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EX-32.1 - CERTIFICATION - PhenixFIN Corpf10q0321ex32-1_phenixfin.htm
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EX-31.1 - CERTIFICATION - PhenixFIN Corpf10q0321ex31-1_phenixfin.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 March 31, 2021

 

or

 

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

 

For the transition period from               to              

 

Commission file number: 1-35040

 

PHENIXFIN CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   27-4576073
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

 

445 Park Avenue, 9th Floor, New York, NY   10022
(Address of Principal Executive Offices)   (Zip Code)

 

(212) 859-0390

(Registrant’s Telephone Number, Including Area Code)

 

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   PFX   The NASDAQ Global Market
6.125% Notes due 2023   PFXNL   The NASDAQ Global Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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 (§232.405 of this chapter) 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 Securities Exchange Act of 1934). Yes No

 

The Registrant had 2,703,936 shares of common stock, $0.001 par value, outstanding as of May 12, 2021.

 

 

 

 

 

 

PHENIXFIN CORPORATION

 

TABLE OF CONTENTS

 

Part I. Financial Information  
   
Item 1. Financial Statements  
   
Consolidated Statements of Assets and Liabilities as of March 31, 2021 (unaudited) and September 30, 2020 1
   
Consolidated Statements of Operations for the three and six months ended March 31, 2021 and 2020 (unaudited) 2
   
Consolidated Statements of Changes in Net Assets for the three and six months ended March 31, 2021 and 2020 (unaudited) 3
   
Consolidated Statements of Cash Flows for the six months ended March 31, 2021 and 2020 (unaudited) 5
   
Consolidated Schedules of Investments as of March 31, 2021 (unaudited) and September 30, 2020 6
   
Notes to Consolidated Financial Statements (unaudited) 20
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 57
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 74
   
Item 4. Controls and Procedures 74
   
Part II. Other Information 75
   
Item 1. Legal Proceedings 75
   
Item 1A. Risk Factors 76
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 80
   
Item 3. Defaults Upon Senior Securities 80
   
Item 4. Mine Safety Disclosures 80
   
Item 5. Other Information 80
   
Item 6. Exhibits 81
   
SIGNATURES 85

 

i

 

 

PHENIXFIN CORPORATION

Consolidated Statements of Assets and Liabilities

 

   March 31,
2021
(Unaudited)
   September 30,
2020
 
Assets:        
Investments at fair value        
Non-controlled, non-affiliated investments (amortized cost of $95,301,443 and $117,360,954, respectively)  $93,283,110   $114,321,948 
Affiliated investments (amortized cost of $79,845,752 and $92,898,755, respectively)   68,233,836    84,873,023 
Controlled investments (amortized cost of $38,487,321 and $117,874,821, respectively)   6,727,597    47,548,578 
Total Investments at fair value   168,244,543    246,743,549 
Cash and cash equivalents   59,092,731    56,522,148 
Receivables:          
Interest receivable   299,655    624,524 
Fees receivable   106,528    119,028 
Other receivable   398,551    - 
Prepaid share repurchases   164,258    - 
Other assets   1,210,724    2,093,559 
Total Assets  $229,516,990   $306,102,808 
           
Liabilities:          
Notes payable (net of debt issuance costs of $551,142 and $905,624, respectively)  $77,295,658   $150,960,662 
Interest and fees payable   -    801,805 
Due to affiliates   -    53,083 
Management and incentive fees payable (see Note 6)   -    1,392,022 
Administrator expenses payable (see Note 6)   94,958    156,965 
Accounts payable and accrued expenses   918,279    2,108,225 
Deferred revenue   30,970    10,529 
Total Liabilities   78,339,865    155,483,291 
           
Commitments and Contingencies (see Note 8)          
           
Net Assets:          
Common Shares, $0.001 par value; 5,000,000 shares authorized; 2,703,936 and 2,723,709 common shares issued and outstanding, respectively   2,704    2,724 
Capital in excess of par value   671,589,690    672,381,617 
Total distributable earnings/(loss)   (520,415,269)   (521,764,824)
Total Net Assets  $151,177,125   $150,619,517 
Total Liabilities and Net Assets  $229,516,990   $306,102,808 
           
Net Asset Value Per Common Share  $55.91   $55.30 

  

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

1

 

 

PHENIXFIN CORPORATION

Consolidated Statements of Operations

(Unaudited)

 

   For the Three Months Ended
March 31
   For the Six Months Ended
March 31
 
   2021   2020   2021   2020 
Interest Income:                
Interest from investments                
Non-controlled, non-affiliated investments:                
Cash  $1,534,904    2,320,453   $3,206,717    5,538,162 
Payment in-kind   -    128,309    170,029    327,321 
Affiliated investments:                    
Cash   196,328    190,193    548,619    399,441 
Payment in-kind   -    706,789    -    1,654,262 
Controlled investments:                    
Cash   (1,190)   1,297    -    84,505 
Payment in-kind   -    5,385    -    500,767 
Total interest income   1,730,042    3,352,426    3,925,365    8,504,458 
Dividend income   4,408,234    1,662,500    14,671,735    3,500,000 
Interest from cash and cash equivalents   506    154,290    1,446    372,428 
Fee income (see Note 9)   237,416    131,992    578,880    415,532 
Other income   78,204    -    78,204    - 
Total Investment Income   6,454,402    5,301,208    19,255,630    12,792,418 
                     
Expenses:                    
Base management fees (see Note 6)   -    1,641,271    1,146,403    3,649,505 
Interest and financing expenses   1,260,054    4,432,118    3,277,695    9,576,047 
General and administrative expenses   104,440    2,083,397    466,049    2,600,239 
Salaries and Benefits   332,317    -    332,317    - 
Administrator expenses (see Note 6)   (44,618)   576,362    439,794    1,127,884 
Insurance expenses   474,468    356,580    959,480    654,578 
Directors fees   220,500    296,500    696,217    612,500 
    Professional fees, net (see Note 8)   420,220    130,630    (79,077)   (4,285,445)
Total expenses net of expense support reimbursement and management and incentive fee waivers   2,767,381    9,516,858    7,238,878    13,935,308 
Net Investment Income   3,687,021    (4,215,650)   12,016,752    (1,142,890)
                     
