below provides details, including maturity dates, the weighted average interest rates and the weighted average effective interest rates, inclusive of the effects of deferred debt issuance costs, of the Company’s outstanding debt as of June 30, 2020:

June 30, 2020 ($ in thousands)	Amortized Carrying Value		Outstanding Principal at Par		Interest Rate	Effective Interest Rate	Rating⁽¹⁾	Stated Maturity⁽²⁾
2018-2 CLO Secured Notes:
Class A-1R-R Notes	$	—	$	—	LIBOR + 1.58%⁽³⁾	2.04%	AAA(sf)	11/20/2029
Class A-1T-R Notes		193,605		195,400	LIBOR + 1.58%	2.07%	AAA(sf)	11/20/2029
Class A-2-R Notes		54,663		55,100	LIBOR + 2.45%	2.92%	AA (sf)	11/20/2029
Class B-R Notes		17,943		18,250	LIBOR + 3.17%	3.65%	A (sf)	11/20/2029
Totals / weighted averages	$	266,211	$	268,750	2.24%	2.35%		11/20/2029

(1)	Represents ratings from each of S&P and DBRS for the Class A-1R-R Notes and the Class A-1T-R Notes and from S&P for the Class A-2-R Notes and Class B-R Notes as of the closing of the CLO on October 18, 2018.

(2)	The indenture governing our CLO permits the repricing or refinancing of the secured notes after November 20, 2020, which may result in the actual maturity of the outstanding notes occurring prior to their stated maturity.

(3)	Interest may be indexed to either the CP Rate (as defined in the governing indenture) or three month USD LIBOR.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

4. Financing – (continued)

The table below provides details of our outstanding debt as of December 31, 2019:

December 31, 2019 ($ in thousands)	Amortized Carrying Value		Outstanding Principal at Par		Interest Rate	Effective Interest Rate	Rating⁽¹⁾	Stated Maturity⁽²⁾
2018-2 CLO Secured Notes:
Class A-1R-R Notes	$	—	$	—	LIBOR + 1.58%⁽³⁾	3.58%	AAA(sf)	11/20/2029
Class A-1T-R Notes		193,529		195,400	LIBOR + 1.58%	3.59%	AAA(sf)	11/20/2029
Class A-2-R Notes		54,645		55,100	LIBOR + 2.45%	4.45%	AA (sf)	11/20/2029
Class B-R Notes		17,931		18,250	LIBOR + 3.17%	5.18%	A (sf)	11/20/2029
Subtotals / weighted averages		266,105		268,750	3.76%	3.88%		11/20/2029
Garrison SBIC Borrowings:
SBIC 2018-10 A		22,342		23,000	3.53%⁽⁴⁾	3.95%	N/A	3/1/2028
SBIC 2017-10 A		3,569		3,660	3.37%⁽⁴⁾	3.77%	N/A	3/1/2027
SBIC 2016-10 B		3,240		3,320	2.79%⁽⁴⁾	3.19%	N/A	9/1/2026
SBIC 2016-10 A		12,420		12,700	3.25%⁽⁴⁾	3.65%	N/A	3/1/2026
SBIC Interim Financing		4,059		4,200	LIBOR + 0.65%⁽⁵⁾	3.11%	N/A	3/25/2020
Subtotals / weighted averages		45,630		46,880	3.32%	3.72%		9/23/2026
Short-term Borrowings:
Other Debt		2,015		2,015	LIBOR + 1.00%	2.74%	N/A	1/15/2020
Total /weighted average		2,015		2,015	2.74%	2.74%		1/15/2020

Totals / weighted averages	$	313,750	$	317,645	3.69%	3.85%		5/24/2029

(1)	Represents ratings from each of S&P and DBRS for the Class A-1R-R Notes and the Class A-1T-R Notes and from S&P for the Class A-2-R Notes and Class B-R Notes as of the closing of our CLO on October 18, 2018.

(2)	The indenture governing our CLO permits the repricing or refinancing of the secured notes after November 20, 2020, which may result in the actual maturity of the outstanding notes occurring prior to their stated maturity.

(3)	Interest may be indexed to either the CP Rate (as defined in the governing indenture) or three month USD LIBOR.

(4)	Represents the stated interest rate and annual charge of our debentures guaranteed by the SBA.

(5)	These interim financings bear an interest rate of three month USD LIBOR +0.65% which is comprised of a weighted average annual charge of 0.35% and a spread of 0.30%. These interim financings had a maturity date of March 25, 2020, upon which they were pooled into ten year SBA-guaranteed debentures.

In accordance with the 1940 Act, with certain limited exceptions, prior to August 15, 2018 the Company was allowed to borrow up to amounts such that its asset coverage, as defined in the 1940 Act, was at least 200% after such borrowing excluding the SBA-guaranteed debentures of Garrison SBIC per the Company’s exemptive relief from the Securities and Exchange Commission (the “SEC”). Because the Company’s stockholders approved the modified asset coverage requirements in section 61(a)(2) of the 1940 Act, effective August 15, 2018, the asset coverage requirements applicable to the Company under the 1940 Act were reduced to 150%. As of June 30, 2020 and December 31, 2019, the Company’s asset coverage for borrowed amounts was 137.5% and 150.4%, respectively. As of June 30, 2020, the Company was not in compliance with its 150% asset coverage requirement and as a result, is unable to make additional borrowings under the Class A-1R-R Notes until its asset coverage is at least 150%. As of December 31, 2019, the Company’s total leverage capacity was capped at $1.2 million as a result of the asset coverage ratio limitations.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

4. Financing – (continued)

Collateralized Loan Obligation Financings

On October 18, 2018, the Company completed a secured financing arrangement in the form of a $420.0 million CLO facility. The CLO was executed by GF 2018-2 (the “Issuer”) and Garrison Funding 2018-2 LLC (together with the Issuer, the “Co-Issuers”) who issued $312.0 million of senior secured notes (collectively referred to as the “2018-2 Secured Notes” and individually defined above in the table) and $108.0 million of subordinated notes (the “2018-2 Subordinated Notes” and, together with the 2018-2 Secured Notes, the “2018-2 Notes”) backed by a diversified portfolio of primarily senior secured loans. As part of the CLO transaction, GARS retained all $108.0 million of the 2018-2 Subordinated Notes and $18.3 million of the Class B-R Notes and agreed to serve as collateral manager for the Co-Issuers. GARS is entitled to receive interest from the Class B-R Notes, distributions from the 2018-2 Subordinated Notes and fees for serving as collateral manager in accordance with the CLO’s governing documents and to the extent funds are available for such purposes. However, as a result of retaining all of the 2018-2 Subordinated Notes, the Company consolidates the accounts of the Co-Issuers into its financial statements and all transactions between GARS and the Co-Issuers are eliminated on consolidation. As a result of this consolidation, the portion of the 2018-2 Secured Notes that were issued under the CLO and not retained by GARS is treated as the Company’s indebtedness. The net proceeds of the CLO were utilized, along with cash on hand, to refinance notes issued under the Company’s prior collateralized loan obligation facility. The 2018-2 Notes are scheduled to mature on November 20, 2029, however the Co-Issuers may redeem the 2018-2 Notes on any business day after November 20, 2020. The indenture governing the 2018-2 Notes provides that, to the extent cash is available from cash collections, the holders of the 2018-2 Notes are to receive quarterly interest payments on the 20th day or, if not a business day, the next succeeding business day of February, May, August and November of each year until the stated maturity or earlier redemption. On July 18, 2019, $25.0 million outstanding of the aggregate $50.0 million Class A-1R-R Notes available under the CLO converted to Class A-1T-R Notes. The remaining $25.0 million of Class A-1R-R Notes, to the extent drawn, will convert to term notes on or before November 20, 2022.

The Company had $0 and $1.2 million of available leverage capacity in the Class A-1R-R Notes under the CLO as of June 30, 2020 and December 31, 2019, respectively. The fair value of the 2018-2 Notes approximated their carrying value on the consolidated statements of financial condition as of June 30, 2020 and December 31, 2019.

Collateralized Loan Obligation Financing Covenants

The documents governing the CLO include three overcollateralization tests which are comprised of the Class A Overcollateralization Test, the Class B Overcollateralization Test and the EoD Overcollateralization Test, each of which are individually defined below.

The documents governing the CLO include two coverage tests applicable to the 2018-2 Secured Notes as of June 30, 2020 and December 31, 2019. The first test compares the amount of interest received on the collateral loans held by GF 2018-2 to the amount of interest payable on the 2018-2 Secured Notes in respect of the amounts drawn and certain expenses. To meet this first test, at any time, the aggregate amount of interest received on the collateral loans must equal, after the payment of certain fees and expenses, at least 135.0% of the aggregate amount of interest payable on the Class A-1R-R Notes, the Class A-1T-R Notes and the Class A-2-R Notes (collectively, the “Class A-R Notes”) and 125.0% of the interest payable on the Class A-R Notes and Class B-R Notes, taken together.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

4. Financing – (continued)

Collateralized Loan Obligation Financing Covenants (continued)

The second test compares the aggregate assets that serve as collateral for the 2018-2 Secured Notes, or the Total Capitalization, as defined and calculated in accordance with the indenture, to the aggregate outstanding principal amount of the 2018-2 Secured Notes in respect of the amounts drawn. To meet this second test at any time, the Total Capitalization must equal at least (1) 128.0% of the aggregate outstanding principal amount of the Class A-R Notes (“Class A Overcollateralization Test”), and (2) 118.2% of the aggregate principal amount of the Class A-R Notes and Class B-R Notes, taken together (the test in clause (2), the “Class B Overcollateralization Test”). As of June 30, 2020, the Company was in breach of the Class B Overcollateralization Test and as a result must cure the Class B Overcollateralization Test in order to avoid diversion of cash away from making additional investments or distributions.

If the coverage tests are not satisfied with respect to a quarterly payment date, the CLO may be required to apply amounts to the repayment of interest on and principal of the 2018-2 Notes prior to their maturity to the extent necessary to satisfy the applicable coverage tests. As a result, there may be reduced funds available for GF 2018-2 to make additional investments or to make distributions on the 2018-2 Notes held by the Company. Additionally, compliance was measured on each day collateral loans are purchased, originated or sold and in connection with monthly reporting to the note holders.

Furthermore, if under the second coverage test the Total Capitalization equals 125.0% or less of the aggregate outstanding principal amount on the Class A-1R-R and Class A-1T-R Notes (“EoD Overcollateralization Test”), taken together remained so for ten business days, an event of default would be deemed to have occurred.

As of June 30, 2020, the trustee for the CLO has asserted that both the Class A Overcollateralization Test and the EoD Overcollateralization Test were met, however the Class B Overcollateralization Test was not satisfied. As of December 31, 2019, the trustee for the CLO has asserted that all of the coverage tests were met.

Garrison SBIC Borrowings

On May 29, 2014, Garrison SBIC, which has an investment objective substantially similar to GARS, was formed in accordance with the SBA’s SBIC regulations. Garrison SBIC received a license from the SBA on May 26, 2015. The SBIC license allowed Garrison SBIC to obtain SBA-guaranteed debentures in an amount equal to twice its equity capitalization up to $175.0 million of leverage, subject to the issuance of capital commitments by the SBA and other customary procedures. Since receiving its SBIC license, the SBA has issued Garrison SBIC with two commitment letters to provide an aggregate $70.0 million of SBA debentures.

These SBA-guaranteed debentures were issued bi-annually on pooling dates in March and September of each year. The debentures were non-recourse, interest-only debentures with a 10 year stated maturity, but may be prepaid at any time without penalty. To the extent the debentures are prepaid, they are permanently extinguished and the Company can no longer access those debentures. The interest rate of the debentures was fixed at the time of issuance on each respective pooling date and was based on a coupon rate that equated to a spread over the ten year treasury rate based on market rates at the time of issuance. Interest on the debentures was payable on a semi-annual basis. The SBA issues interim financings to SBICs on non-pooling dates that carry a lower interest rate than the debentures and which mature on the next pooling date when replaced by new SBA-guaranteed debentures.

The SBA, as a creditor, had a superior claim to Garrison SBIC’s assets over GARS’ stockholders if Garrison SBIC were to be liquidated, or if the SBA exercises its remedies under the SBA-guaranteed debentures issued by Garrison SBIC upon an event of default.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

4. Financing – (continued)

Garrison SBIC Borrowings – (continued)

As of December 31, 2019, the Company had $46.9 million of SBIC borrowings outstanding. The fair value of the SBIC borrowings approximated the carrying value on the consolidated statements of financial condition as of December 31, 2019.

During the six months ended June 30, 2020, the Company voluntarily prepaid all $46.9 million of its outstanding SBIC borrowings, in accordance with the terms of the SBA-guaranteed debentures that govern the SBIC borrowings, prior to their stated maturity date. This resulted in a $1.0 million and $1.6 million loss on extinguishment of debt recognized on the consolidated statement of operations for the three and six months ended June 30, 2020, respectively.

As of June 30, 2020, the Company no longer had any SBA-guaranteed debentures outstanding, removed the entity’s ability to act as an SBIC, and had delivered a notification letter to the SBA of its intention to surrender the Garrison Capital SBIC LP license.

Short-term Borrowing Facility

On June 3, 2019, the Company entered into a master repurchase agreement (the “short-term borrowing facility”) with Natixis Securities Americas LLC (“Natixis”) to provide short-term borrowings which the Company intends to utilize from time-to-time to manage its working capital needs. The Company’s ability to draw down borrowings under the agreement is subject to 1940 Act leverage limitations, customary covenants and events of defaults and is dependent on the Company pledging eligible assets to Natixis as collateral. No commitment fees were paid in connection with execution of the agreement. As of December 31, 2019, the Company had $2.0 million of short-term borrowings outstanding. During the six months ended June 30, 2020, the Company repaid all outstanding amounts due under the short-term borrowing facility.

On June 10, 2020, the Company terminated the short-term borrowing facility.

Deferred Debt Issuance Costs and Other Fees

As of both June 30, 2020 and December 31, 2019, the Company’s debt issuance costs and original issue discounts were generally incurred as a result of the CLO and the Company’s SBIC borrowings. The CLO costs typically represent structuring and facility fees, rating agency fees and other legal costs incurred. The costs associated with SBIC borrowings consist of a 1.00% fee on the total commitments received, a 2.00% leverage fee, a 0.375% underwriting fee and a 0.05% administrative fee on any SBA borrowings that are drawn.

As of June 30, 2020, $2.7 million of deferred debt issuance costs and discounts remained on our consolidated statement of financial condition, all of which were related to the CLO. As of December 31, 2019, $4.2 million of deferred debt issuance costs and discounts remained on our consolidated statement of financial condition. These costs were comprised of $2.9 million related to the CLO and $1.3 million related to the borrowings of Garrison SBIC. For the three and six months ended June 30, 2020, interest expense on our consolidated statement of operations included $0.1 million and $0.2 million, respectively, of amortization related to the debt issuance costs and original issue discounts on our liabilities. For the three and six months ended June 30, 2019, interest expense on our consolidated statement of operations included $0.1 million and $0.2 million, respectively, of amortization related to the debt issuance costs and original issue discounts on our liabilities.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

5. Related Party Transactions and Other Agreements

Investment Advisory Agreement

The Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis subject to the supervision of the Board. The Investment Adviser was organized in November 2010 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended.

GARS entered into an investment advisory agreement with the Investment Adviser (as amended and/or restated from time to time, the “Investment Advisory Agreement”), which entitles the Investment Adviser to a management fee and an incentive fee. As of June 30, 2020, the Investment Advisory Agreement had been most recently amended and restated on May 6, 2019.

Management Fee

Under the Investment Advisory Agreement, beginning August 14, 2018, the management fee payable to the Investment Adviser is calculated at an annual rate of 1.50% of the Company's average gross assets, excluding cash or cash equivalents but including assets purchased with borrowed funds, at the end of each of the two most recently completed calendar quarters; provided, however, the management fee is calculated at an annual rate of 1.00% of the average value of the Company’s gross assets, excluding cash or cash equivalents but including assets purchased with borrowed funds, that exceeds the product of (i) 200% and (ii) the Company’s average net assets at the end of each of the two most recently completed calendar quarters. For the avoidance of doubt, the 200% is calculated in accordance with the 1940 Act and gives effect to the Company’s exemptive relief with respect to its SBIC debentures.

For the three and six months ended June 30, 2020, the Company incurred aggregate management fee expenses of $1.1 million and $2.4 million, respectively. For the three and six months ended June 30, 2019, the Company incurred aggregate management fee expenses of $1.7 million and $3.3 million, respectively. As of June 30, 2020 and December 31, 2019, the management fees in the amounts of $0.1 million and $1.5 million, respectively, were recorded as payable and included in management fee payable on our consolidated statements of financial condition.

Incentive Fee

Under the Investment Advisory Agreement, the Investment Adviser is entitled to an incentive fee consisting of two components and a cap and deferral mechanism. The first component is income-based and payable quarterly in arrears while the second component is capital gains-based and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date). The components are independent of each other, and certain instances may result in one component being payable even if the other is not.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

5. Related Party Transactions and Other Agreements – (continued)

Income-based incentive fees

The first component, which is income-based and payable quarterly in arrears, equals 20.00% of the amount, if any, that the Company’s pre-incentive fee net investment income exceeds a 1.75% quarterly (7.00% annualized) hurdle rate (the “Hurdle Rate”), subject to a “catch-up” provision, measured at the end of each calendar quarter.

The portion of such income-based incentive fee that is attributable to deferred interest (such as PIK interest) will be paid to the Investment Adviser, together with any other interest accrued on the loan from the date of deferral to the date of payment, only if and to the extent the Company actually receives such interest in cash. Furthermore, any accrual that is attributable to deferred interest will be reversed if and to the extent such interest is reversed in connection with any write-off of the investment giving rise to any deferred interest accrual. Any reversal of such deferred interest amounts would reduce net income for the quarter by the net amount of the reversal, after taking into account the incentive fees associated with the deferred interest amount also being reversed. Such a write-off would result in a reduction and possible elimination of the incentive fees for such quarter. For the avoidance of doubt, no incentive fee will be paid to the Investment Adviser on amounts accrued and not received in cash with respect to deferred interest.

Effective January 1, 2019, the operation of the first component of the incentive fee under the Investment Advisory Agreement for each quarter is as follows:

•

no incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the Hurdle Rate of 1.75% (7.00% annualized);

•

50% of the Company’s pre-incentive fee net investment income, if any, that exceeds the 1.75% Hurdle Rate but is less than 2.9167% in any calendar quarter (11.67% annualized) is payable to the Investment Adviser. This portion of the Company’s income-based incentive fee component is referred to as the “catch-up” provision; and

•

20% of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.9167% in any calendar quarter (11.67% annualized) is payable to the Investment Adviser.

The effect of the catch-up provision is that, if the Company earns pre-incentive fee net investment income in any quarter in excess of 2.9167%, the Investment Adviser would receive 20% of such pre-incentive fee net investment income as if the Hurdle Rate did not apply.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

5. Related Party Transactions and Other Agreements – (continued)

Capital gains-based incentive fees

The second component, which is capital gains-based, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20% of the Company’s cumulative aggregate realized capital gains through the end of such year, computed net of the Company’s aggregate cumulative realized capital losses and aggregate cumulative unrealized capital loss through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees and subject to the Incentive Fee Cap and Deferral Mechanism described below. The capital gains component of the incentive fee is not subject to any minimum return to stockholders.

In addition, under U.S. GAAP, we are required to accrue capital gains incentive fees, based upon the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital gain and loss on investments held at the end of each period. If such amount is positive at the end of a period, then the Company will record a capital gains incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains related incentive fees paid in all prior years. If such amount is negative, no accrual will be recorded for such period. There were no capital gains incentive fees accrued for the three and six months ended June 30, 2020 and 2019.

The Investment Advisory Agreement does not permit unrealized capital gains for purposes of calculating the amount payable to the Investment Adviser. Amounts due related to unrealized capital gains, if any, will not be paid to the Investment Adviser until realized under the terms of the Investment Advisory Agreement (as described above).

Incentive Fee Cap and Deferral Mechanism

We have structured the calculation of the incentive fees to include a fee limitation (the “Incentive Fee Cap and Deferral Mechanism”) such that no incentive fee will be paid to our Investment Adviser for any fiscal quarter if, after such payment, the cumulative incentive fees paid to our Investment Adviser for the period that includes such fiscal quarter and the 11 full preceding fiscal quarters (the “Incentive Fee Look-back Period”) would exceed 20.00% of our Cumulative Pre-Incentive Fee Net Return during the applicable Incentive Fee Look-back Period (the “Incentive Fee Cap”). To the extent that the payment of incentive fees is limited by the Incentive Fee Cap, the payment of such fees is deferred and paid in subsequent quarters up to three years after their date of deferment, subject to applicable limitations included in the Investment Advisory Agreement. However, beginning January 1, 2019, no deferred incentive fees will be paid to the Investment Adviser in an amount in excess of the sum of cumulative realized capital gains, cumulative realized capital losses, cumulative unrealized capital depreciation and cumulative unrealized capital appreciation during the applicable Incentive Fee Look-back Period. The “Cumulative Pre-Incentive Fee Net Return” is defined as the sum of (1) pre-incentive fee net investment income, (2) cumulative realized capital gains/(losses), and (3) cumulative unrealized capital gains/(losses) for the Incentive Fee Look-back Period.

As of June 30, 2020, we had cumulative net realized and unrealized capital losses in excess of our Pre-Incentive Fee Net Investment Income, resulting in negative Cumulative Pre-Incentive Fee Net Return during the Incentive Fee Look-back Period. Therefore, the Incentive Fee Cap as of June 30, 2020 was zero due to the Incentive Fee Cap and Deferral Mechanism (and subject to the applicable limitations set forth in the Investment Advisory Agreement). As a result, no incentive fees were recorded during the three and six months ended June 30, 2020.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

5. Related Party Transactions and Other Agreements – (continued)

Incentive Fee Cap and Deferral Mechanism (continued)

As of June 30, 2020, the Investment Adviser had calculated aggregate income-based incentive fees and payments of $5.2 million and $0.8 million, respectively, since June 30, 2017, respectively. As of June 30, 2020, due to the Incentive Fee Cap and Deferral Mechanism and the irrevocable waiver of previously earned fees, no income-based incentive fees were recorded as payable on the consolidated statement of financial condition. Due to the fact that there is no clawback of amounts previously paid to the Investment Adviser in accordance with the Investment Advisory Agreement, the Company has not recorded a receivable for the $0.8 million difference between amounts paid under the Investment Advisory Agreement in prior quarters and the Incentive Fee Cap based on the Company’s Cumulative Pre-Incentive Fee Net Return as of June 30, 2020.

To the extent unrealized capital losses incurred within the Incentive Fee Look-back Period as of June 30, 2020 are reversed or cease to impact the Incentive Fee Cap, such that our cumulative realized capital gains and cumulative unrealized capital appreciation exceed cumulative realized capital losses and cumulative unrealized capital depreciation prior to June 30, 2023, the Investment Adviser may be able to recoup up to $4.4 million of income-based incentive fees, which are currently deferred under the Incentive Fee Cap, this amount is net of $0.3 million of income-based incentive fees which have been irrevocably waived and cannot be recouped.