Realized and unrealized gains (losses) on investments                    
Net realized gains (losses):                    
Non-controlled, non-affiliated investments   160,926    (100,115)   4,054,648    (157,914)
Affiliated investments   -    -    (10,452,928)   - 
Controlled investments   -    -    (40,147,570)   (1,686,837)
Total net realized gains (losses)   160,926    (100,115)   (46,545,850)   (1,844,751)
Net change in unrealized gains (losses):                    
Non-controlled, non-affiliated investments   5,077,737    (19,549,944)   1,020,673    (15,802,570)
Affiliated investments   (1,467,862)   (15,019,332)   (3,586,184)   (5,578,733)
Controlled investments   329,584    (38,994,357)   38,566,519    (48,451,471)
Total net change in unrealized gains (losses)   3,939,459    (73,563,633)   36,001,008    (69,832,774)
Change in provision for deferred taxes on unrealized (appreciation)/ depreciation on investments   -    (85,664)   -    (85,664)
Loss on extinguishment of debt (see Note 5)   -    (895,033)   (122,355)   (1,784,183)
Total realized and unrealized gains (losses)   4,100,385    (74,644,445)   (10,667,197)   (73,547,372)
                     
Net Increase (Decrease) in Net Assets Resulting from Operations  $7,787,406   $(78,860,095)  $1,349,555   $(74,690,262)
                     
Weighted Average Basic and diluted earnings per common share  $2.87   $(28.95)  $0.50   $(27.42)
Weighted Average Basic and diluted net investment income (loss) per common share  $1.36   $(1.55)  $4.42   $(0.42)
Weighted Average Common Shares Outstanding - Basic and Diluted (see Note 11)   2,716,627    2,723,711(1)   2,720,226    2,723,711(1)

  

(1)Basic and diluted shares has been adjusted for 2020 to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.

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

2

 

 

PHENIXFIN CORPORATION

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

   Common Stock   Total     
   Shares(1)   Par Amount(1)   Capital in
Excess of
Par Value(1)
   Distributable
Earnings/
(Loss)
   Total Net Assets 
Balance at December 31, 2019   2,723,711   $2,724   $673,584,467   $(452,984,828)  $220,602,363 
                          
OPERATIONS                         
Net investment income (loss)   -    -    -    (4,215,650)   (4,215,650)
Net realized gains (losses) on investments   -    -    -    (100,115)   (100,115)
Net change in unrealized appreciation (depreciation) on investments   -    -    -    (73,563,633)   (73,563,633)
Change in provision for deferred taxes on unrealized (appreciation) depreciation on investments   -    -    -    (85,664)   (85,664)
Net loss on extinguishment of debt   -    -    -    (895,033)   (895,033)
Total Increase (Decrease) in Net Assets   -    -    -    (78,860,095)   (78,860,095)
                          
Balance at March 31, 2020   2,723,711   $2,724   $673,584,467   $(531,844,923)  $141,742,268 
                          
Balance at December 31, 2020   2,723,709   $2,724   $672,381,617   $(528,202,675)  $144,181,666 
                          
OPERATIONS                         
Net investment income (loss)   -    -    -    3,687,021    3,687,021 
Net realized gains (losses) on investments   -    -    -    160,926    160,926 
Net change in unrealized appreciation (depreciation) on investments   -    -    -    3,939,459    3,939,459 
    -    -    -    7,787,406    7,787,406 
CAPITAL SHARE TRANSACTIONS                         
Repurchase of common shares   (19,773)   (20)   (791,927)   -    (791,947)
    (19,773)   (20)   (791,927)   -    (791,947)
Total Increase (Decrease) in Net Assets   (19,773)   (20)   (791,927)   7,787,406    6,995,459 
                          
Balance at March 31, 2021   2,703,936    2,704    671,589,690    (520,415,269)   151,177,125 

 

(1)Shares of Common Stock, Par Amount, and Capital in Excess of Par Value have been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.

 

3

 

 

PHENIXFIN CORPORATION

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

   Common Stock   Total     
   Shares(1)   Par Amount(1)   Capital in
Excess of
Par Value(1)
   Distributable
Earnings/
(Loss)
   Total Net Assets 
Balance at September 30, 2019   2,723,711   $2,724   $673,584,467   $(457,154,661)  $216,432,530 
                          
OPERATIONS                         
Net investment income (loss)   -    -    -    (1,142,890)   (1,142,890)
Net realized gains (losses) on investments   -    -    -    (1,844,751)   (1,844,751)
Net change in unrealized appreciation (depreciation) on investments   -    -    -    (69,832,774)   (69,832,774)
Change in provision for deferred taxes on unrealized (appreciation) depreciation on investments   -    -    -    (85,664)   (85,664)
Net loss on extinguishment of debt   -    -    -    (1,784,183)   (1,784,183)
Total Increase (Decrease) in Net Assets   -    -    -    (74,690,262)   (74,690,262)
                          
Balance at March 31, 2020   2,723,711   $2,724   $673,584,467   $(531,844,923)  $141,742,268 
                          
Balance at September 30, 2020   2,723,709   $2,724   $672,381,617   $(521,764,824)  $150,619,517 
                          
OPERATIONS                         
Net investment income (loss)   -    -    -    12,016,752    12,016,752 
Net realized gains (losses) on investments   -    -    -    (46,545,850)   (46,545,850)
Net change in unrealized appreciation (depreciation) on investments   -    -    -    36,001,008    36,001,007 
Net loss on extinguishment of debt   -    -    -    (122,355)   (122,354)
    -    -    -    1,349,555    1,349,555 
CAPITAL SHARE TRANSACTIONS                         
Repurchase of common shares   (19,773)   (20)   (791,927)   -    (791,947)
    (19,773)   (20)   (791,927)   -    (791,947)
Total Increase (Decrease) in Net Assets   (19,773)   (20)   (791,927)   1,349,555    557,608 
                          
Balance at March 31, 2021   2,703,936    2,704    671,589,690    (520,415,269)   151,177,125 

 

(1)Shares of Common Stock, Par Amount, and Capital in Excess of Par Value have been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.

 

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

 

4

 

 

PHENIXFIN CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the Six Months Ended March 31 
   2021   2020 
         
Cash Flows from Operating Activities:          
Net increase (decrease) in net assets resulting from operations  $1,349,555   $(74,690,262)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:          
Investment increases due to payment-in-kind interest   (170,029)   (1,738,277)
Net amortization of premium (discount) on investments   (2,114)   (60,113)
Amortization of debt issuance cost   68,025    2,358,649 
Net realized (gains)/losses on investments   46,545,850    1,844,751 
Net deferred income taxes   -    85,664 
Net unrealized (gains)/losses on investments   (36,001,008)   69,832,774 
Proceeds from sale and settlements of investments   74,912,948    84,358,204 
Purchases, originations and participations   (6,786,640)   (13,244,147)
Loss on extinguishment of debt   122,355    1,784,183 
(Increase)/decrease in operating assets:          
Other assets   882,835    2,007,655 
Interest receivable   324,869    1,103,450 
Other receivable   (398,551)   - 
Receivable for dispositions and investments sold   -    406,799 
Fees receivable   12,500    63,623 
Increase/(decrease) in operating liabilities:          
Accounts payable and accrued expenses   (1,189,946)   (9,698,337)
Interest and fees payable   (801,805)   (2,102,943)
Management and incentive fees payable, net   (1,392,022)   (589,904)
Administrator expenses payable   (62,007)   (285,423)
Deferred revenue   20,441    (65,919)
Due to affiliate   (53,083)   151,916 
Net cash provided by (used in) operating activities   77,382,173    61,522,343 
Cash Flows from Financing Activities:          
Paydowns on debt   (74,151,823)   (84,701,839)
Debt issuance costs paid   296,438    - 
Repurchase of common shares   (956,205)   - 
Net cash provided by (used in) financing activities   (74,811,590)   (84,701,839)
Net increase/(decrease) in cash and cash equivalents   2,570,583    (23,179,496)
Cash and cash equivalents, beginning of period   56,522,148    84,283,903 
Cash and cash equivalents, end of period  $59,092,731   $61,104,407 
           
Supplemental information:          
Interest paid during the period  $4,079,500   $9,318,341 

 

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

  

5

 

 

PHENIXFIN CORPORATION

Consolidated Schedule of Investments

As of March 31, 2021

(Unaudited)

 

Company(1)  Industry  Type of Investment  Maturity  Par
Amount(2)
   Cost(3)   Fair
Value(4)
   % of
Net Assets(5)
 
                          
Non-Controlled/Non-Affiliated Investments:                             
                              
Alpine SG, LLC(8)  High Tech Industries  Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14)  11/16/2022  $4,715,809   $4,715,808   $4,715,808    3.12%
      Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)  11/16/2022   472,087    472,087    472,087    0.31%
      Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14) (16)  11/16/2022   2,277,293    2,277,293    2,277,293    1.51%
             7,465,189    7,465,188    7,465,188    4.94%
                              
American Dental Partners, Inc.  Healthcare & Pharmaceuticals  Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)  9/25/2023   4,387,500    4,387,500    4,299,750    2.84%
             4,387,500    4,387,500    4,299,750    2.84%
                              
Autosplice, Inc.  Automotive  Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash & 2.00% PIK, 1.00% LIBOR Floor) (14)  4/30/2022   12,039,457    12,039,457    11,317,089    7.49%
             12,039,457    12,039,457    11,317,089    7.49%
                              
Be Green Packaging, LLC  Containers, Packaging & Glass  Equity - 417 Common Units      1    416,250    -    0.00%
             1    416,250    -    0.00%
                              
CM Finance SPV, LLC  Energy: Oil & Gas  Unsecured Debt(10)      101,463    101,463    -    0.00%
             101,463    101,463    -    0.00%
                              
CPI International, Inc.  Aerospace & Defense  Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(13)  7/28/2025   2,607,062    2,599,397    2,457,156    1.63%
             2,607,062    2,599,397    2,457,156    1.63%
                              
Crow Precision Components, LLC  Aerospace & Defense  Equity - 350 Common Units      350    700,000    123,000    0.08%
             350    700,000    123,000    0.08%
                              
DataOnline Corp.(8)  High Tech Industries  Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)  11/13/2025   4,950,000    4,950,000    4,851,000    3.21%
      Revolving Credit Facility  (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14) (16)  11/13/2025   607,143    607,143    592,857    0.39%
             5,557,143    5,557,143    5,443,857    3.60%
                              
Dream Finders Homes, LLC(11)  Construction & Building  Preferred Equity  (8.00% PIK)      4,622,101    4,622,101    4,390,996    2.90%
             4,622,101    4,622,101    4,390,996    2.90%
                              
Footprint Acquisition, LLC  Services: Business  Preferred Equity  (8.75% PIK)(10)      4,049,398    4,049,398    2,794,085    1.85%
      Equity - 150 Common Units      150    -    -    0.00%
             4,049,548    4,049,398    2,794,085    1.85%
                              
Global Accessories Group, LLC  Consumer goods: Non-durable  Equity - 3.8% Membership Interest(13)      380    151,337    -    0.00%
             380    151,337    -    0.00%

 

6

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(4)
    % of
Net Assets(5)
 
Impact Group, LLC   Services: Business   Senior Secured First Lien Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(14)   6/27/2023     3,185,304       3,185,304       3,153,451       2.09 %
        Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(14)   6/27/2023     9,230,102       9,230,102       9,137,801       6.04 %
                  12,415,406       12,415,406       12,291,252       8.13 %
                                             
InterFlex Acquisition Company, LLC   Containers, Packaging & Glass   Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)   8/18/2022     11,723,406       11,723,406       11,723,406       7.75 %
                  11,723,406       11,723,406       11,723,406       7.75 %
                                             
Lighting Science Group Corporation   Containers, Packaging & Glass   Warrants - 0.62% of Outstanding Equity         5,000,000       955,680       -       0.00 %
                  5,000,000       955,680       -       0.00 %
                                             
Point.360   Services: Business   Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10)(15)   7/8/2020     2,777,366       2,103,712       -       0.00 %
                  2,777,366       2,103,712       -       0.00 %
                                             
RateGain Technologies, Inc.   Hotel, Gaming & Leisure   Unsecured Debt(10)(12)   12/31/2021     646,963       646,963       -       0.00 %
        Unsecured Debt(10)(12)   6/30/2022     761,905       761,905       -       0.00 %
                  1,408,868       1,408,868       -       0.00 %
                                             
Redwood Services Group, LLC(8)   Services: Business   Revolving Credit Facility  (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(16)   6/6/2023     175,000       175,000       157,500       0.10 %
                  175,000       175,000       157,500       0.10 %
                                             
Sendero Drilling Company, LLC   Energy: Oil & Gas   Unsecured Debt  (8.00% Cash)(10)   8/31/2021     361,250       343,931       -       0.00 %
                  361,250       343,931       -       0.00 %
                                             
Seotowncenter, Inc.   Services: Business   Equity - 3,434,169.6 Common Units         3,434,170       566,475       -       0.00 %
                  3,434,170       566,475       -       0.00 %
                                             
SFP Holding, Inc.   Services: Business   Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)   9/1/2022     4,755,716       4,755,716       4,708,159       3.11 %
        Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)   9/1/2022     1,843,840       1,843,840       1,825,402       1.21 %
        Equity - 101,165.93 Common Units in CI (Summit) Investment Holdings LLC         101,166       1,067,547       918,587       0.61 %
                  6,700,722       7,667,103       7,452,148       4.93 %
                                             
SMART Financial Operations, LLC   Retail   Equity - 700,000 Class A Preferred Units         700,000       700,000       -       0.00 %
                  700,000       700,000       -       0.00 %
                                             
Stancor, Inc.   Services: Business   Equity - 263,814.43 Class A Units         263,814       263,814       186,680       0.12 %
                  263,814       263,814       186,680       0.12 %
                                             