The following table provides a breakdown of our incentive fees for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended				Six Months Ended
Incentive Fees ($ in thousands)	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
Income-based incentive fees	$	—	$	543	$	5		$	832
Capital gains-based incentive fees		—		—		—			—
Incentive fee waiver		—		—		—			—
Incentive fees subject to cap & deferral mechanism		—		—		(5	)		—
Total incentive fees	$	—	$	543	$	—			832

No incentive fees were recorded as payable on the consolidated statement of financial condition as of June 30, 2020 and December 31, 2019.

Administration Agreement

GARS entered into an administration agreement, which was effective as of October 9, 2012 (the “Administration Agreement”), with GARS Administrator. Under the Administration Agreement, the GARS Administrator provides the Company with office facilities, equipment, clerical, bookkeeping and record keeping services at such facilities and such other services as the GARS Administrator, subject to review by the Board, from time to time determines to be necessary or useful to perform its obligations under the Administration Agreement. The GARS Administrator is responsible for the financial and other records that the Company is required to maintain and prepares reports to stockholders, and reports and other materials filed with the SEC. The GARS Administrator provides on the Company’s behalf significant managerial assistance to those portfolio companies to which the Company is required to provide such assistance. No managerial assistance was provided to any portfolio companies during the three and six months ended June 30, 2020 and June 30, 2019.

In addition, the GARS Administrator assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns, and the printing and dissemination of reports to stockholders of the Company, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company reimburses the GARS Administrator for the costs and expenses incurred by the GARS Administrator in performing its obligations and providing personnel and facilities.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

5. Related Party Transactions and Other Agreements – (continued)

Administration Agreement (continued)

Administrator charges for the three and six months ended June 30, 2020 were $0.6 million and $1.4 million, respectively. Administrator charges for three and six months ended June 30, 2019 were $0.3 million and $0.7 million, respectively. No charges were waived by the GARS Administrator for the three and six months ended June 30, 2020 and 2019. As of both June 30, 2020 and December 31, 2019, there were no administration fees payable to the GARS Administrator.

Directors’ Fees

The Company’s independent directors each receive an annual fee of $75,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each in-person Board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each in-person committee meeting.

The chairman of the audit committee receives an annual fee of $10,000, the chairman of the valuation committee receives an annual fee of $10,000 and each chairman of any other committee receives an annual fee of $5,000 for their additional services in these capacities (all such fees and reimbursements collectively, “Directors’ Fees”). No compensation is paid to directors who are not independent of the Company and the Investment Adviser.

In addition, as compensation for their services as a member of the Special Committee in relation to the Company’s strategic alternative review, each member of the Special Committee received a one-time retainer fee of $20,000 upon the formation of the Special Committee. Each member of the Special Committee will also receive a $10,000 fee per month until either the closing of the transaction or disbanding of the Special Committee. Total fees are not to exceed $50,000 per member of the Special Committee in the aggregate.

For the three and six months ended June 30, 2020, independent directors earned Directors’ Fees of $0.2 million and $0.2 million, respectively. For the three and six months ended June 30, 2019 independent directors earned Directors’ Fees of $0.1 million and $0.2 million, respectively. No Directors’ Fees were payable as of June 30, 2020 and December 31, 2019.

Affiliated Stockholders

During the six months ended June 30, 2020, Garrison Capital Fairchild I Ltd. and Garrison Capital Fairchild II Ltd. distributed the 722,708 shares of GARS Common Stock held by such entities to their investors. As of June 30, 2020, Garrison Capital Adviser Holdings MM LLC owned an aggregate of 67,202, or 0.4%, of the total outstanding shares. As of December 31, 2019, Garrison Capital Fairchild I Ltd., Garrison Capital Fairchild II Ltd. and Garrison Capital Adviser Holdings MM LLC owned an aggregate of 789,910, or 4.9%, of the total outstanding shares of GARS Common Stock. As of June 30, 2020, the officers and directors of the Company owned an aggregate of approximately 300,000, or 1.9%, of the total outstanding shares of GARS Common Stock. As of December 31, 2019, the officers and directors of the Company owned an aggregate of approximately 299,000, or 1.9%, of the total outstanding shares of GARS Common Stock.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

5. Related Party Transactions and Other Agreements – (continued)

Other Related Party Transactions and Agreements

Garrison Loan Agency Services LLC acts as the administrative and collateral agent for certain loans held by the Company. No fees were paid by the Company to Garrison Loan Agency Services LLC during the three and six months ended June 30, 2020 and 2019.

The Company may invest alongside other clients of the Investment Adviser and its affiliates in certain circumstances where doing so is consistent with applicable law, SEC staff interpretations and the terms of our exemptive relief.

For certain expenses, the GARS Administrator facilitates payments by GARS to third parties through the Investment Adviser or other affiliate. Other than the amount of expenses paid to third parties and fees payable under the Investment Advisory Agreement, no additional charges or fees are assessed by the GARS Administrator, the Investment Adviser or other affiliates.

GARS entered into a custody agreement with Deutsche Bank Trust Company Americas to act as custodian for GARS. The Custodian is also the trustee of the CLO and was the custodian for Garrison SBIC.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

6. Financial Highlights

The following table represents financial highlights for the Company for the six months ended June 30, 2020 and 2019:

	Six Months Ended
Per share data ($ in thousands, except share and per share amounts)	June 30, 2020			June 30, 2019
Net asset value per common share at beginning of period	$	8.51		$	10.52
(Decrease)/increase in net assets from operations:
Net investment income		0.26			0.42
Net realized loss on investments		(1.09	)		(0.59	)
Net unrealized (loss)/gain on investments		(1.01	)		0.41
Net loss on extinguishment of debt		(0.10	)		—
Net (decrease)/increase in net assets resulting from operations		(1.94	)		0.24
Total stockholder distributions from net investment income		(0.30	)		(0.46	)
Net asset value per common share at end of period	$	6.27		$	10.30

Per share market value at beginning of period	$	5.82		$	6.43
Per share market value at end of period	$	3.38		$	6.90
Total book return⁽¹⁾		(22.80	)%		2.28	%
Total market return⁽²⁾		(33.75	)%		14.40	%
Common shares outstanding at beginning of period		16,049,352			16,049,352
Common shares outstanding at end of period		16,049,352			16,049,352
Weighted average common shares outstanding		16,049,352			16,049,352
Net assets at beginning of period	$	136,553		$	168,912
Net assets at end of period	$	100,627		$	165,333
Average net assets^⁽³⁾	$	110,719		$	167,914
Ratio of net expenses to average net assets		20.42	%		16.93	%
Ratio of net investment income to average net assets		7.54	%		8.01	%
Ratio of portfolio turnover to average investments at fair value⁽⁴⁾		0.53	%		9.98	%
Asset coverage ratio⁽⁵⁾		137.49	%		156.77	%
Average outstanding debt⁽⁶⁾	$	282,543		$	338,066
Average debt per common share	$	17.60		$	21.06

(1)	Total book return equals the net increase of ending net asset value from operations plus the effect of repurchases of common stock over the net asset value per common share at the beginning of the period.

(2)	Based upon the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with our dividend reinvestment plan.

(3)	Calculated utilizing monthly net assets.

(4)	Calculated based on monthly average investments at fair value.

(5)

Effective as of August 15, 2018, in accordance with the 1940 Act, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 150% after such borrowing. Prior to August 15, 2018, the Company was allowed to borrow amounts such that its asset coverage was at least 200% after such borrowing. Based on the exemptive relief received from the SEC in 2015, Garrison SBIC’s SBA guaranteed debentures are excluded from the Company’s asset coverage test calculation.

(6)	Calculated based on monthly average debt outstanding.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

7. Earnings per Share

The following table sets forth the computation of the net increase/(decrease) in net assets per share resulting from operations, pursuant to FASB ASC 260, Earnings per Share, for the six months ended June 30, 2020 and 2019:

	Six Months Ended
($ in thousands, except per share data)	June 30, 2020			June 30, 2019
Net (decrease)/increase in net assets resulting from operations	$	(31,112	)	$	3,803
Basic weighted average common shares outstanding		16,049,352			16,049,352
Basic (loss)/earnings per share	$	(1.94	)	$	0.24

8. Stockholders’ Equity

Distributions

The Company’s dividends and distributions are recorded on the ex-dividend date. The following table reflects the cash distributions declared on GARS Common Stock for the six months ended June 30, 2020 and 2019:

Record Dates ($ in thousands except per share data)	Date Declared	Payment Date	Distribution Declared		Distribution Declared per Share
Six Months Ended June 30, 2020
June 5, 2020	May 8, 2020	June 26, 2020	$	2,407	$	0.15
March 20, 2020	March 4, 2020	March 31, 2020		2,407		0.15
			$	4,814	$	0.30

Record Dates ($ in thousands except per share data)	Date Declared	Payment Date	Distribution Declared		Distribution Declared per Share
Six Months Ended June 30, 2019
June 7, 2019	April 30, 2019	June 21, 2019	$	3,691	$	0.23
March 22, 2019	March 5, 2019	March 29, 2019		3,691		0.23
			$	7,382	$	0.46

Dividends 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 U.S. GAAP.

Dividend Reinvestment Plan

The Company adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if the Board declares a cash dividend or other distribution, then our stockholders who have not ‘opted out’ of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of GARS Common Stock, which may be newly issued shares or shares acquired by American Stock Transfer & Trust Company, LLC (“AST”), the transfer and dividend paying agent and registrar to GARS, through open-market purchases, rather than receiving the cash distribution. As of June 30, 2020 and December 31, 2019, no new shares were issued pursuant to the dividend reinvestment plan.

No action is required on the part of a registered stockholder to have its cash dividend or other distribution reinvested in shares of GARS Common Stock. A registered stockholder may elect to receive an entire distribution in cash by notifying AST in writing so that such notice is received by AST no later than the record date for distributions to stockholders.

Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends and other distributions in cash by notifying their broker or other financial intermediary of their election.

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

9. Commitments and Contingencies

The Company had outstanding commitments to fund investments totaling $1.6 million and $2.1 million under various undrawn revolvers and other credit facilities as of June 30, 2020 and December 31, 2019, respectively.

In the ordinary course of business, the Company may be named as a defendant or a plaintiff in various lawsuits and other legal proceedings. Such proceedings include actions brought against the Company and others with respect to transactions to which the Company may have been a party. The outcomes of such lawsuits are uncertain and, based on these lawsuits, the values of the investments to which they relate could decrease. Management does not believe that as a result of litigation there would be any material impact on the consolidated financial condition of the Company. The Company has had no outstanding litigation proceedings brought against it since the initial public offering on April 2, 2013.

In the normal course of business, the Company enters into certain contracts that provide a variety of indemnifications. The Company’s maximum exposure under these indemnifications is unknown. However, no liabilities have arisen under these indemnifications in the past and, while there can be no assurances in this regard, there is no expectation that any will occur in the future. Therefore, the Company does not consider it necessary to record a liability for any indemnifications under U.S. GAAP.

10. Transactions with Control/Affiliate and Non-Control/Affiliate Investments

As required by the 1940 Act, investments are classified by level of control. “Control Investments” are those investments that we have been deemed to control as defined in the 1940 Act. According to the 1940 Act, control is defined as having an ownership interest of more than 25% of a company’s voting securities. “Affiliate Investments”, according to the 1940 Act, are those investments in affiliate companies that are not Control Investments, but are investments that we have an ownership interest of 5% or more of a company’s voting securities. “Non-Control/Non-Affiliate Investments” are those investments that are neither Control Investments nor Affiliate Investments. Please refer the our consolidated schedule of investments for the disaggregated list of our investments including the type / classification of the investment, the principal and cost amounts, details of the investment’s interest rate and the maturity date.

The following table shows the Non-Control/Affiliate activity for the six months ended June 30, 2020. There was no Control/Affiliate activity for six months ended June 30, 2020.

	Six Months Ended June 30, 2020
Portfolio Company ($ in thousands)	Fair value as of December 31, 2019		Purchases (cost)		Sales (cost)			Transfer in/ (out) (cost)		Net unrealized losses			Fair value as of June 30, 2020		Net realized losses		Interest and fee income		Dividend income
Non-control/affiliate investments
Cochon – MWS Holdings LLC (fka Rooster Energy Ltd.)	$	1,472	$	—	$	(40	)	$	—	$	(691	)	$	741	$	—	$	—	$	—
Total non-control/affiliate investments	$	1,472	$	—	$	(40	)	$	—	$	(691	)	$	741	$	—	$	—	$	—

Garrison Capital Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2020

10. Transactions with Control/Affiliate and Non-Control/Affiliate Investments – (continued)

The following table shows the Control/Affiliate and Non-Control/Affiliate activity for the six months ended June 30, 2019.

	Six Months Ended June 30, 2019
Portfolio Company ($ in thousands)	Fair value as of December 31, 2018		Purchases (cost)		Sales (cost)		Transfer in/ (out) (cost)		Net unrealized losses		Fair value as of June 30, 2019		Net realized losses		Interest and fee income		Dividend income
Control/affiliate investments
GIG Co Holdings LLC (fka Confluence Outdoors, LLC)	$	—	$	11,209	$	—	$	—	$	—	$	11,209	$	—	$	—	$	—
Total control/affiliate investments	$	—	$	11,209	$	—	$	—	$	—	$	11,209	$	—	$	—	$	—

	Six Months Ended June 30, 2019
Portfolio Company ($ in thousands)	Fair value as of December 31, 2018		Purchases (cost)		Sales (cost)			Transfer in/ (out) (cost)		Net unrealized losses			Fair value as of June 30, 2019		Net realized losses		Interest and fee income		Dividend income
Non-control/affiliate investments
Cochon – MWS Holdings LLC (fka Rooster Energy Ltd.)	$	1,630	$	—	$	(30	)	$	—	$	(120	)	$	1,480	$	—	$	—	$	—
Total non-control/affiliate investments	$	1,630	$	—	$	(30	)	$	—	$	(120	)	$	1,480	$	—	$	—	$	—

11. Subsequent Events

Management has evaluated subsequent events through the date of issuance of these financial statements. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the consolidated financial statements.

On July 10, 2020, Garrison Capital SBIC LP surrendered its SBIC license to the SBA.

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

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. References to the “Company,” “we”, “us”, “our”, “GARS” and “Garrison Capital” refer to Garrison Capital Inc. and its consolidated subsidiaries.

Forward-Looking Statements

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

•

our future operating results;

•

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

•

our business prospects and the prospects of our current and prospective portfolio companies;

•

the impact of investments that we may make;

•

the impact of increased competition;

•

our contractual arrangements and relationships with third parties;

•

the dependence of our business on the general economy, including general economic trends, and its impact on the industries in which we invest;

•

the ability of our portfolio companies to achieve their objectives;

•

the relative and absolute performance of Garrison Capital Advisers LLC, or our Investment Adviser, including in identifying suitable investments for us;

•

any future financings and investments;

•

the adequacy of our cash resources and working capital;

•

our ability to make distributions to our stockholders;

•

the effects of applicable legislation and regulations and changes thereto;

•

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

•

the impact of future acquisitions and divestitures;

•

the impact of COVID-19 on the economy and capital markets and on the operations of us and our portfolio companies;

•

the ability of the parties to consummate the Mergers (as defined below) on the expected timeline, or at all;

•

the ability to realize the anticipated benefits of the proposed Mergers;

•

the effects of disruption on our business from the proposed Mergers;

•

the combined company’s plans, expectations, objectives and intentions, as a result of the Mergers;

•

the effect that the announcement or consummation of the Mergers may have on the trading price of our common stock or the common stock of Portman Ridge Finance Corporation , or PTMN; and

•

any potential termination of the Merger Agreement (as defined below) or action of our stockholders or PTMN’s stockholders with respect to any proposed transaction.

We use words such as “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “will,” “should,” “could,” “can,” “would,” “believe,” “estimate,” “anticipate,” “predict,” “potential” and similar words to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission, or the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

You should understand that, under Section 27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this Quarterly Report on Form 10-Q or any periodic reports we file under the Exchange Act.

Overview

We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for tax purposes, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, and intend to qualify annually for such treatment. Our shares are currently listed on The Nasdaq Global Select Market under the symbol “GARS”.

Our investment objective is to generate current income and capital appreciation by assembling a broad portfolio of loans and debt securities of U.S. based companies. The companies to which we typically extend credit are moderately leveraged and have been rated below investment grade by national rating agencies. For companies that have not been rated, we believe that they would typically receive a rating below investment grade. In addition, our investments typically range in maturity from one to seven years. However, we may make investments in securities with any maturity or duration.

We invest opportunistically in loans and debt securities that we believe have attractive risk adjusted returns. We also, to a lesser extent, may make select minority equity investments (usually in conjunction with a concurrent debt investment) in non-investment grade companies.

Our investment activities are managed by our Investment Adviser. The investment committee of our Investment Adviser is comprised of Joseph Tansey, Allison Adornato, Terence Moore and Daniel Hahn. Our Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis. Under an investment advisory agreement with the Investment Advisor, or the Investment Advisory Agreement, we pay a management fee and an incentive fee to our Investment Adviser for its services.

Garrison Capital Administrator LLC, or the Administrator, provides certain administrative services and facilities necessary for us to operate, including office facilities and equipment and clerical, bookkeeping and record-keeping services, pursuant to the Administration Agreement. The Administrator oversees our financial reporting and prepares our reports to stockholders and reports required to be filed with the SEC. The Administrator also manages the determination and publication of our net asset value, the preparation and filing of our tax returns and generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others. The Administrator may retain third parties to assist in providing administrative services to us. To the extent that the Administrator outsources any of its functions, we pay the fees associated with such functions on a direct basis without any profit to the Administrator.

Proposed Merger with Portman Ridge Finance Corporation

On June 24, 2020, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with PTMN, Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN, or Acquisition Sub, and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN. The Merger Agreement provides that (i) Acquisition Sub will merge with and into us, which we refer to as the Merger, with us continuing as the surviving corporation and as a wholly owned subsidiary of PTMN, and (ii) immediately after the effectiveness of the Merger, we will merge with and into PTMN, which we refer to collectively with the Merger as the Mergers, with PTMN continuing as the surviving corporation. For further information, see “Note 1. Organization—The Proposed Merger with Portman Ridge Finance Corporation” to our consolidated financial statements included elsewhere in this report.

Recent Developments

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread across the globe and to the United States. As a result of the pandemic, the United States government has reacted to the COVID-19 outbreak with interest rate cuts and economic stimulus. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to spread, this has directly impacted the financial markets, creating disruptions in global supply chains, increasing rates of unemployment and adversely impacting many industries and limiting the operations of us and our portfolio companies.

The outbreak of COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, and results of operations. We expect that these impacts are likely to continue and given the uncertainty, this poses risks with respect to us and the performance of our portfolio companies. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown. For additional information regarding the potential impact of the COVID-19 pandemic, see “Global economic, political and market conditions caused by the current COVID-19 pandemic have (and in the future could further) adversely affect our business, results of operations and financial condition and those of our portfolio companies.” in our Risk Factors below.

On July 10, 2020, Garrison Capital SBIC LP, or Garrison SBIC, surrendered its small business investment company, or SBIC, license to the Small Business Administration, or SBA.

On August 4, 2020, our board of directors, or the Board, declared a distribution in the amount of $0.8 million, or $0.05 a share, which will be paid on September 25, 2020 to stockholders of record as of September 11, 2020.

Revenues

In general, we generate revenue in the form of interest earned on the debt investments that we hold and capital gains and distributions, if any, to a lesser extent, on the equity interests or warrants held in portfolio companies. Our debt investments, whether in the form of senior secured, unitranche or mezzanine loans, typically have a term that ranges from three to seven years and may generally bear interest at a fixed or floating rate. Interest is generally payable monthly or quarterly, and in some cases, loans may contain a payment-in-kind, or PIK, feature.

We also earn fee income which is generally comprised of amendment, forbearance, prepayment, syndication, structuring, diligence, consulting and possible fees for providing managerial assistance to a portfolio company. Amendment and forbearance fees are generally received in connection with loan amendments or waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. We record prepayment premiums on loans and debt securities into income when we receive such amounts.

In addition, we may receive structuring, diligence fees, consulting and managerial assistance fees for periodically providing services to a portfolio company or third party. These fees are recognized when such services have been completed and the fees are generally receivable. Any such fee income received is recorded and classified as other income and included in investment income on the consolidated statements of operations. As these fees are generally paid and recognized in connection with specific loan event or the performance of a service, there may be significant fluctuations from period to period in the amount and size of such fee and they are typically non-recurring in nature.

In addition, we may receive periodic dividends or distributions from our preferred or equity investments. Such amounts are recorded and classified as other income. Dividend income on preferred equity securities is recorded as a component of other income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Expenses

Our primary operating expenses include the payment of (1) the interest expense on our outstanding debt; (2) the management and incentive fees to the Investment Adviser under the Investment Advisory Agreement, if applicable; (3) the allocable portion of overhead to the Administrator under the Administration Agreement; and (4) our other operating costs, as detailed below. We bear all other costs and expenses of our operations and transactions, including:

•

our organization;

•

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

•

fees and expenses, including travel expenses, incurred by the Investment Adviser or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

•

offerings of our common stock and other securities;

•

distributions on our shares;

•

transfer agent and custody fees and expenses;

•

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

•

brokerage fees and commissions;

•

registration fees;

•

listing fees;

•

taxes;

•

independent director fees and expenses;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;

•

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

•

costs of holding stockholder meetings;

•

our fidelity bond;

•

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

•

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

•

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

•

fees and expenses associated with marketing efforts;

•

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

•

all other expenses reasonably incurred by us or the Administrator in connection with administering our business, including rent and our allocable portion of the costs and expenses of our chief compliance officer, chief financial officer and their respective staffs.

Consolidated Results of Operations

The results of operations described below may not be indicative of the results we report in future periods. Net income can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized gains and losses. As a result, quarterly comparisons of net investment income may not be meaningful.

Consolidated operating results for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended									Six Months Ended
($ in thousands, except per share data)	June 30, 2020			June 30, 2019			Three Months Variance			June 30, 2020			June 30, 2019			Six Months Variance
Total investment income	$	7,441		$	10,704		$	(3,263	)	$	15,480		$	20,933		$	(5,453	)
Total expenses		5,667			7,230			(1,563	)		11,306			14,212			(2,906	)
Net investment income		1,774			3,474			(1,700	)		4,174			6,721			(2,547	)
Net realized loss on investments		(8,671	)		(2,365	)		(6,306	)		(17,425	)		(9,498	)		(7,927	)
Net change in unrealized (loss)/gain on investments		5,201			284			4,917			(16,305	)		6,580			(22,885	)
Loss on extinguishment of debt		(1,014	)		—			(1,014	)		(1,556	)		—			(1,556	)
Net (decrease)/increase in net assets resulting from operations		(2,710	)		1,393			(4,103	)		(31,112	)		3,803			(34,915	)

Net investment income per common share		0.11			0.22			(0.11	)		0.26			0.42			(0.16	)
Net realized/unrealized loss on investments per share		(0.22	)		(0.13	)		(0.09	)		(2.10	)		(0.18	)		(1.92	)
Loss on extinguishment of debt per share		(0.06	)		—			(0.06	)		(0.10	)		—			(0.10	)
Basic (loss)/earnings per share		(0.17	)		0.09			(0.26	)		(1.94	)		0.24			(2.18	)
Dividends and distributions declared per common share		0.15			0.23			(0.08	)		0.30			0.46			(0.16	)
Net asset value per share		6.27			10.30			(4.03	)		6.27			10.30			(4.03	)

Net Investment Income

Net investment income for the three and six months ended June 30, 2020 was $1.8 million and $4.2 million, respectively. Net investment income for the three and six months ended June 30, 2019 was $3.5 million and $6.7 million, respectively. As described below under “Investment Income” and “Expenses”, net investment income decreased by $1.7 million and $2.5 million for the three and six months ended June 30, 2020 from the three and six months ended June 30, 2019, respectively.