Starfish Holdco, LLC   High Tech Industries   Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)(18)   8/18/2025     1,000,000       989,936       1,000,000       0.66 %
                  1,000,000       989,936       1,000,000       0.66 %
                                             
Thryv, Inc. (11)   Services: Business   Senior Secured First Lien Term Loan B (LIBOR + 8.5% Cash, 1.00% LIBOR Floor)(18)   3/1/2026     7,000,000       6,790,969       7,000,000       4.63 %
                  7,000,000       6,790,969       7,000,000       4.63 %

 

7

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(4)
    % of
Net Assets(5)
 
Velocity Pooling Vehicle, LLC   Automotive   Senior Secured First Lien Term Loan (LIBOR + 11.00%, 1.00% LIBOR Floor) (14)   4/28/2023     1,014,440       951,629       1,014,440       0.67 %
        Equity - 5,441 Class A Units         5,441       302,464       44,888       0.03 %
        Warrants - 0.65% of Outstanding Equity   3/30/2028     6,506       361,667       53,609       0.04 %
                  1,026,387       1,615,760       1,112,937       0.74 %
                                             
Walker Edison Furniture Company LLC   Consumer goods: Durable   Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)   9/26/2024     3,473,866       3,473,866       3,473,866       2.30 %
        Equity - 1,500 Common Units         1,500       1,500,000       10,594,200       7.01 %
                  3,475,366       4,973,866       14,068,066       9.31 %
                                             
Watermill-QMC Midco, Inc.   Automotive   Equity - 1.3% Partnership Interest(9)         518,283       518,283       -       0.00 %
                  518,283       518,283       -       0.00 %
                                             
Subtotal Non-Controlled/Non-Affiliated Investments               $ 98,810,232     $ 95,301,443     $ 93,283,110       61.70 %
                                             
Affiliated Investments:(6)                                            
                                             
1888 Industrial Services, LLC(8)   Energy: Oil & Gas   Senior Secured First Lien Term Loan A  (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(10) (14)   9/30/2021     9,946,740       9,473,066       -       0.00 %
        Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(10) (14)   9/30/2021     25,937,520       19,468,870       -       0.00 %
        Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(10) (14)   9/30/2021     1,231,932       1,191,257       1,231,932       0.81 %
        Revolving Credit Facility  (LIBOR +5.00%, 1.00% LIBOR Floor) (14) (16)   9/30/2021     3,554,069       3,554,069       3,554,069       2.36 %
        Equity - 17,493.63 Class A Units         21,562       -       -       0.00 %
                  40,691,823       33,687,262       4,786,001       3.17 %
                                             
Black Angus Steakhouses, LLC(8)   Hotel, Gaming & Leisure   Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)   6/30/2022     758,929       758,929       758,929       0.50 %
        Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(10) (13)   6/30/2022     8,412,596       7,767,533       2,061,086       1.37 %
        Senior Secured First Lien Super Priority DDTL  (LIBOR + 9.00% Cash, 1.00% LIBOR Floor) (13) (16)   6/30/2022     1,500,000       1,500,000       1,500,000       0.99 %
                  10,671,525       10,026,462       4,320,015       2.86 %

 

8

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(4)
    % of
Net Assets(5)
 
Caddo Investors Holdings 1 LLC(11)   Forest Products & Paper   Equity - 6.15% Membership Interest(19)         2,528,826       2,528,826       3,769,861       2.49 %
                  2,528,826       2,528,826       3,769,861       2.49 %
                                             
Dynamic Energy Services International LLC   Energy: Oil & Gas   Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(10)(15)   12/31/2021     12,930,235       7,824,975       -       0.00 %
        Equity - 12,350,000 Class A Units         12,350,000       -       -       0.00 %
                  25,280,235       7,824,975       -       0.00 %
                                             
JFL-NGS Partners, LLC   Construction & Building   Equity - 57,300 Class B Units         57,300       57,300       29,961,371       19.82 %
                  57,300       57,300       29,961,371       19.82 %
                                             
JFL-WCS Partners, LLC   Environmental Industries   Preferred Equity - Class A Preferred (6.00% PIK)         1,310,649       1,310,649       1,310,649       0.87 %
        Equity - 129,588 Class B Units         129,588       129,588       9,036,653       5.99 %
                  1,440,237       1,440,237       10,347,302       6.86 %
                                             
Kemmerer Operations, LLC(8)   Metals & Mining   Senior Secured First Lien Term Loan (15.00% PIK)   6/21/2023     2,051,705       2,051,705       2,051,705       1.36 %
        Senior Secured First Lien Delayed Draw Term Loan  (15.00% PIK) (16)   6/21/2023     244,512       244,512       244,513       0.16 %
        Equity - 6.7797 Common Units         7       962,717       200,880       0.13 %
                  2,296,224       3,258,934       2,497,098       1.65 %
                                             
Path Medical, LLC   Healthcare & Pharmaceuticals   Senior Secured First Lien Term Loan A  (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(10) (13)   10/11/2021     5,905,080       5,905,080       5,143,325       3.40 %
        Senior Secured First Lien Term Loan B  (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10) (13)   10/11/2021     7,783,840       6,599,918       1,019,683       0.67 %
        Warrants - 7.68% of Outstanding Equity         123,867       499,751       -       0.00 %
                  13,812,787       13,004,749       6,163,008       4.07 %
                                             
URT Acquisition Holdings Corporation   Services: Business  

Unsecured Debt  (10.00% Cash)(17)

  12/4/2024     2,109,589       2,109,589       2,098,484       1.39 %
        Warrants         28,912       -       -       0.00 %
                  2,138,501       2,109,589       2,098,484       1.39 %
                                             
US Multifamily, LLC (11)   Banking, Finance, Insurance & Real Estate   Senior Secured First Lien Term Loan (10.00% Cash)   6/17/2021     2,577,418       2,577,418       2,577,417       1.70 %
        Equity - 33,300 Preferred Units         33,300       3,330,000       1,713,279       1.13 %
                  2,610,718       5,907,418       4,290,696       2.83 %
                                             
Subtotal Affiliated Investments               $ 101,528,176     $ 79,845,752     $ 68,233,836       45.14 %

 

9

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(4)
    % of
Net Assets(5)
 
Controlled Investments:(7)                                            
                                             
NVTN LLC(8)   Hotel, Gaming & Leisure   Senior Secured First Lien Delayed Draw Term Loan  (LIBOR + 4.00%Cash, 1.00% LIBOR Floor)(10) (13) (16)   11/9/2021     6,565,875       6,565,875       4,445,097       2.94 %
        Senior Secured First Lien Super Priority DDTL  (LIBOR + 4.00% Cash, 1.00% LIBOR Floor) (13) (16)   12/31/2024     2,500,000       2,495,374       2,282,500       1.51 %
        Senior Secured First Lien Term Loan B  (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10) (13)   11/9/2021     14,963,195       12,305,096       -       0.00 %
        Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(10) (13)   11/9/2021     10,014,223       7,570,054       -       0.00 %
        Equity - 787.4 Class A Units         9,550,922       9,550,922       -       0.00 %
                  43,594,215       38,487,321       6,727,597       4.45 %
                                             
Subtotal Control Investments               $ 43,594,215     $ 38,487,321     $ 6,727,597       4.45 %
                                             
Total Investments, March 31, 2021           $ 243,932,623     $ 213,634,516     $ 168,244,543       111.29 %

 

(1) All of our investments are domiciled in the United States. Certain investments also have international operations.