Investment Income

Investment income for the three and six months ended June 30, 2020 was $7.4 million and $15.5 million, respectively. Investment income for the three and six months ended June 30, 2019 was $10.7 million and $20.9 million, respectively. Investment income decreased by $3.3 million and $5.5 million for the three and six months ended June 30, 2020 from the three and six months ended June 30, 2019, respectively. This decrease was primarily driven by lower interest income for the three and six months ended June 30, 2020 due to a lower average portfolio size combined with a decrease in the weighted average yield driven by a lower London Interbank Offered Rate, or LIBOR.

Expenses

Total expenses for the three and six months ended June 30, 2020 were $5.7 million and $11.3 million, respectively. Total expenses for the three and six months ended June 30, 2019 were $7.2 million and $14.2 million, respectively.

The following table summarizes our expenses for the three and six months ended June 30, 2020 and June 30, 2019:

	Three Months Ended				Three			Six Months Ended				Six
($ in thousands)	June 30, 2020		June 30, 2019		Months Variance			June 30, 2020		June 30, 2019		Months Variance
Interest expense	$	2,197	$	3,860	$	(1,663	)	$	5,201	$	7,588	$	(2,387	)
Management fee		1,143		1,680		(537	)		2,443		3,303		(860	)
Incentive fee		—		543		(543	)		—		832		(832	)
Professional fees		490		308		182			639		705		(66	)
Directors' fees		163		77		86			246		159		87
Administrator expenses		641		329		312			1,386		700		686
Other expenses		1,033		433		600			1,391		925		466
Total expenses	$	5,667	$	7,230	$	(1,563	)	$	11,306	$	14,212	$	(2,906	)

Interest expense decreased $1.7 million and $2.4 million for the three and six months ended June 30, 2020, respectively, from the three and six months ended June 30, 2019, respectively, due to lower debt balances largely from the prepayment of Garrison SBIC’s SBA guaranteed debentures and a lower LIBOR during the three and six months ended June 30, 2020.

Management fee decreased by $0.5 million and $0.9 million for the three and six months ended June 30, 2020, respectively, from the three and six months ended June 30, 2019, respectively, primarily due to lower average gross assets during the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019.

Incentive fee decreased by $0.5 million and $0.8 million for the three and six months ended June 30, 2020, respectively, from the three and six months ended June 30, 2019, respectively, as a result of incurring an incentive fee expense for the three and six months ended June 30, 2019 whereas no such expense was incurred for the three and six months ended June 30, 2020 as a result of being subject to the fee limitation pursuant to the Investment Advisory Agreement.

Professional fees, directors’ fees, administrator expenses, and other expenses increased by $1.2 million for the three and six months ended June 30, 2020, from the three and six months ended June 30, 2019, primarily due to higher costs associated with the proposed Merger with PTMN.

Net Realized Loss on Investments

There were net realized losses on investments of $8.7 million and $17.4 million for the three and six months ended June 30, 2020, respectively.

The net realized loss on investments of $8.7 million for the three months ended June 30, 2020 was primarily driven by the realization of our investment in Bravo Brio Restaurant Group, Inc.

The net realized loss on investments of $17.4 million for the six months ended June 30, 2020 was primarily driven by realization of our investment in Bravo Brio Restaurant Group, Inc. and the restructuring of our investments in Constellis Holdings, LLC, Fusion Connect Inc., and VIP Cinema Holdings, Inc.

There were net realized losses on investments of $2.4 million and $9.5 million for the three and six months ended June 30, 2019, respectively.

The net realized loss on investments for the three months ended June 30, 2019 was primarily driven by a $2.5 million loss in connection with the restructuring of our investment in Confluence Outdoor, LLC.

The net realized loss on investments for the six months ended June 30, 2019 was primarily driven by a $2.5 million loss in connection with the restructuring of our investment in Confluence Outdoor, LLC and a $6.9 million loss incurred upon the sale of our investment in Profusion Industries, LLC.

Net Change in Unrealized Loss/(Gain) on Investments

For the three and six months ended June 30, 2020, the net change in unrealized gain and loss on investments was $5.2 million and $16.3 million, respectively.

The net change in unrealized gain on investments for the three months ended June 30, 2020 of $5.2 million was primarily comprised of an $8.1 million reversal of a previous recorded unrealized loss on our investment in Bravo Brio Restaurant Group, Inc., offset by $2.3 million of negative credit-related adjustments across two investments.

The net change in unrealized loss on investments for the six months ended June 30, 2020 of $16.3 million was primarily comprised of $3.4 million of negative credit-related adjustments primarily due to CircusTrix Holdings LLC, Exela Intermediate LLC, and GIG Rooster Holdings and a net $18.3 million of negative market-related adjustments across various direct lending and syndicated investments, partially offset by the $5.4 million reversal of a previous recorded unrealized losses in connection with the realization of Bravo Brio Restaurant Group, Inc. and the restructurings on our investments in Constellis Borrower LLC, Fusion Connect, Inc. and VIP Cinema Holdings, Inc.

For the three and six months ended June 30, 2019, the net change in unrealized gain on investments was $0.3 million and $6.6 million, respectively.

The net change in unrealized gain on investments for the three months ended June 30, 2019 of $0.3 million was primarily comprised of the $2.5 million reversal of a previous recorded unrealized loss in connection with the restructuring of our investment in Confluence Outdoor, LLC, offset by $2.2 million of net negative market-related adjustments primarily from various syndicated investments.

The net change in unrealized gain on investments for the six months ended June 30, 2019 of $6.6 million was primarily comprised of the $6.9 million reversal of a previous recorded unrealized loss as a result of the sale of our investment in Profusion Industries, LLC and a $2.5 million reversal of a previous recorded unrealized loss connection with the restructuring of our investment in Confluence Outdoor, LLC, offset by $2.8 million of net negative market-related adjustments primarily from various syndicated investments.

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

We had a net asset value per common share outstanding as of June 30, 2020 and December 31, 2019 of $6.27 and $8.51, respectively.

Based on basic weighted average shares outstanding of 16,049,352, the net decrease in net assets from operations per share for three and six months ended June 30, 2020 was $0.17 and $1.94, respectively. These decreases were driven by net realized and unrealized losses of $0.28 per share and $2.20 per share, partially offset by net investment income of $0.11 per share and $0.26 per share incurred during the three and six months ended June 30, 2020, respectively.

Based on basic weighted average shares outstanding of 16,049,352, the net increase in net assets from operations per share for the three and six months ended June 30, 2019 was $0.09 and $0.24, respectively. These increases were driven by net investment income of $0.22 per share and $0.42 per share, partially offset by net realized and unrealized losses of $0.13 per share and $0.18 per share incurred during the three and six months ended June 30, 2019, respectively.

Liquidity and Capital Resources

As a business development company, we distribute substantially all of our taxable net income to our stockholders. We have generated cash from offerings of our debt and equity securities from time to time and have also utilized any repayments of portfolio investments as an ongoing source of cash. In addition, we generate liquidity from our cash flows from operations.

As of June 30, 2020 and December 31, 2019, we had cash of $8.5 million and $1.3 million, respectively. Also, as of June 30, 2020 and December 31, 2019, we had restricted cash of $8.0 million and $39.1 million, respectively.

Our primary uses of liquidity include making investments in portfolio companies, distributions to the holders of our common stock, servicing interest and principal payments on our various debt financing facilities and paying the fees and other operating expenses we incur as a publicly-traded, externally managed business development company. As of June 30, 2020, we believe that our existing cash and cash equivalents and our ability to sell broadly syndicated investments are sufficient to fund our anticipated liquidity needs through at least June 30, 2021. In addition, to the extent the proposed Merger transaction does not close, we may amend or refinance our leverage facilities and borrowings, in order to, among other things, modify covenants or the interest rates payable and extend the reinvestment period or maturity date. However, our ability to access capital is subject to market conditions which may result in either capital not being available, or it may be available but only on unfavorable terms. To the extent we are not able to raise additional capital, or otherwise generate sufficient liquidity or are at or near target leverage ratios, we may receive smaller allocations, if any, on new investment opportunities under the Investment Adviser’s allocation policy.

On May 8, 2020, the Board approved a distribution in the amount of $2.4 million, or $0.15 a share, which was paid on June 26, 2020 to stockholders of record as of June 5, 2020

During the six months ended June 30, 2020, cash and restricted cash decreased by $23.8 million as a result of net cash used in financing activities in the amount of $53.7 million, partially offset by net cash provided by operating activities of $29.9 million.

During the six months ended June 30, 2020, cash provided by operating activities resulted mainly from repayments and sales of investments in the amount of $23.8 million and $16.6 million, respectively, and net realized and unrealized loss on investments in the amount of $33.7 million, offset by purchases of investments in the amount of $2.1 million and a net decrease in the due to/from counterparties and affiliates of $8.2 million. Net cash used in financing activities resulted from net repayments from the SBIC borrowings in the amount of $46.9 million, net repayments from the borrowing on our short-term financing facility in the amount of $2.0 million, and cash distributions paid to our stockholders in the amount of $4.8 million.

During the six months ended June 30, 2019, cash and restricted cash decreased by $15.7 million as a result of net cash used in operating activities of $47.8 million, offset by net cash provided by financing activities in the amount of $32.1 million.

During the six months ended June 30, 2019, cash used in operating activities was mainly driven by the purchase of new investments totaling $81.5 million and the payment for investments that were previously purchased but had not yet settled of $17.5 million. These were offset by repayments and sales of investments in the amount of $47.5 million. Net cash provided by financing activities primarily came from resulted from the receipt of net borrowing proceeds from the senior secured revolving notes under our $420.0 million collateralized loan obligation, or the 2018-2 CLO, that closed on October 18, 2018, in the amount of $39.5 million, offset by $7.4 million of cash distributions paid to our stockholders.

As of June 30, 2020 and December 31, 2019, we had $1.6 million and $2.1 million, respectively, of unfunded commitments. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of June 30, 2020, and December 31, 2019 subject to the terms of each loan’s respective credit agreement.

As of June 30, 2020, we were not in compliance with our 150% asset coverage requirements and as a result were unable to make additional borrowings under the revolver portion of our 2018-2 CLO. As of December 31, 2019, we had an aggregate of $1.2 million available for additional borrowings under the revolver portion of our 2018-2 CLO and the master repurchase agreement, or the short-term borrowing facility, with Natixis Securities Americas LLC, or Natixis, and $5.2 million of available SBIC leverage. As of June 30, 2020, we retained all of the subordinated notes and $18.3 million of the Class B-R Notes under the 2018-2 CLO, which remained available for us to sell, subject to the asset coverage limitations applicable under the 1940 Act. During the year ended December 31, 2019, we pledged $2.5 million of Class B-R Notes to Natixis under the short-term borrowing facility. As such, as of December 31, 2019, $15.8 million of Class B-R Notes remained available for us to sell, subject to the asset coverage limitations applicable under the 1940 Act.

On June 10, 2020, we terminated the short-term borrowing facility with Natixis.

As of June 30, 2020, we no longer had any SBA-guaranteed debentures outstanding, removed Garrison SBIC’s ability to act as an SBIC, and had delivered a notification letter to the SBA of its intention to surrender its SBIC license.

Portfolio Composition and Select Portfolio Information

As of June 30, 2020, we held investments in 92 portfolio companies with a fair value of $348.8 million. As of June 30, 2020, our portfolio had an average investment size of approximately $3.7 million and a weighted average contractual maturity of 45 months.

The following table shows select information of our portfolio as of the end of each fiscal quarter from June 30, 2019 to June 30, 2020:

($ in millions, % based on fair value, unless otherwise noted)*	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
Portfolio Summary:
Total portfolio, at fair value	$	348.8		$	366.1		$	418.9		$	459.8		$	486.7
Total number of portfolio companies		92			100			105			104			100
Total number of investments		113			119			123			123			119
Average size of debt investments	$	3.7		$	3.6		$	3.8		$	4.2		$	4.5
Weighted average price of debt investments		91.1			90.1			94.8			95.1			97.1

Portfolio Yields:⁽¹⁾
Weighted average yield on debt investments at amortized cost⁽²⁾		7.2	%		7.6	%		8.1	%		8.5	%		8.9	%
Weighted average yield on debt investments at fair value⁽²⁾		9.5	%		9.8	%		9.2	%		9.2	%		9.6	%
Weighted average yield on total portfolio at amortized cost		6.9	%		7.2	%		7.6	%		7.6	%		8.5	%
Weighted average yield on total portfolio at fair value		8.9	%		9.1	%		8.6	%		8.4	%		9.3	%

Portfolio Structure:
First lien senior secured debt investments		97.8	%		97.7	%		98.0	%		98.1	%		96.1	%
Equity and other investments		2.2	%		2.3	%		2.0	%		1.9	%		3.9	%
Floating rate debt investments		99.6	%		99.6	%		99.7	%		100.0	%		99.9	%
Fixed rate debt investments		0.4	%		0.4	%		0.3	%		0.00	%		0.1	%

Portfolio Sourcing:
Originated⁽³⁾		16.4	%		15.5	%		14.6	%		22.9	%		23.1	%
Club⁽⁴⁾		42.6	%		42.1	%		41.4	%		39.0	%		39.1	%
Purchased⁽⁵⁾		41.0	%		42.4	%		44.0	%		38.1	%		37.8	%

Portfolio Credit Quality:
Performing debt investments		99.0	%		99.5	%		98.3	%		95.1	%		99.3	%
Non-accrual debt investments		1.0	%		0.5	%		1.7	%		4.9	%		0.7	%
Weighted average debt/EBITDA of our portfolio companies⁽²⁾⁽⁶⁾		4.6	x		4.1	x		4.3	x		4.1	x		3.9	x
Weighted average risk rating of our debt investments		2.6			2.5			2.4			2.4			2.3

(1)

Weighted average yield represents the portfolio’s return from the all-in interest rate plus the annualized accretion income from (i) any original issue discount or premium when calculating weighted average yield at amortized cost and (ii) any market discount or premium when calculating weighted average yield at fair value as of the balance sheet date to par at each investments contractual maturity date, excluding the effect of any scheduled principal amortization payments. For those investments valued based on an estimated recovery rate, the weighted average yield calculation is based on redeeming the investment at the current expected recovery rate rather than at par.

(2)	Calculation excludes unfunded revolvers, debt investments placed on non-accrual and equity investments.

(3)	Originated positions include investments where we have sourced and led the execution of the deal.

(4)	Club positions include debt investments with a total tranche size less than $250.0 million where we provide direct lending to a borrower with a small number of other lenders but do not lead the deal.

(5)	Purchased positions include debt investments with a total tranche size greater than $250.0 million that was sourced from a bank loan syndication or the secondary market.

(6)	Includes first-lien debt investments which were valued by performing a liquidation analysis of the underlying assets which serve as collateral for those loans.

*	Table excludes investments with a fair value of zero from all figures except for the total number of portfolio companies and total number of investments. Debt investments in the table above exclude our investment in the consumer loan portfolio and all equity investments.

Inflation

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our financial statements. However, from time to time, inflation may impact the operating results of our portfolio companies.

LIBOR Transition

Our investment portfolio is comprised primarily of floating rate loans for which the borrower has an option to choose whether the base rate is referenced to LIBOR or the prime rate. In July 2017, the head of the United Kingdom Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities. If LIBOR ceases to exist, we may need to renegotiate with our portfolio companies the terms of certain credit agreements extending beyond 2021, which could have a material adverse effect on our business, financial condition and results of operations. No renegotiation of the terms of the 2018-2 CLO will be required in the event LIBOR ceases to exist because the indenture includes procedures for the selection of a replacement reference rate under such circumstances.

Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of June 30, 2020 and December 31, 2019, we had $1.6 million and $2.1 million of outstanding commitments to fund such investments, respectively.

Ongoing Monitoring

We view active portfolio monitoring as a vital part of the investment process. Our Investment Adviser monitors the financial trends of each portfolio company to determine if it is meeting its respective business plan and to assess the appropriate course of action for each company.

Our Investment Adviser uses several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

•

assessment of success in adhering to portfolio company’s business plan and compliance with covenants;

•

periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

•

comparisons to other portfolio companies in the industry, if any;

•

attendance at and participation in board meetings; and

•

review of monthly and quarterly financial statements and financial projections for portfolio companies.

Our Investment Adviser assigns an internal rating for each of our portfolio companies. The rating scale is a numeric scale of 1 to 4 based on the credit attributes and prospects of the portfolio company’s business. In general, we use the ratings as follows:

•

a rating of 1 denotes a high quality investment with no loss of principal expected;

•

a rating of 2 denotes a moderate to high quality investment with no loss of principal expected;

•

a rating of 3 denotes a moderate quality investment with market rates of expected loss of principal and potential non-compliance with financial covenants; and

•

a rating of 4 denotes a low quality investment with an expected loss of principal. In the case of risk rating 4 loans, our Investment Adviser will assign a recovery value to the loan.

The following table shows the distribution of our investments on the 1 to 4 investment risk scale at fair value, excluding our interest in equity investments, as of June 30, 2020 and December 31, 2019:

	As of June 30, 2020					As of December 31, 2019
($ in thousands)	Investments at Fair Value		Percentage of Total Debt Investments			Investments at Fair Value		Percentage of Total Debt Investments
Risk Rating 1	$	1,403		0.4	%	$	19,269		4.7	%
Risk Rating 2		148,660		43.6			266,251		64.9
Risk Rating 3		180,608		53.0			101,099		24.6
Risk Rating 4		10,269		3.0			23,911		5.8
	$	340,940		100.0	%	$	410,530		100.0	%

The weighted average risk rating of the portfolio was 2.6 and 2.5 as of June 30, 2020 and December 31, 2019, respectively.

Contractual Obligations

A summary of our significant contractual payment obligations as of June 30, 2020 is as follows:

	Payments Due by Period
($ in thousands)	Less Than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years		Total
2018-2 CLO	$	—	$	—	$	—	$	268,750	$	268,750
Total contractual obligations	$	—	$	—	$	—	$	268,750	$	268,750

We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, the Investment Adviser provides us with investment advisory and management services. We have agreed to pay for these services (1) a management fee equal to a percentage of the average adjusted value of our gross assets and (2) an incentive fee based on our performance.

We entered into the Administration Agreement on October 9, 2012 with the Administrator. Under the Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services and provides us with other administrative services necessary to conduct our day-to-day operations.

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

Both the Investment Advisory Agreement and the Administration Agreement may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other.

Related Party Transactions

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

•

We are party to the Investment Advisory Agreement with the Investment Adviser, under which our Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis.

•

The Administrator provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement.

•

We have entered into the License Agreement with Garrison Investment Group pursuant to which Garrison Investment Group has agreed to grant us a non-exclusive, royalty-free license to use the name “Garrison.”

•

Under the Staffing Agreement, Garrison Investment Group provides the Investment Adviser with the resources necessary to fulfill these obligations. The Staffing Agreement provides that Garrison Investment Group will make available to the Investment Adviser experienced investment professionals and access to the senior investment personnel of Garrison Investment Group for purposes of evaluating, negotiating, structuring, closing and monitoring our investments. The Staffing Agreement also includes a commitment that the members of the Investment Advisers’ investment committee serve in such capacity. The Staffing Agreement remains in effect until terminated and may be terminated by either party without penalty upon 60 days’ written notice to the other party. Services under the Staffing Agreement are provided to the Investment Adviser on a direct cost reimbursement basis, and such fees are not our obligation.

•

In connection with the 2018-2 CLO, we retained the Investment Adviser to furnish collateral management services to us pursuant to a sub-collateral management agreement. The Investment Adviser does not receive a fee for providing such services.

•

During the six months ended June 30, 2020, Garrison Capital Fairchild I Ltd. and Garrison Capital Fairchild II Ltd. distributed the 722,708 shares of GARS common stock held by such entities to their investors. Garrison Capital Adviser Holdings MM LLC continues to own 67,202 shares of GARS common stock.

We have adopted a joint code of ethics that governs the conduct of our and our Investment Adviser’s officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporation Law.

Critical Accounting Policies

The preparation of our financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. We have identified the following as critical accounting policies.

Principles of Consolidation

The consolidated financial statements include the accounts of GARS and its subsidiaries. The accounts of the subsidiaries are prepared using consistent accounting policies and as of the same reporting period as GARS. Under ASC Topic 946, Financial Services – Investment Companies, or ASC Topic 946, the Company is generally precluded from consolidating any entity other than another investment company. Accordingly, the Company consolidates any investment company when it owns 100% of its equity units or 100% of the economic equity interest. ASC Topic 946 also provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries.

As a result, we have consolidated the results of Garrison Funding 2018-2 Ltd., Garrison Funding 2018-2 LLC, Garrison SBIC, Garrison Capital PL Holdings LLC, GIG Rooster Holdings I LLC and a series of limited liability companies that GARS created primarily to provide specific tax treatment for the minority equity and other investments held in these limited liability companies to the extent such entity was in existence as of June 30, 2020 and December 31, 2019, respectively. Garrison Capital PL Holdings LLC and Garrison SBIC were dissolved on June 13, 2020 and June 24, 2020, respectively.

Revenue Recognition

In general, we generate revenue that primarily consists of interest income, fee income, dividend income and gains and losses on our investments.

Interest income: Interest income is comprised of cash interest, PIK interest, original issue discounts or premiums as well as any loan origination, facility and commitment fees. Cash and PIK interest income is accrued based on the outstanding principal amount and interest terms outlined in the respective contractual agreement that governs that investment. The Company records interest income if it expects that it ultimately will be able to collect such income. Loan origination fees and any original issue or purchase discounts or premiums received by the Company are initially capitalized, deferred and reduce or increase the cost basis of the investment and subsequently accreted into interest income over the stated term of the loan.

Investment gains and losses: Realized gains and losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to any previously recognized unrealized changes in the investments’ fair value. Current period changes in the fair value of our investments, which are measured at fair value, are recognized and recorded as a component of the net change in unrealized gain/(loss) on investments on the consolidated statement of operations. Both realized and unrealized gains and losses are recorded using the specific identification method.

Investments, at Fair Value

The Company records its investment transactions on a trade date basis, which is the date when management has determined that all material legal terms have been contractually defined for the transactions. These transactions generally settle on a subsequent date which may depend on the type of transaction. Any amounts related to purchase, sale and principal paydowns that have traded but not settled are reflected as either a due to or due from counterparty on our consolidated statement of financial condition. All related revenue and expenses attributable to these transactions are reflected on the consolidated statements of operations commencing on the trade date unless otherwise specified by the transaction documents.

Fair Value Measurements

The Company values its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC Topic 820’s definition of fair value focuses on an exit price of an orderly transaction in the principal, or most advantageous, market between willing participants with reasonable knowledge of the relevant facts customary of such transactions. ASC Topic 820 also prioritizes the use of market-based inputs over entity-specific inputs when measuring fair value.

ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

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Level 1 — Unadjusted quoted prices in active markets for identical investments as of the reporting date.