 

(2) Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.

 

(3) Net unrealized depreciation for U.S. federal income tax purposes totaled $45,631,338.

 

The tax cost basis of investments is $213,875,881 as of March 31, 2021.

 

(4) Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).

 

10

 

 

(5) Percentage is based on net assets of $151,177,125 as of March 31, 2021.

 

(6)Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company.

 

(7)Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.

 

(8)The investment has an unfunded commitment as of March 31, 2021 (see Note 8), and fair value includes the value of any unfunded commitments.

 

(9)Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.

 

(10)The investment was on non-accrual status as of March 31, 2021.

 

  (11) The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of March 31, 2021, 8.17% of the Company's portfolio investments were non-qualifying assets.

 

(12)Security is non-income producing.

 

(13)The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of March 31, 2021 was 0.11%.

 

(14)The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of March 31, 2021 was 0.19%.

 

(15)The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of March 31, 2021 was 0.19%.

 

(16)This investment earns 0.50% commitment fee on all unused commitment as of March 31, 2021, and is recorded as a component of interest income on the Consolidated Statements of Operations.

 

(17) In lieu of paying 10.00% Cash, URT Acquisition Holdings Corporation may elect to pay 12.00% PIK. This security has been paying 10.00% Cash since 12/31/20.

 

(18)This investment represents a Level 2 security in the ASC 820 table as of March 31, 2021 (see Note 4).

 

(19)As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.

 

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

 

11

 

 

PHENIXFIN CORPORATION

Consolidated Schedule of Investments

September 30, 2020

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net
Assets(4)
 
                                     
Non-Controlled/Non-Affiliated Investments:                            
                                     
Alpine SG, LLC   High Tech Industries   Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)   11/16/2022     4,715,809       4,715,809       4,466,815       3.0 %
        Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13)   11/16/2022     472,087       472,087       472,087       0.3 %
        Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)   11/16/2022     2,277,293       2,277,293       2,157,052       1.4 %
        Revolving Credit Facility (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)(15)   11/16/2022     1,000,000       1,000,000       947,200       0.6 %
                  8,465,189       8,465,189       8,043,154          
                                             
American Dental Partners, Inc.   Healthcare & Pharmaceuticals   Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13)   9/25/2023     4,387,500       4,387,500       3,948,750       2.6 %
                  4,387,500       4,387,500       3,948,750          
                                             
Autosplice, Inc.   High Tech Industries   Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13)   12/17/2021     12,780,349       12,780,349       11,898,505       7.9 %
                  12,780,349       12,780,349       11,898,505          
                                             
Avantor, Inc.(10)   Wholesale   Equity - 13,695  Common Units(16)               9,553,793       12,277,988       8.2 %
                        9,553,793       12,277,988          
                                             
Be Green Packaging, LLC   Containers, Packaging & Glass   Equity - 417 Common Units               416,250             0.0 %
                        416,250                
                                             
CM Finance SPV, LLC   Banking, Finance, Insurance & Real Estate   Unsecured Debt   6/24/2021     101,463       101,463       101,463       0.1 %
                  101,463       101,463       101,463          
                                             
CPI International, Inc.   Aerospace & Defense   Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(12)   7/28/2025     2,607,062       2,598,252       2,219,392       1.5 %
                  2,607,062       2,598,252       2,219,392          

 

12

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net Assets(4)
 
Crow Precision Components, LLC   Aerospace & Defense   Equity - 350 Common Units               700,000       723,131       0.5 %
                        700,000       723,131          
                                             
CT Technologies Intermediate Holdings, Inc.(11)   Healthcare & Pharmaceuticals   Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)   12/1/2022     7,500,000       7,500,000       6,832,500       4.5 %
                  7,500,000       7,500,000       6,832,500          
                                             
DataOnline Corp.(7)   High Tech Industries   Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)   11/13/2025     4,962,500       4,962,500       4,786,331       3.2 %
        Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)(15)   11/13/2025     535,714       535,714       510,357       0.3 %
                  5,498,214       5,498,214       5,296,688          
                                             
Dream Finders Homes, LLC   Construction & Building   Preferred Equity (8.00% PIK)         4,531,472       4,531,472       3,928,786       2.6 %
                  4,531,472       4,531,472       3,928,786          
                                     
Footprint Acquisition, LLC   Services: Business   Preferred Equity (8.75% PIK)         3,969,998       3,969,998       3,969,998       2.6 %
        Equity - 150 Common Units                     1,960,830       1.3 %
                  3,969,998       3,969,998       5,930,828          
                                             
Global Accessories Group, LLC(11)   Consumer goods: Non-durable   Equity - 3.8% Membership Interest               151,337             0.0 %
                        151,337                
                                             
Impact Group, LLC   Services: Business   Senior Secured First Lien Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(13)   6/27/2023     3,219,964       3,219,964       2,994,565       2.0 %
        Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(13)   6/27/2023     9,330,056       9,330,056       8,676,952       5.8 %
                  12,550,020       12,550,020       11,671,517        
                                             
InterFlex Acquisition Company, LLC   Containers, Packaging & Glass   Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12)   8/18/2022     12,098,406       12,098,406       11,987,100       8.0 %
                  12,098,406       12,098,406       11,987,100          

 

13

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net Assets(4)
 
Lighting Science Group Corporation   Containers, Packaging & Glass   Warrants - 0.62% of Outstanding Equity(17)   2/19/2024           955,680             0.0 %
                        955,680                
                                             
Manna Pro Products, LLC   Consumer goods: Non-durable   Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12)   12/8/2023     5,343,674       5,343,674       5,123,515       3.4 %
        Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12)   12/8/2023     1,085,219       1,085,219       1,040,508       0.7 %
                  6,428,893       6,428,893       6,164,023          
                                             
Point.360   Services: Business   Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(9) (14)(21)   7/8/2020     2,777,366       2,103,712       186,083       0.1 %
                  2,777,366       2,103,712       186,083          
                                             
RateGain Technologies, Inc.   Hotel, Gaming & Leisure   Unsecured Debt(18)   7/31/2020     704,106       704,106             0.0 %
        Unsecured Debt(18)   7/31/2021     761,905       761,905             0.0 %
                  1,466,011       1,466,011                
                                             
Redwood Services Group, LLC(7)   Services: Business   Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12 )(15)   6/6/2023     700,000       700,000       647,500       0.4 %
                  700,000       700,000       647,500          
                                             
Sendero Drilling Company, LLC   Energy: Oil & Gas   Unsecured Debt (8.00% Cash)(9)   8/31/2021     488,750       465,319             0.0 %
                  488,750       465,319                
                                             
Seotowncenter, Inc.   Services: Business   Equity - 3,434,169.6 Common Units               566,475       686,834       0.5 %
                        566,475       686,834          
                                             
SFP Holding, Inc.   Construction & Building   Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)   9/1/2022     4,776,955       4,776,955       4,733,962       3.1 %
        Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)   9/1/2022     1,852,522       1,852,522       1,835,850       1.2 %
        Equity - 101,165.93 Common Units in CI (Summit) Investment Holdings LLC               1,067,546       657,578       0.4 %
                  6,629,477       7,697,023       7,227,390          

 

14

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net Assets(4)
 
                                     
SMART Financial Operations, LLC   Retail   Equity - 700,000 Class A Preferred Units               700,000       343,000       0.2 %
                        700,000       343,000          
                                             
Stancor, Inc.   Services: Business   Equity - 263,814.43 Class A Units               263,814       150,374       0.1 %
                        263,814       150,374          
                                             
Starfish Holdco, LLC   High Tech Industries   Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12)   8/18/2025     1,000,000       989,935       926,500       0.6 %
                  1,000,000       989,935       926,500        
                                             
URT Acquisition Holdings Corporation   Services: Business   Unsecured Debt (10.00% PIK)   6/23/2021     2,567,929       2,567,929       2,567,929       1.7 %
                  2,567,929       2,567,929       2,567,929          
                                             
Velocity Pooling Vehicle, LLC   Automotive   Senior Secured First Lien Term Loan (LIBOR + 11.00% PIK, 1.00% LIBOR Floor)(13)   4/28/2023     1,014,440       951,628       1,014,440       0.7 %
        Equity - 5,441 Class A Units               302,464       12,841       0.0 %
        Warrants - 0.65% of Outstanding Equity   3/30/2028           361,667       15,354       0.0 %
                  1,014,440       1,615,759       1,042,635          
                                             
Walker Edison Furniture Company LLC   Consumer goods: Durable   Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)   9/26/2024     3,519,878       3,519,878       3,519,878       2.3 %
        Equity - 1,500 Common Units               1,500,000       6,000,000       4.0 %
                  3,519,878       5,019,878       9,519,878          
                                             
Watermill-QMC Midco, Inc.   Automotive   Equity - 1.3% Partnership Interest(8)               518,283             0.0 %
                        518,283                
                                             
Subtotal Non-Controlled/Non-Affiliated Investments   $ 101,082,417     $ 117,360,954     $ 114,321,948          

 

15

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net Assets(4)
 
                                             
Affiliated Investments:(20)                                    
                                             
1888 Industrial Services, LLC(7)   Energy: Oil & Gas   Senior Secured First Lien Term Loan A (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(9)(13)   9/30/2021     9,946,741       9,473,067             0.0 %
        Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(9)(13)   9/30/2021     25,937,520       19,468,870             0.0 %
        Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(9)(13)   9/30/2021     1,231,932       1,191,257       1,166,763       0.8 %
        Revolving Credit Facility (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13)(15)   9/30/2021     3,554,069       3,554,069       3,554,069       2.4 %
        Equity - 17,493.63 Class A Units                           0.0 %
                  40,670,262       33,687,263       4,720,832          
                                             
Access Media Holdings, LLC   Media: Broadcasting & Subscription   Senior Secured First Lien Term Loan (10.00% PIK)(9)(21)   7/22/2020     11,105,630       8,446,385       1,110,563       0.7 %
        Preferred Equity Series A         1,600,000       1,600,000             0.0 %
        Preferred Equity Series AA         800,000       800,000             0.0 %
        Preferred Equity Series AAA         971,200       971,200             0.0 %
        Equity - 16 Common Units                           0.0 %
                  14,476,830       11,817,585       1,110,563          
                                             
Black Angus Steakhouses, LLC   Hotel, Gaming & Leisure   Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12)   12/31/2020     758,929       758,929       758,929       0.5 %
        Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(9)(12)   12/31/2020     8,412,596       7,767,532       5,047,557       3.4 %
                                     
        Equity - 17.9% Membership Interest                           0.0 %
                  9,171,525       8,526,461       5,806,486          
                                             
Caddo Investors Holdings 1 LLC(10)   Forest Products & Paper   Equity - 6.15% Membership Interest(19)               2,528,826       2,990,776       2.0 %
                        2,528,826       2,990,776        

 

16

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net Assets(4)
 
Dynamic Energy Services International LLC   Energy: Oil & Gas   Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK) (9)(14)   12/31/2021     12,930,235       7,824,974       905,116       0.6 %
        Equity - 12,350,000 Class A Units                           0.0 %
                  12,930,235       7,824,974       905,116          
                                             
JFL-NGS Partners, LLC   Construction & Building   Preferred Equity - A-2 Preferred (3.00% PIK)         1,795,034       1,795,034       1,795,034       1.2 %
        Preferred Equity - A-1 Preferred (3.00% PIK)         232,292       232,292       232,292       0.2 %
        Equity - 57,300 Class B Units               57,300       38,780,067       25.7 %
                  2,027,326       2,084,626       40,807,393        
                                             
JFL-WCS Partners, LLC   Environmental Industries   Preferred Equity - Class A Preferred (6.00% PIK)         1,310,649       1,310,649       1,310,649       0.9 %
        Equity - 129,588 Class B Units               129,588       4,535,580       3.0 %
                  1,310,649       1,440,237       5,846,229        
                                             
Kemmerer Operations, LLC(7)   Metals & Mining   Senior Secured First Lien Term Loan (15.00% PIK)   6/21/2023     2,051,705       2,051,705       2,051,705       1.4 %
        Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK)   6/21/2023     515,699       515,699       515,699       0.4 %
        Equity - 6.7797 Common Units               962,717       962,717       0.6 %
                  2,567,404       3,530,121       3,530,121          
                                             
Path Medical, LLC   Healthcare & Pharmaceuticals   Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(12)   10/11/2021     5,905,080       5,905,080       5,905,080       3.9 %
        Senior Secured First Lien Term Loan B (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(9)(12)   10/11/2021     7,783,840       6,599,918       6,794,514       4.5 %
        Warrants - 7.68% of Outstanding Equity   1/9/2027           499,751             0.0 %
                  13,688,920       13,004,749       12,699,594          
                                             