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Level 2 — Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for identical or similar investments where multiple price quotes can be obtained, and other observable inputs, such as interest rates, yield curves, credit risks, and default rates.

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Level 3 — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation including, in certain instances, the Investment Adviser’s own assumptions about how market participants would price the financial instrument.

Our investments include debt investments (both funded and unfunded) and preferred and minority common equity investments of diversified companies. Our portfolio is primarily comprised of relatively illiquid investments that are privately held. Inputs into the determination of fair value of our portfolio investments require significant management judgment or estimation. This means that our portfolio valuations are based on unobservable inputs and the Investment Adviser’s own assumptions about how market participants would price the asset or liability in question. Valuations of privately held investments are inherently uncertain and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value of the Company’s investments may differ materially from the values that would have been used if a ready market for these investments existed.

Valuation Techniques

The following is a description of the various valuation techniques the Company utilizes when valuing its investments.

Bid quotations: Certain of the Company’s debt investments may from time to time be traded in public markets where quoted market prices are generally not readily available. The fair value of these investments may be determined based on bid quotations from unaffiliated market makers or independent third-party pricing services or the price activity of comparable instruments. The Company will generally supplement the bid quotations for these investments by also performing a comparable yield approach outlined below.

Market comparable companies: This valuation technique determines the total enterprise value of a company by assessing the expected multiple that a market participant would apply to that company’s earnings before interest, taxes, depreciation and amortization, or EBITDA, revenue or other collateral that secures the investment. These valuation multiples are typically determined based on reviewing market comparable transactions or other comparable publicly traded companies, if any. With respect to debt investments, the resulting enterprise value will dictate whether or not the Company’s debt investment has adequate enterprise value coverage. In instances where the enterprise value is inadequate, the market comparable companies approach may be used to estimate a recovery value for our credit-impaired debt investments. With respect to equity investments, the market comparable companies approach may be used to estimate the fair value of the Company’s equity investments, and, when an external event, such as a purchase transaction, public offering or subsequent sale of equity occurs, the pricing indicated by that external event will be utilized to corroborate our valuation.

Valuation Process

The Board is responsible for determining, within the meaning of the 1940 Act, in good faith the fair value of the Company’s assets for which market quotations are not readily available using a documented valuation policy and consistently applied valuation process. The valuation process is a multi-step process conducted at the end of each fiscal quarter as described below:

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The Company’s valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Investment Adviser responsible for credit monitoring.

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At least once annually, the valuation for each portfolio investment that does not have a readily available quotation is reviewed by an independent valuation firm, subject to the certain exceptions as more fully described below.

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The Investment Adviser submits these preliminary valuations to the Valuation Committee of the Board.

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As noted above, the Board has retained several independent valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at least once during each 12-month period, provided that, the Board reserves the right to have any investment within the portfolio valued by an independent valuation firm to the extent it determines such a valuation is warranted. To the extent a security is reviewed in a particular quarter, it is reviewed and valued by only one service provider. However, the Board does not, and does not intend to, have investments independently reviewed that (1) have closed within the two most recent quarters or (2) are de minimis investments of less than 0.5% of our total assets (up to an aggregate of 10.0% of our total assets).

Interest Expense

Interest expense is recorded on an accrual basis and is adjusted for amortization of deferred debt issuance costs and any original issue discount.

Deferred Debt Issuance Costs

Dividends and Distributions

Item 3: Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. During the period covered by our financial statements, the majority of the loans in our portfolio had floating interest rates, and we expect that our loans in the future will also have floating interest rates. As of June 30, 2020 and December 31, 2019, 99.6% and 99.7%, respectively, of the outstanding principal amount of our debt investments bore interest at floating rates. These loans usually have floating interest rates based on LIBOR and typically have interest rate re-set provisions that adjust applicable LIBOR under such loans to current market rates on a regular basis. In addition, the 2018-2 CLO has a floating interest rate provision based on a cost of funds that approximates LIBOR and we expect that any other credit facilities into which we enter in the future may have floating interest rate provisions.

Assuming that the interim and unaudited consolidated statement of financial condition as of June 30, 2020 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.

	(Decrease)/increase			(Decrease)/increase			Net (decrease)/increase
Change in interest rates ($ in thousands)	in interest income			in interest expense			in investment income
Down 25 basis points	$	(356	)	$	(672	)	$	316
Up 25 basis points		241			672			(431	)
Up 50 basis points		518			1,344			(826	)
Up 100 basis points		3,287			2,688			599

Although management believes that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets, the size, credit quality or composition of the assets in our portfolio and other business developments, including indebtedness under the 2018-2 CLO, or additional borrowings, that could affect our net increase in net assets resulting from operations or net income. Accordingly, we cannot assure you that actual results would not differ materially from the statement above.

We may in the future hedge against currency and interest rate fluctuations by using standard hedging instruments such as futures, forward contracts, currency options and interest rate swaps, caps, collars and floors, including with respect to the obligations of the 2018-2 CLO, to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in currency exchange and interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates. We and our Investment Adviser have not hedged any of the obligations of the 2018-2 CLO.

Item 4: Controls and Procedures

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

Part II — Other Information

Item 1: Legal Proceedings

We, the Investment Adviser, the Administrator and our wholly-owned subsidiaries are not currently subject to any material legal proceedings.

Item 1A: Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors set forth below as well as in “Part 1. Item 1A. Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 16, 2020, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

As of June 30, 2020, our asset coverage ratio was below 150% and we were in breach of a coverage test for our CLO.

Under the 1940 Act, we are permitted to incur leverage such that our asset coverage, as defined in the 1940 Act, is at least 150% after giving effect to the incurrence of such leverage. As of June 30, 2020, our asset coverage was 137.5%. As a result of our current asset coverage ratio, we cannot incur additional leverage until our asset coverage ratio exceeds 150%. As a result of our current asset coverage, we may be required to sell a portion of our investments in order to fund our ongoing liquidity requirements (including distributions to stockholders) or repay a portion of our indebtedness at a time when such sales may be disadvantageous, which could have a material adverse impact on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to sell any such assets on a timely basis, at prices equal to fair market value or at all. Further, we expect our investment activity will be limited while our asset coverage is at or below 150%, which may have a material adverse impact on our business, financial condition and results of operations.

Among other tests, the documents governing the 2018-2 CLO require that the aggregate assets that serve as collateral as defined and calculated in accordance with the indenture, for the secured notes issued by the 2018-2 CLO equal at least 118.2% of the aggregate outstanding principal amount of the Class A-R Notes and Class B-R Notes, taken together. If this coverage test is not satisfied with respect to a quarterly payment date, the 2018-2 CLO may be required to apply amounts to the repayment of interest on and principal on such notes prior to their maturity to the extent necessary to satisfy the coverage test. As of June 30, 2020, we were in breach of this coverage test and, as a result, we have until the next payment date under the 2018-2 CLO to cure such breach to avoid diversion of cash away from making additional investments or distributions on the notes issued by the 2018-2 CLO and held by us in order to pay interest and principal on the secured notes issued by the 2018-2 CLO.

Global economic, political and market conditions caused by the current COVID-19 pandemic have (and in the future could further) adversely affect our business, results of operations and financial condition and those of our portfolio companies.

A novel strain of coronavirus initially appeared in China in late 2019. The rapid spread of the virus and the disease it causes (COVID-19) around the globe caused many governments, including in the United States, to order the temporary closure of “non-essential” business, to issue “stay at home” orders and to restrict travel. COVID-19 and the governmental responses significantly impacted consumer demand, supply chains and operations in many industries, which contributed to significant market disruption and volatility. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets, significant write-offs in the financial sector and re-pricing of credit risk in the broadly syndicated market. These and any other unfavorable economic conditions created by the COVID-19 pandemic and related restrictions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us, which in turn could negatively impact our operating results. In addition, our success depends in substantial part on the management, skill and acumen of the Investment Adviser, whose operations may be adversely impacted by government restrictions or any health issues of its investment professionals or service providers.

The COVID-19 pandemic, the related government restrictions and the resulting market conditions have resulted in certain of our portfolio companies ceasing or significantly reducing operations and have negatively affected the supply chains and/or consumer demand of certain of our portfolio companies. In addition, middle market companies, like many of our portfolio companies, may experience difficulty obtaining additional financing or refinancing existing debt in current economic conditions. Further, as state and local governments ease COVID-19 related restrictions on business activity and travel, our portfolio companies may face increased health and safety expenses, payroll costs and/or other operating expenses. As a result of the aforementioned factors and others, certain of our portfolio companies may have difficulty meeting their debt service obligations, which may lead to defaults in our portfolio and/or increase requests for amendments or waivers under the documents governing our loans to such companies. Adverse economic conditions may decrease the value of the collateral securing some of our loans and the value of our equity investments. The performance of certain of our portfolio companies has been, and in the future may be, negatively impacted by these economic or other conditions, which has resulted in realized and unrealized losses related to our investment and may result in our receipt of reduced interest income from our portfolio companies, and, in turn, adversely impact our results of operations and the amount available for distribution to our stockholders.

As the potential impact of the coronavirus remains difficult to predict, the extent to which the coronavirus could negatively affect our and our portfolio companies’ operating results or the duration of any potential business or supply-chain disruption is uncertain. Any potential impact to our results of operations will depend to a large extent on future developments regarding the duration and severity of the coronavirus and the actions taken by governments and their citizens to contain the coronavirus or treat its impact, all of which are beyond our control.

Because the market price of PTMN’s common stock and the net asset value per share of PTMN and GARS will fluctuate, our stockholders cannot be sure of the market value or exact composition of the Merger Consideration they will receive until the closing date of the Mergers.

The market value of the consideration that our stockholders will receive for their shares of our common stock upon completion of the Mergers, or the Merger Consideration, may vary from the closing price of PTMN’s common stock and our common stock on the date the Mergers were announced, on the date the Mergers are completed or on any other date. Any change in the market price of PTMN’s common stock prior to completion of the Mergers will affect the market value of the aggregate Merger Consideration. Additionally, the Merger Consideration will fluctuate as the respective net asset values of PTMN and GARS change prior to the Closing Date.

We are not permitted to terminate the Merger Agreement or resolicit the vote of our stockholders solely because of changes in the market price of shares of PTMN’s common stock. There will be no adjustment to the Merger Consideration for changes in the market price of shares of PTMN’s common stock. Changes in the market price of PTMN’s common stock may result from a variety of factors, including, among other things:

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changes in the business, operations or prospects of PTMN;

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the financial condition of current or prospective portfolio companies of PTMN;

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interest rates or general market or economic conditions;

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market assessments of the likelihood that the Mergers will be completed and the timing of completion of the Mergers;

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market perception of the future profitability of the combined company;

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the duration and effects of the COVID-19 pandemic on PTMN’s and our portfolio companies; and

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the duration and effects of the COVID-19 pandemic on equity trading prices generally, and specifically on the trading price of PTMN’s common stock and the common stock of the surviving company following the Mergers.

These factors are generally beyond the control of PTMN. The range of high and low closing sales prices of PTMN’s common stock as reported on the Nasdaq Global Select Market for the six months ended June 30, 2020, was a low of $0.75 to a high of $2.36. However, historical trading prices are not necessarily indicative of future performance.

Sales of shares of PTMN’s common stock after the completion of the Mergers may cause the market price of PTMN’s common stock to decline.

Based on the number of outstanding shares of our common stock as of March 31, 2020, the net asset value per share of PTMN’s common stock and the net asset value per share of our common stock on such date, PTMN would issue approximately 32.1 million shares of PTMN’s common stock pursuant to the Merger Agreement (after accounting for anticipated expenses of both parties related to the transaction). Certain of our former stockholders may decide not to hold the shares of PTMN’s common stock that they receive pursuant to the Merger Agreement. In addition, certain of our former stockholders may be required to sell the shares of PTMN’s common stock that they receive pursuant to the Merger Agreement. In addition, PTMN’s stockholders may decide not to hold their shares of PTMN’s common stock after completion of the Mergers. In each case, such sales of PTMN’s common stock could have the effect of depressing the market price for PTMN’s common stock and may take place promptly following the completion of the Mergers.

Our stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Mergers.

Our stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective percentage ownership interests in us prior to the Mergers. Consequently, our stockholders should expect to exercise less influence over the management and policies of the combined company following the Mergers than they currently exercise over the management and policies of us.

If the Mergers are consummated, based on the number of shares of PTMN’s common stock issued and outstanding on the closing date of the Mergers, the net asset value per share of PTMN’s common stock and the net asset value per share of our common stock, each as of March 31, 2020, it is expected that our former stockholders will own approximately 42% of the PTMN’s outstanding common stock following the Mergers. In addition, both prior to and after completion of the Mergers, subject to certain restrictions in the Merger Agreement and the approval by PTMN’s stockholders of the issuance of shares of PTMN’s common stock pursuant to the Merger Agreement, PTMN may issue additional shares of its common stock (including, subject to certain restrictions under the 1940 Act, at prices below the then current net asset value per share of such common stock), all of which would further reduce the percentage ownership of the combined company held by our former stockholders. In addition, the issuance or sale by PTMN of shares of its common stock at a discount to net asset value poses a risk of economic dilution to stockholders.

PTMN may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings, or it may take longer than anticipated to realize such benefits.

The realization of certain benefits anticipated as a result of the Mergers will depend in part on the integration of our investment portfolio with PTMN’s and the integration of our business with PTMN’s. There can be no assurance that our investment portfolio or business can be operated profitably or integrated successfully into PTMN’s operations in a timely fashion or at all. The dedication of management resources to such integration may divert attention from the day-to-day business of the combined company and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including incurring unexpected costs or delays in connection with such integration and failure of our investment portfolio to perform as expected, could have a material adverse effect on the financial results of the combined company.

PTMN also expects to achieve certain cost savings from the Mergers when the two companies have fully integrated their portfolios. It is possible that the estimates of the potential cost savings could ultimately be incorrect. The cost savings estimates also assume PTMN will be able to combine our and PTMN’s operations in a manner that permits those cost savings to be fully realized. If the estimates turn out to be incorrect or if PTMN is not able to successfully combine our investment portfolio or business with the operations of PTMN, the anticipated cost savings may not be fully realized, or realized at all, or may take longer to realize than expected.

The announcement and pendency of the proposed Mergers could adversely affect our business, financial results and operations.

The announcement and pendency of the proposed Mergers could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future borrowers, which could have a significant negative impact on our future revenues and results of operations, regardless of whether the Mergers are completed. In particular, Garrison Investment Group, which has entered into the Staffing Agreement with the Investment Adviser under which Garrison Investment Group makes available to the Investment Adviser experienced investment professionals and access to the senior investment personnel and other resources of Garrison Investment Group and its affiliates, could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed transaction, and existing borrowers may elect to refinance their loans from us and our affiliates with other lenders. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the Mergers, which could have a significant negative impact on our future revenues and results of operations.

We are also subject to restrictions on the conduct of our business prior to the completion of the Mergers as provided in the Merger Agreement, generally requiring us to conduct our business only in the ordinary course and subject to specific limitations, including, among other things, certain restrictions on our ability to make certain investments and acquisitions, sell, transfer or dispose of our assets, amend our organizational documents and enter into or modify certain material contracts. These restrictions could prevent us from pursuing otherwise attractive business opportunities, industry developments and future opportunities and may otherwise have a significant negative impact on our future investment income and results of operations.

If the Mergers do not close, we will not benefit from the expenses incurred in our pursuit of the Mergers and, under certain circumstances, we will be required to pay all of PTMN’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000.

The Mergers may not be completed. If the Mergers are not completed, we will have incurred substantial expenses for which no ultimate benefit will have been received. We have incurred out-of-pocket expenses in connection with the Mergers for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Mergers are not completed. In addition, under certain circumstances, we will be required to pay all of PTMN’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000.

The termination of the Merger Agreement could negatively impact us.

If the Merger Agreement is terminated, there may be various consequences, including:

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our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Mergers, without realizing any of the anticipated benefits of completing the Mergers;

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the market prices of our common stock might decline to the extent that the market price prior to termination reflects a market assumption that the Mergers will be completed;

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we may not be able to find a party willing to pay an equivalent or more attractive price than the price PTMN agreed to pay in the Mergers; and

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the payment of any termination fee or reimbursement of expenses, if required under the circumstances, could adversely affect our financial condition and liquidity.

In addition, the Merger Agreement provides for the payment by us to PTMN of a termination fee of approximately $2.375 million in cash (such amount to be reduced by any amounts that we previously paid to PTMN in the form of expense reimbursement) if the Merger Agreement is terminated under certain circumstances.

The Mergers are subject to closing conditions, including stockholder approvals, that, if not satisfied or waived, will result in the Mergers not being completed, which may result in material adverse consequences to our business and operations.

The Mergers are subject to closing conditions, including certain approvals of our and PTMN’s respective stockholders that, if not satisfied, will prevent the Mergers from being completed. The closing condition that our stockholders approve the Mergers and the Merger Agreement may not be waived and must be satisfied for the Mergers to be completed. In addition, the closing condition that PTMN’s stockholders approve the issuance of shares of PTMN’s common stock to be issued in connection with the Mergers may not be waived and must be satisfied for the Mergers to be completed. If our stockholders do not approve the Mergers and the Merger Agreement or PTMN’s stockholders do not approve the issuance of shares of PTMN’s common stock to be issued in connection with the Mergers, and the Mergers are not completed, the resulting failure to complete the Mergers could have a material adverse impact on our business and operations.

We are subject to operational uncertainties and contractual restrictions while the Mergers are pending, including restrictions on pursuing alternatives to the Mergers.

Uncertainty about the effect of the Mergers may have an adverse effect on us and, consequently, on the combined company following completion of the Mergers. These uncertainties may impair the Investment Adviser’s ability to motivate key personnel until the Mergers are consummated and could cause those who deal with us to seek to change their existing business relationships with us. In addition, the Merger Agreement restricts us from taking actions that we might otherwise consider to be in our best interests. These restrictions may prevent us from pursuing certain business opportunities that may arise prior to the completion of the Mergers, including restrictions on us pursuing alternatives to the Mergers.

The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire us prior to the completion of the proposed Mergers.

The Merger Agreement prohibits us from soliciting alternatives to the Mergers and imposes limitations on our ability to respond to and negotiate unsolicited proposals received from third parties. The Merger Agreement contains customary non-solicitation and other provisions that, subject to limited exceptions, limit our ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of us. We can consider and participate in discussions and negotiations with respect to an alternative proposal only in very limited circumstances so long as certain notice and other procedural requirements are satisfied. In addition, subject to certain procedural requirements (including the ability of PTMN to revise its offer) and the payment of an approximately $2.375 million termination fee, we may terminate the Merger Agreement and enter into an agreement with a third party that makes a superior proposal. These provisions may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in connection with the Mergers.

The opinion delivered to the Special Committee (as defined below) and the Board from the financial advisor to the Special Committee prior to signing the Merger Agreement will not reflect changes in circumstances since the date of such opinion.

The opinion of the financial advisor to a special committee of the Board comprised solely of the independent directors, or the Special Committee, was delivered to the Special Committee and the Board on, and was dated, June 24, 2020. Changes in the operations and prospects of us or PTMN, general market and economic conditions and other factors that may be beyond our control may significantly alter our value or the price of shares of PTMN’s common stock by the time the Mergers are completed. The opinion does not speak as of the time the Mergers will be completed or as of any date other than the date of such opinion.

If the Mergers are not completed or we are not otherwise acquired, we may consider other strategic alternatives, which are subject to risks and uncertainties.

If the Mergers are not completed, the Special Committee and the Board may review and consider various alternatives available to us, including, among others, continuing as a standalone public company with no material changes to our business or seeking an alternate transaction. These strategic or other alternatives available to us may involve various additional risks to our business, including, among others, distraction of our management team and associated expenses as described above in connection with the proposed Mergers, and risks and uncertainties related to our ability to complete any such alternatives and other variables which may adversely affect our operations.

Subject to applicable law, we may waive one or more conditions to the Mergers without resoliciting approval from our stockholders.

Certain conditions to our obligation to complete the Mergers may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of us and PTMN. In the event that any such waiver does not require resolicitation of stockholders, we will have the discretion to complete the Merger without seeking further approval of our stockholders. Accordingly, the terms and conditions as set forth in the Merger Agreement, including certain protections to us, may be waived. The conditions requiring approval of our stockholders and PTMN’s stockholders, however, cannot be waived.

The shares of PTMN’s common stock to be received by our stockholders as a result of the Mergers will have different rights associated with them than shares of our common stock currently held by them.

Certain of the rights associated with our common stock are different from the rights associated with PTMN’s common stock. For example, among other items:

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The election of our directors requires that the number of votes cast “for” a nominee’s election exceeds the number of votes cast “against” that nominee’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” a nominee’s election). PTMN’s directors are elected by a plurality of the votes cast with respect to the director.

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Amendments to our bylaws or amendments to our certificate of incorporation that are proposed by the Board require the affirmative vote of the holders of a majority of the votes cast by stockholders present in person or by proxy at a meeting of stockholders. Amendments to PTMN’s bylaws and certain amendments to its certificate of incorporation require the affirmative vote of 75% of the shares of PTMN’s capital stock then outstanding and entitled to vote in the election of directors.

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Removal of one of our directors for cause requires a majority vote of the holders of the outstanding shares then entitled to vote at an election of our directors. Removal of one of PTMN’s directors for cause requires is the affirmative vote of the holders of at least 75% of the voting power of all of the shares of capital stock of PTMN then outstanding and entitled to vote in the election of directors.

The market price of PTMN’s common stock after the Mergers may be affected by factors different from those affecting PTMN’s common stock currently.

Our and PTMN’s businesses differ in some respects and, accordingly, the results of operations of the combined company and the market price of PTMN’s common stock after the Mergers may be affected by factors different from those currently affecting the independent results of operations of each of us and PTMN. These factors include:

•

a larger stockholder base;

•

a different portfolio composition; and

•

a different capital structure.

Accordingly, the historical trading prices and financial results of PTMN may not be indicative of these matters for the combined company following the Mergers.

The U.S. federal income tax treatment of the Additional Cash Consideration is not entirely clear, and the position taken that the Additional Cash Consideration is part of the total cash consideration received by GARS Stockholders pursuant to the Mergers might be challenged by the Internal Revenue Service.

In connection with the transactions contemplated by the Merger Agreement, as additional consideration to the holders of shares of our common stock that are issued and outstanding immediately prior to the effectiveness of the Mergers (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000, or the Additional Cash Consideration. With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder is treated as additional Merger Consideration. It is possible, however, that the Internal Revenue Service would assert a contrary position that the Additional Cash Consideration be treated as taxable ordinary income and not as cash received in exchange for such holder’s common stock.

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

None.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

Item 6: Exhibits

EXHIBIT INDEX

Number		Description

2.1		Agreement and Plan of Merger, dated as of June 24, 2020 by and among Portman Ridge Finance Corporation, Citadel Acquisition Sub Inc., the Registrant and Sierra Crest Investment Management LLC (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00878), filed on June 25, 2020).
31.1*		Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

SIGNATURES

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

	Garrison Capital Inc.

Dated: August 10, 2020	By	/s/ Joseph Tansey

	Joseph Tansey
	Chief Executive Officer
	(Principal Executive Officer)


Dated: August 10, 2020	By	/s/ Daniel Hahn

	Daniel Hahn
	Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

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