US Multifamily, LLC(10)   Banking, Finance, Insurance & Real Estate   Senior Secured First Lien Term Loan (10.00% Cash)   6/17/2021     5,123,913       5,123,913       5,123,913       3.4 %
        Equity - 33,300 Preferred Units               3,330,000       1,332,000       0.9 %
                  5,123,913       8,453,913       6,455,913          
                                             
Subtotal Affiliated Investments       $ 101,967,064     $ 92,898,755     $ 84,873,023          

 

17

 

 

Company(1)   Industry   Type of Investment   Maturity   Par
Amount(2)
    Cost(3)     Fair
Value(6)
    % of
Net Assets(4)
 
Controlled Investments:(5)                                    
                                             
MCC Senior Loan Strategy JV I LLC(10)   Multisector Holdings   Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC               79,887,500       41,018,500       27.2 %
                        79,887,500       41,018,500          
NVTN LLC(7)   Hotel, Gaming & Leisure   Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(12)   12/31/2024     6,565,875       6,565,875       4,530,078       3.0 %
        Senior Secured First Lien Super Priority DDTL (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(12)   12/31/2024     2,000,000       1,995,374       2,000,000       1.3 %
        Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(9)(12)   12/31/2024     14,963,195       12,305,096             0.0 %
                                     
        Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(9)(12)   12/31/2024     10,014,223       7,570,054             0.0 %
        Equity - 787.4 Class A Units               9,550,922             0.0 %
                  33,543,293       37,987,321       6,530,078          
                                             
Subtotal Control Investments   $ 33,543,293     $ 117,874,821     $ 47,548,578          
                                             
Total Investments, September 30, 2020   $ 236,592,774     $ 328,134,530     $ 246,743,549       163.8 %

 

(1) All of our investments are domiciled in the United States. Certain investments also have international operations.

 

(2) Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.

 

(3) Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for U.S. federal income tax purposes totaled $53,757,923, $134,877,746, and $81,119,823, respectively. The tax cost basis of investments is $327,863,372 as of September 30, 2020.

 

18

 

 

(4) Percentage is based on net assets of $150,619,517 as of September 30, 2020.

 

(5) Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.

 

(6) Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).

 

(7) The investment has an unfunded commitment as of September 30, 2020 (see Note 8),and includes an analysis of the value of any unfunded commitments.

 

(8) Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.

 

(9) The investment was on non-accrual status as of September 30, 2020.

 

(10) The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2020, 25.4% of the Company’s portfolio investments were non-qualifying assets.

 

(11) A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by the Company (see Note 3).

 

(12) The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2020 was 0.15%.

 

(13) The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2020 was 0.23%.

 

(14) The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2020 was 0.24%.

 

(15) This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2020 and is recorded as a component of interest income on the Consolidated Statements of Operations.

 

(16) This investment represents a Level 1 security in the ASC 820 table as of September 30, 2020 (see Note 4).

 

(17) This investment represents a Level 2 security in the ASC 820 table as of September 30, 2020 (see Note 4).

 

(18) Security is non-income producing.

 

(19) As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.

 

(20) Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company.

 

(21) The investment was past due as of September 30, 2020.

 

See accompanying notes to consolidated financial statements.

 

19

 

 

PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements

March 31, 2021

(unaudited)

 

Note 1. Organization

 

PhenixFIN Corporation (f/k/a Medley Capital Corporation) (“PhenixFIN”, the “Company,” “we” and “us”) is a non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and intends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement. MCC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc. (NYSE: MDLY), a publicly traded asset management firm (“MDLY”), which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates herein. Effective January 1, 2021 the Company is managed pursuant to an internalized management structure.

 

On March 26, 2013, our wholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership that we own directly and through our wholly owned subsidiary, Medley SBIC GP, LLC, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended. Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund, LP. In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC. Medley Small Business Fund, LP and Medley Small Business Fund GP, LLC have since changed their names to PhenixFIN Small Business Fund, LP and PhenixFIN Small Business Fund GP, LLC, respectively.

 

The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

 

The Company’s investment objective is to generate current income and capital appreciation. The management team seeks to achieve this objective primarily through making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or REITs.) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective. The portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase total investment returns. Our loan and other debt investments are primarily rated below investment grade or are unrated. Investments in below investment grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due.

 

Reverse Stock Split; Authorized Share Reduction

 

At the Company’s 2020 Annual Meeting of Stockholders held on June 30, 2020 (the “2020 Annual Meeting”), stockholders approved a proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of its common stock, of 1-20 (the “Reverse Stock Split”) and with the Reverse Stock Split to be effective at such time and date, if at all, as determined by the board of directors, but not later than 60 days after stockholder approval thereof and, if and when the reverse stock split is effected, reduce the number of authorized shares of common stock by the approved reverse stock split ratio (the “Authorized Share Reduction”).

 

Following the 2020 Annual Meeting, on July 7, 2020, the board of directors determined that it was in the best interests of the Company and its stockholders to implement the Reverse Stock Split and the Authorized Share Reduction. Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split and the Authorized Share Reduction.

 

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PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

March 31, 2021

(unaudited)

 

Note 1. Organization (continued)

 

Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on July 24, 2020 (the “Effective Time”), each twenty (20) shares of common stock issued and outstanding, immediately prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, were combined and converted into one (1) share of common stock. In connection with the Reverse Stock Split, the Certificate of Amendment provided for a reduction in the number of authorized shares of common stock from 100,000,000 to 5,000,000 shares of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).

 

On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of its shares of common stock to the NASDAQ Global Market. The listing and trading of the common stock on the NYSE ceased at the close of trading on December 31, 2020. Effective January 4, 2021, the common stock trades on the NASDAQ Global Market under the trading symbol “PFX.” 

 

Sale of MCC JV

 

On October 8, 2020, the Company, Great American Life Insurance Company (“GALIC”), MCC Senior Loan Strategy JV I LLC (the “MCC JV”), and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in the MCC JV and all of GALIC’s interest in the MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively, on the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement, including the representations, warranties, covenants and indemnities contained therein. In connection with the closing of the transaction on October 8, 2020, MCC JV repaid in full all outstanding borrowings under, and terminated, its senior secured revolving credit facility, dated as of August 4, 2015, as amended, administered by Deutsche Bank AG, New York Branch.

 

COVID-19 Developments 

 

The global outbreak of the COVID-19 pandemic continues to have adverse consequences on the U.S. and global economies, as well as on the Company (including certain portfolio companies) in particular. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. The Company’s performance (including that of certain of its portfolio companies) was negatively impacted during the pandemic. The longer-term impact of COVID-19 on the operations and the performance of the Company (including certain portfolio companies) is difficult to predict, but may continue to be adverse. The longer-term potential impact on such operations and performance could depend to a large extent on future developments and actions taken by authorities and other entities to contain COVID-19 and its economic impact. The impacts, as well as the uncertainty over impacts to come, of COVID-19 have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future.

 

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PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

March 31, 2021

(unaudited)

 

Note 2. Significant Accounting Policies 

 

Basis of Presentation

 

The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the consolidated accounts of the Company and its wholly owned subsidiaries PhenixFIN Small Business Fund, LP (f/k/a Medley Small Business Fund, LP) (“PhenixFIN Small Business Fund”) and PhenixFIN SLF Funding I LLC (f/k/a Medley SLF Funding I LLC) (“PhenixFIN SLF”), and its wholly owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include PhenixFIN Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial results as of and for the periods presented. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended September 30, 2020. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2021.

 

Use of Estimates in the Preparation of Financial Statements

 

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

 

Cash and Cash Equivalents  

 

The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.

 

Debt Issuance Costs

 

Debt issuance costs incurred in connection with any credit facilities and unsecured notes (see Note 5) are deferred and amortized over the life of the respective credit facility or instrument.

 

Indemnification

 

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

 

Revenue Recognition

 

Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Dividend income, which represents dividends from equity investments and distributions from Taxable Subsidiaries, is recorded on the ex-dividend date and when the distribution is received, respectively.

 

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three and six months ended March 31, 2021, the Company earned approximately $0 and $0.2 million in PIK interest, respectively. For the three and six months ended March 31, 2020, the Company earned approximately $0.8 million and $2.5 million in PIK interest, respectively.

 

Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. For the three and six months ended March 31, 2021, fee income was approximately $0.2 million and $0.6 million, respectively (see Note 9). For the three and six months ended March 31, 2020, fee income was approximately $0.1 million and $0.4 million, respectively (see Note 9).

 

Investment transactions are accounted for on a trade date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. There were no realized gains or losses related to non-cash restructuring transactions during the three and six months ended March 31, 2021 and 2020. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations.

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PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

March 31, 2021

(unaudited)

 

Note 2. Significant Accounting Policies (continued)

 

Revenue Recognition (continued)

 

Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Interest receivable is analyzed regularly and may be reserved against when deemed uncollectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At March 31, 2021, certain investments in ten portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $16.7 million, or 9.9% of the fair value of our portfolio. At September 30, 2020, certain investments in eight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $21.7 million, or 8.8% of the fair value of our portfolio.

 

Investment Classification

 

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.”

 

Valuation of Investments

 

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotations, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third-party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

 

Investments in investment funds are valued at fair value. Fair values are generally determined utilizing the NAV supplied by, or on behalf of, management of each investment fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share. NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of their financial statements and offering memorandum. If the Company is in the process of the sale of an investment fund, fair value will be determined by actual or estimated sale proceeds.

 

The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories:

 

The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business.

 

The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.

 

The Company has engaged third-party valuation firms (the “Valuation Firms”) to assist it and its board of directors in the valuation of its portfolio investments. The valuation reports generated by the Valuation Firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis, which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value.

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PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

March 31, 2021

(unaudited)

 

Note 2. Significant Accounting Policies (continued)

 

Valuation of Investments (continued)

 

The methodologies and information that the Company utilizes when applying the Market Approach for performing investments include, among other things:

 

  valuations of comparable public companies (“Guideline Comparable Approach”);

 

  recent sales of private and public comparable companies (“Guideline Comparable Approach”);

 

  recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-Length Transaction”);

 

  external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”);

 

  subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and

 

  estimating the value to potential buyers.

 

The methodologies and information that the Company utilizes when applying the Income Approach for performing investments include:

 

  discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and

 

  Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants.

 

For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds).

 

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

 

  our quarterly valuation process begins with each portfolio investment being initially valued by one or more Valuation Firms;

 

  preliminary valuation conclusions will then be documented and discussed with senior management;

 

  the audit committee of the board of directors reviews the preliminary valuations with management and the Valuation Firms; and

 

  the board of directors discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of management, the respective Valuation Firms and the audit committee.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the market environment (including the impact of COVID-19 on financial markets), portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned.

 

Fair Value of Financial Instruments

 

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5.

 

Recently Adopted Accounting Pronouncements  

 

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.” The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and also with certain lenders. Many of these agreements include language for choosing an alternative successor rate if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as of March 12, 2020 through December 31, 2022 and the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The Company does not believe that it will have a material impact on its consolidated financial statements and disclosures.

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PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

March 31, 2021

(unaudited)

 

Note 2. Significant Accounting Policies (continued) 

 

Recently Adopted Accounting Pronouncements (continued)

 

In May 2020, the SEC adopted rule amendments that impacted the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules became effective January 1, 2021. The Company evaluated the impact of the Final Rules and determined its impact not to be material and began voluntary compliance with the Final Rules since the quarter ended June 30, 2020.

 

Federal Income Taxes

 

The Company has elected, and intends to qualify annually, to be treated as a RIC under Subchapter M of the Code. In order to continue to qualify as a RIC and be eligible for tax treatment under Subchapter M of the Code, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”), as defined by the Code, including PIK interest, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

 

The Company is subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. There was no provision for federal excise tax at March 31, 2021 and March 31, 2020.

 

The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of March 31, 2021 and September 30, 2020, the Company did not record a deferred tax liability on the Consolidated Statements of Assets and Liabilities. The change in provision for deferred taxes is included as a component of net realized and unrealized gain/(loss) on investments in the Consolidated Statements of Operations. For the three and six months ended March 31, 2021 the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments. By comparison, for the three and six months ended March 31, 2020, the Company recorded a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments of $0.1 million for each respective period.  

 

As of March 31, 2021 and September 30, 2020, the Company had a deferred tax asset of $21.0 million and $22.8 million, respectively, consisting primarily of net operating losses and net unrealized losses on the investments held within its Taxable Subsidiaries. As of March 31, 2021 and September 30, 2020, the Company has booked a valuation allowance of $21.0  million and $22.8 million, respectively, against its deferred tax asset. 

 

ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

 

The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations. There were no material uncertain income tax positions at March 31, 2021.  Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service and applicable state tax authorities.

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PHENIXFIN CORPORATION

Notes to Consolidated Financial Statements (continued)

March 31, 2021

(unaudited)

 

Note 2. Significant Accounting Policies (continued)

 

Retroactive Adjustments for Reverse Stock Split and the Authorized Share Reduction

 

The per share amount of the common stock and the authorized shares of common stock in the unaudited financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split effected on July 24, 2020. See Note 1 for more information regarding the Reverse Stock Split and the Authorized Share Reduction.

 

Segments

 

The Company invests in various industries.